Bank meetings dominate this week

It will be a busy week on the economic front with the Federal Reserve finishing its rate setting meeting on Wednesday, the Bank of England in session on Thursday and the Eurozone’s flash PMIs being released Friday. The FTSE has started the week on a positive note, taking its cue from Asia’s close and the higher close on Wall Street Friday as optimism over the Sino-US trade talks infused the market with new vigour.

The Fed has already promised to go slow with rate increases this year to accommodate the changing winds in the US economy but since its last session economic data being released in the US has become a notch worse. Over the coming months the economy wills see some push and pull with the labour market becoming weaker but at the same time housing and consumer spending likely to pick up as mortgages and loans become cheaper. 

The currency market seems to be increasingly accepting a scenario in which the US economy slows down even further to the point that the Fed is forced to cut rates later this year and futures contracts on dollar interest rates are indicating a 40% likelihood of a Fed rate cut later this year. 

The dollar itself has dropped to a two year low against the euro but is holding up against the pound and the yen.  

Brexit vote and the BoE keep sterling on its toes

At home, another Brexit vote this week likely to be held on Tuesday is nudging sterling into negative territory. The currency’s decline against the dollar is still fairly small and the pound is holding above $1.3255 indicating that investors are far less worried about the outcome of Brexit – at least the no deal option - than they were a few weeks ago. 

Although Parliamentarians have voted against a hard Brexit this still has to be approved unanimously by all 27 EU member states, which is still not a given.

Eurozone data could weigh on euro

The flash Eurozone PMI data due Friday has the potential to disrupt the euro and major stock European exchanges later this week, particularly given that recent German economic data is showing the first signs of economic shrinkage. 

The German stock market is dominated for the moment by the planned Deutsche Bank merger with Commerzbank, with all eyes on the country’s unions, which are fiercely opposed to the move. With the Germany’s manufacturing sector hitting the rocks because of China’s economic woes, problems with the services sector would be bad news for Europe’s biggest economy.