BoJ Keeps Monetary Policy Unchanged

• BoJ keeps monetary policy unchanged.
• Rising concerns about Greece leaving the euro once again weigh on sentiment as former Greek President Papademos said that “Greece is considering preparations to leave the euro”.
• Germany to launch 2-year bond today with zero coupon.

Market Movers

European equities rallied the most in a month, up approximately 2%, boosted by hopes that the EU today will announce new growth measures and that China will speed up infrastructure projects and in general boost the economy. The positive sentiment was initially carried over to the US fuelled by stronger-than-expected new home sales but in the last hour gains were erased and the market ended the day flat. Sentiment turned sour as former Greek President Papademos said that “Greece is considering preparations to leave the euro," and warned that if Greece defaults and exits the euro, “the consequences for the financial system and the real economy will be profound and far-reaching.” Adding to the worsening sentiment was yet another dreadful day for Facebook. The stock dropped 8.9% on its third day and is now down 19% since going public.

Bank of Japan this morning said that  it will not add further monetary stimuli after it stepped up its asset purchase programme last month. Even though the announcement was expected it has pushed USD/JPY down to 79.53 after the cross has been trading above 80 ahead of the announcement. If the current turmoil continues it is quite likely that BoJ will
add further stimuli in July when new inflation forecasts are expected to show little progress in fighting inflation. Yesterday OECD warned that Japanese debt is heading into uncharted territory and Fitch cut Japan's foreign currency level by two notches to A+.

Otherwise the news flow has been dominated by comments and speculations ahead of today's EU summit. One of the key issues is whether the eurozone should introduce eurobonds as proposed by newly elected French President Hollande but once again German Chancellor Merkel has clearly been dismissing the calls and there are few signs that she is softening her stance. In our view it is quite likely that the meeting will turn out to be a disappointment and it will underline that there is no easy way out. No major landmark decisions are expected to be taken.

The concerns about the euro debt crisis continue to weigh on the euro and EUR/USD has been trading below 1.2650 - the lowest level since 13 January. We expect the downward pressure on the euro to continue ahead of the 17 June election in Greece. The negative sentiment also weighed on Asian stocks and Nikkei is down 1.4% this morning. Equity futures point to a negative European opening. In the fixed income market US Treasurys reversed losses as sentiment turned sour and we should expect the Bund future to open higher this morning.

Global Daily

News from the informal EU meeting held today will be the  centre of attention. The meeting is likely to add some colour to the growth measures discussed but any concrete decisions have to wait until the 28 June regular EU summit. Otherwise, the calendar is dominated by UK and US data releases. Minutes from the Bank of England meeting and UK retail sales are due today. Later in the day the scheduled round of US data is likely to add to the string of positive releases on the housing market. The FHFA measure of home prices is likely to show a moderate increase in March and new home sales are expected to post a rebound in April.

Homes Sales & Futures

Govt Yield, FX Charts

Scandi Daily

No key data releases today

Sweden: April labour market data may have some impact on the market. Last month the unemployment rate turned out considerably lower than expected at 7.7% nsa. The surprising decline was at odds with the usual seasonal pattern. Hence, there may be a slight upside risk to the April outcome, which is projected by the market to rise to 7.8%. Should, however, unemployment turn out lower than expected again, it appears as if the underlying fundamentals reveal a stronger trend than we have been anticipating. As the market is pricing a quite high probability (70%) of a rate cut in July, a low outcome may put upward pressure on money market rates, which have dropped on the back of European debt turmoil. Riksbank's Deputy Governor Wickman-Parak will hold a presentation on the economic outlook and monetary policy at 16:30 CET. We doubt  it will contain any news.

Key Figures & Events

Today's Market

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