Good morning,

This week is set up for an interesting run of data releases that will start the month of June with a bang.

ECB need more inflation

Thursday’s ECB meeting is naturally overshadowed in June by other matters but important as far as the economic projections go. Given the recent trend of weak growth so far being unable to create inflation and the Bank’s insistence that time is needed for these measures to work, we see no need for the ECB to change policy on Thursday although we can expect negative revisions to the inflation outlook. It is all about core inflation in Europe at the moment and as much as a higher oil price is developing headline inflation pressures, a reaction in the core from stronger goods and services is what is needed for the ECB to become in any way comfortable with what is taking place.

Pay for a higher dollar

EURUSD is paying little attention to Europe at the moment and is trading more as a barometer of the June Fed meeting. As a result, it is Friday’s payrolls announcement that’s truly the most important release of the week.

We believe that the payrolls will have been taken lower by labour action at Verizon so a print of 140-150k shouldn’t be seen as poor. Wage pressures remain the silver bullet for every Western economy and a pick up here will see the dollar fly. Last week’s numbers productivity numbers suggested that at a 30yr low, they will be an issue for the Fed in the longer term if corporate spending on R&D does not increase.

Action from Tokyo needed soon

The yen remains in focus and the currency that has ruined a lot of trading years gets a second chance. Although the post G7 communique wasn’t as strong as the Japanese would have liked, they are going to give things an almighty nudge soon. If they don’t, USDJPY breaks 100 and nobody is going to be happy with that. Elections to come this month and hopefully, through a fiscal stimulus plan, a more balanced Abenomics plan with it. Overnight we have seen Japanese authorities talking about postponing their local VAT increase until 2019 and that has done little to the yen. The markets want and need more.

Leave surging in latest polling

Over the weekend the Referendum has gotten more and more nasty. We always expected the polls to tighten up as the Leave campaign hammer the immigration message. It is clear that they have lost on the economy but immigration remains the no.1 vote motivator for a lot of people and 4 weeks of a message on immigration will do little to change that. I am sure that Remain will win but nobody said it would be easy and a surge in Leave polling opens up interesting questions for what may happen following a slim win for the Remain camp.

Have a great day.

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