Photo: AP/Riccardo De Luca
The markets were incredibly quiet yesterday, and are today.In its morning note, Nomura basically suggests we’re in a big holding pattern, waiting to see if the ECB does something on Thursday.
More broadly, markets are caught between two things: Watching economic data slowly deteriorate, while waiting for the next big policy response:
Markets shrugged off the weak ISM release and Finland’s and the Netherlands’ opposition to deploying bailout funds to lower borrowing costs for countries such as Italy and Spain yesterday. Instead, they have continued to trade resiliently in the Asian/European session. Equities are in the green, while peripheral bond yields are mixed. Most commodities and high-beta FX are holding up well too. The resilient sentiment is likely partly due to policy expectations. That is, the negative news of weak economic data is to some extent offset by increased expectations of powerful policy responses such as QE. However, our strategists on both sides of the Atlantic believe the situation needs to get worse before policymakers are forced into more bolder action. Markets are now looking ahead to the ECB meeting on Thursday, with little high-tier data and the US Independence Day holiday coming up before that.