European futures are pointing marginally to the downside on Thursday, as investors weigh up the recent raft of economic data as well as moves in bond markets that have really hit sentiment this week.
The bond market moves are making investors quite anxious. I think everyone expected yields to rise once we started to see a bounce in oil prices as, naturally, this would change people’s inflation outlook. The pace at which they’ve risen has been quite surprising, which is probably a consequence of a lack of liquidity in the market at the moment. A small change in attitude can have a much greater impact.
While we may still continue to see yields creep higher, I would say much of the aggressive moves are done for now and we may even see bond markets correct a little. Oil prices are at the upper end of most people’s anticipated trading range for the coming months and we may even see Brent and WTI pare some of these gains. Moreover, the ECB is still buying €60 billion of eurozone bonds every month and that must create some downward pressure on yields.
A lack of liquidity in most European markets today may cause similar bouts of volatility with many markets being closed for trading. Some markets will remain open for trading today, despite the bank holiday, including Germany, France and Italy, but I would still expect trading volumes to be significantly lower.
With no economic data being released in Europe today as a result of the bank holiday’s, attention is likely to shift back to Greece and its efforts to agree on a package of reforms with its creditors in order to receive the €7.2 billion bailout that was agreed in February.
While progress is apparently being made, albeit at a glacial pace, the two sides are apparently still some way from agreeing on certain reforms, most notably in relation to the labour market and pensions. Eventually, at least one side will have to make concessions and in the absence of a miracle, you have to assume the bulk of those will have to come from Greece.
The country is already suffering as a result of these negotiations dragging on. The country fell back into recession in the first quarter, as the economy suffers a big setback as a result of the growing uncertainty about whether Greece will remain in the eurozone. It has also led the European Commission to revise down its growth forecasts for this year from 2.5% to 0.5%, which would be a massive blow to the country.
The FTSE is expected to open 13 points lower, the CAC 40 unchanged and the DAX 10 points lower.