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Crunch time beckons for investors. Or does it?
In the course of 24 hours, two highly anticipated events will unfold: the meeting of the European Central Bank on Thursday, followed by the release of US employment data for May on Friday.
Investors expect additional stimulus from the ECB, most likely in the form of negative deposit rates and some kind of support for credit markets.
Once the ECB delivers, attention will then focus on whether the US jobs data provide further evidence of a rebound in the economy after a negative first quarter.
For traders bemoaning the lack of volatility across asset classes, these two announcements offer little scope for fireworks, once the initial headlines are digested.
True to form, currency, bond and equity markets have already sought to reflect the prospect of some ECB action and another 200,000-plus monthly gain in US jobs.
As it stands, the euro has slipped 4 cents against the dollar from its peak near $1.40 in early May. Eurozone stocks have staged a sharp rebound since they bottomed in April. Benchmark German Bund yields and US Treasury yields have been rising of late, while peripheral eurozone bond yields have eased back in the wake of their brief sell off in mid-May – when reality dawned that the ECB was not ready to undertake QE.
These moves mean it would take a real shock to provoke a bigger market reaction over the next two days. This could come in the form of an ECB credit easing policy that exceeds expectations, or in some very accommodative words from Mario Draghi during his press conference, that lay the ground for aggressive policy action in the coming months.
But, in the absence of these, and an “outlier” of a US jobs report, the stage is set for markets to maintain their grinding price action – ensuring a backdrop of low volatility continues into the summer months.
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