While today's calendar is very thin, the rest of the week is full of important releases and central bank meetings. Today, the only important data release will be the German IFO, which will give further indications of the outlook facing the Eurozone economy in light of 'Brexit'. So far, financial surveys in the likes of Sentix and ZEW have revealed noteworthy declines but Friday's PMIs suggest that the Eurozone economy is more resilient. Overall, we expect a drop in IFO expectations today to mirror the more modest PMI decline. Irrespective, we still think it is too early to conclude that Eurozone companies are immune to the financial uncertainty stemming from the UK's EU referendum - especially given the very poor UK PMIs and the risk that the UK weakness could spread to the rest of the EU (see Selected Market News below).
Of key events this week, we have the FOMC meeting on Wednesday and not least the Bank of Japan (BoJ) meeting on Friday. In terms of the former, it will be a 'short meeting' in the sense that we will not get any revised projections. We expect the FOMC to deliver a 'wait-and-see' message and to express that more time is needed for evaluating the full economic effects of 'Brexit'. Having said this, US economic data has surprised strongly on the upside recently (economic surprise index at a multi-year high) and with equity markets holding up well, risks are skewed towards a slightly hawkish message and some USD strength.
Expectations on the BoJ announcing more easing this week are sky high with 32 out of 41 analysts calling for more easing, according to a Bloomberg survey. This is the highest share in more than the three years that Kuroda has been governor. We also expect the BoJ to react to sluggish growth, low inflation and the strong JPY appreciation seen this year by cutting rates by 20bp to -0.30% and to fine-tune its qualitative asset purchases towards riskier assets. A fiscal stimulus package is likely to supplement monetary easing in the coming weeks, in our view, although Kuroda has ruled out 'helicopter money' repeatedly in the aggressive form where the BoJ directly underwrites government bonds.
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