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EU stocks and bond yields dip ahead of big macro events

Fawad Razaqzada Fawad Razaqzada 09/06/2021
EU stocks and bond yields dip ahead of big macro events EU stocks and bond yields dip ahead of big macro events
EU stocks and bond yields dip ahead of big macro events Fawad Razaqzada
  • European stocks dip on profit-taking
  • Another quiet session in FX thus far
  • BOC main event in the afternoon
  • US CPI and ECB to follow on Thursday
The first three days of this week has been very similar, with range-bound price action dominating the agenda as investors await key macro events later in the week. Once again, European stocks indices have started the day lower with the US dollar being a little weaker along with bond yields. The likes of the GBP/USD and EUR/USD edged higher, with the former also supported by comments from BoE’s outgoing Chief Economist and hawk Haldane, who said the UK central bank needs to start turning off the stimulus tap. Keeping the stimulus tap wide open will undoubtedly be the European Central Bank on Thursday as Europe still struggles to come out of lockdowns.
 
Despite this morning’s weakness for European stocks, I still feel that sentiment towards stocks and other risk assets remains positive, and so today’s weakness could just be a normal retracement than a trend reversal. The fact that the dollar and bond yields have weakened after Friday’s publication of a weak US jobs report, this is a strong indication that concerns about inflation and tapering have been put on the back burner. Still, it feels like there is something missing – a spark – to get things moving again. Investors are awaiting bigger events later in the week.  Hopefully, we should see some more lively action now that we are moving I the second half of the week, with some key events coming up in the next couple of days:
 
  • The Bank of Canada’s policy decision is due at 15:00 BST today with the press conference to follow half an hour later.  No change in rates or asset purchases are expected after the BoC reduced their asset purchases in the previous meeting. The central bank’s future adjustments are going to be data-dependant. Over the past couple of months, employment from Canada disappointed expectations amid the return to some lockdown measures. Job postings still remain robust. With that in mind, the BOC is unlikely to reduce QE at this meeting, but may do so in July. However, if the BOC surprises with a hawkish-sounding policy statement or press conference, then the USD/CAD may finally drop to that 1.20 key handle after rates have spent the last 4 weeks in a tight range just above this level.
 
  • On Thursday, the European Central Bank is likely to quell any calls for early tapering of its bond purchases programme, and this could see European indices extend their gains.  In so far as the euro is concerned, well paradoxically it has been reacting positively to dovish ECB decisions as the market has treated the single currency as a risk asset ever since March last year, along with nearly all other foreign currencies excluding the dollar. So, I wouldn’t be surprised if the EUR/USD were to go higher despite a dovish ECB meeting.
 
  • Also on Thursday, all eyes will be on US CPI inflation. CPI is expected to have climbed to 4.7% year-over-year in May, up from 4.2% previously, while core CPI is seen rising to 3.4% from 3.0% in April. On a month-over-month basis, CPI is seen rising 0.4% and core CPI is expected to print +0.5%. Unless inflation comes in well ahead of expectations, the Fed’s stance will not change materially, meaning equities could simply continue drifting higher until the FOMC meeting next week. But if we see a big reading, then inflation concerns could come back to haunt investors as this could raise speculation that price pressures are not going to be transitory. So, a lot depends on the outcome of the inflation report.
Ahead of the above macro events, US bond yields are continuing to fall, suggesting investors are less concerned about imminent policy tightening from the Fed, and if CPI comes in weaker on Thursday we could see more weakness for yields.

bond yields
Source: ThinkMarkets and TradingView.com
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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