Markets are roughly unchanged this morning from where they ended Friday. The most interesting event during the weekend seems to have been the soccer World Cup final. Friday was a good day for peripheral bonds. Portuguese bonds that saw yields coming off previous day’s highs, while Italy sold 7.5 bn in 3Y, 7Y and 15Y bonds helped by calmer Euro-area bond markets compared with Thursday. Bundesbank’s Weidmann was quoted on Saturday for saying that the ECB should raise rates as soon as possible and that the current level on interest rates is too low for Germany, and both ECB’s Coeure and Eurogroup Chairman Dijsselbloem continues to call for banks to lend more to get the Euro area out of the crisis.
Post-World Cup Monday calendar
Today’s calendar fits perfectly for a post-World Cup Monday – not much going on. Industrial production is expected to have shown a significant contraction in May, but as long as we have PMIs clearly above 50, I would not worry much about that. Moreover, ECB’s Draghi will speak before the Committee on Economic and Monetary Affairs of the European Parliament. We doubt that the ECB President has much new to add.
Focus on the Fed this week
This week’s Week Ahead includes a number of interesting events. Most importantly, Fed’s Yellen will present the bi-annual Monetary Policy Report to Congress – Tuesday in the Senate and Wednesday in the House. We do not expect major changes in the signals compared to the June FOMC meeting statement and minutes, but given that there is a Q&A session both days, we could get more insights into the exit strategy, if the right questions are asked. With yields at the current levels, we see the risks clearly skewed towards markets being caught by hawkish surprises. Elsewhere in the world, Chinese GDP (Wednesday), UK inflation (Tuesday) and Bank of Japan meeting (Tuesday) should be watched.
On the auctions front, last week was very busy in terms of government bond supply. Even though the number of auctions will be much smaller this week, there will still be plenty in store. Germany will re-open its 10-year benchmark for EUR 4bn on Wednesday, while Spain and France will auction bonds on Thursday. France will re-open 2-, 4- and 5-year nominal bonds for a combined EUR 7.5 to 8.5bn, while it will also offer three inflation-linkers for EUR 1 to 1.5bn.
Nordea