The main market movers of last week were the European Central Bank meeting and the elections in the United Kingdom.
The meeting of June of the Governing Council of the ECB was held in Tallinn, Estonia and as expected by the market, the interest rates remained unchanged.
As stated in the two-day report, the ECB left rates unchanged at the following levels: main refinancing rate 0,00%, deposit rate -0,40%, marginal refinancing rate 0,25% and the monthly amount of securities of Quantitative Easing is also stable at 60 billion euros per month.
On the same day of the meeting, were announced also the Eurozone’s GDP. In the first quarter of 2017, it had a growth of 1,9% yoy and a quarterly variation of 0,6%, a sign that the macroeconomic indicators of the countries of the Euro in 2017 are recovering.
Moving towards the United Kingdom, the surprise elections launched by Prime Minister Teresa May have not had the desired results.
Teresa May failed to achieve the absolute majority and the Liberal Democrats do not want to coalesce with anyone so the premier has to count only on the support of the Union Democratic Party, a right-wing Northern Ireland political force that has got 10 seats.
Although numerically thePrime Minister may count on a majority of the government, however, this seems too small and weak to deal with Brexit’s delicate process.
Also next week (June the 12nd to 16th), the protagonists of the markets will be the meetings of the world’s major central banks.
Interest rate decisions will affect the Federal Reserve (United States), Bank of England (UK), Bank of Japan (Japan) and Swiss National Bank (Switzerland).
The appointments will begin in mid-week (Wednesday) with the Federal Reserve, it will continue on Thursday with Bank of England and the Swiss National Bank and will end on Friday with the Bank of Japan.
Most of the market participants expects a quarter-point rise in the Federal Reserve’s June meeting, bringing them to a range between 1,0% and 1,25%.
President Fed’s regular press conference, Janet Yellen, will follow and investors will pay attention to any change in rhetoric about the economy or future rate rises.
Subsequently, the US central bank will publish the so-called ‘dot plot’, a chart with its latest economic growth forecasts and interest rates.
As for the Bank of England, the analysts do not expect any change in its monetary policy at the June meeting.
The tone should be cautious in the wake of last week’s parliamentary elections, when no conservative candidate succeeded in obtaining the majority, fueling a sense of chaos a few days before the beginning of the talks with the European Union on Brexit.
The Bank of England has stated before the election that monetary policy will be cautious in the coming months to assess the extent of a possible slowdown in consumer spending while it expects to see how negotiations on the exit from the European Union will be.
Also the Bank of Japan should keep its monetary policy unchanged, given the slow growth in the economy and the weakness of inflation and consumer spending.
We remember that Bank of Japan’s rate is in negative territory to less than 0,1%, with a 10-year yield target of around 0% and the net amount for the purchase of Japanese government bonds to around 80 trillion yen.