Early update today:
There may be a good chance the ECB surprises dovishly this week. The weak CPI prints in Germany may have removed the Bundesbankers’ objections. And given that if this ease doesn’t work, the next step would be a controversial QE program that will be politically divisive – it will be in the interest of all parties to try to make this ease the last one of this cycle. Right now, the ECB is expected to at least cut the refi and deposit rate 10-15bp (that would bring the deposit rate into negative territory). The suspension of SMP sterilizations, an extension of the regular allotment refi tenders from mid-’15 to mid-’16, and fresh (targeted) LTROs are possible too (the LTROs, if introduced, will prob. be “conditional” and modeled after the BOE’s FLS; media reports suggest it could be worth EU40B). They may well do all of these, as well as hint at an asset purchase program.
Separately, note that the JPM US Treasury all clients survey shows the most net shorts since May 1, 2006, from -18 to -29.
Note, however, that the last time the survey index was at these levels [calculated as (Longs + Neutral) / (Shorts + Neutral)] was in May, and bonds sold off aggressively thereafter. Of course, that was following that super hawkish Bernanke speech.
Anyway, the point is, the survey data may not mean what people expect. In addition, the CFTC data is suggesting a very different picture. The net speculator DV01 is now long, and at the highest level since 2Q last year: (h/t PPG)
How’s that for ambiguous? Anyway, in the face of this conflicting data, I’m sticking to my views, unless the data (which continues to be OK) or price action warrants a change. 2s30s look like it’s consolidating before flattening further:
With respect to price action, note that USDZAR has been rallying aggressively the past few days, while gold has been unable to stage any sort of bounce.
- RBA did not surprise
- Non-manufacturing PMI in China increased to 55.5 for May from 54.8. The HSBC manufacturing PMI printed 49.4, below expectations of 49.7.
- EU CPI declined to 0.5% vs 0.6% exp. Core CPI printed 0.7% vs 0.8% exp.
- EU Unemployment declined to 11.7% vs 11.8% exp and prev
- Turkey CPI rose to 9.7% YoY vs 9.9% exp and 9.4% prev
- Tue: Australia GDP,
- Wed: EU Services PMI, US ADP Employment, BoC, US ISM Non-Mfg, Australia Trade Balance, HSBC Services PMI
- Thu: BoE, ECB, CanadaBuilding Permits, US Jobless Claims,
- Fri: German Current Account, UK Trade Balance, US Employment Canada Employment
- Weekend: China Trade Balance, Japan BoP, Eco Watchers Survey,
- Mon: UK Lloyds Employment Confidence, CA Housing Starts, China CPI, AU Business Confidence, Home Loans, NZ House Prices, Sales, PMI, China Money Supply
- Tue: US NFIB Survey,