US Open – Plenty of Market Catalysts Seen Today

U.S. futures are lacking any real direction ahead of the open on Wednesday, potentially taking a lead from Europe where indices are currently trading very mixed.

We are now entering the business end of the week. Economic data is coming thick and fast, the European Central Bank is holding a press conference following its latest policy decision and all the time we’re getting updates, both accurate and false, on developments between Greece and its creditors. As it stands, a deal between the two looks very unlikely this week as both have submitted proposals to each other but it is believed they remain far apart on key issues of pension and labour market reform.

We’re constantly getting comments from officials involved in the talks but the message we’re getting is very mixed. Most comments are being shrugged off now, especially those that come from an unnamed official in the Greek camp claiming a deal is close that is inevitably followed by a senior official from the European Union, ECB or International Monetary Fund that distances them from such claims. Rumours are unlikely to cut it anymore unless they come from a very credible source. It still remains to be seen what will come of this Friday’s €300 million repayment due to the IMF, although if no agreement is made I image it will be pushed back to the end of June when Greece’s bailout package expires.

The ECB is unlikely to announce any change to interest rates or its quantitative easing package when it makes its monetary policy announcement today. The press conference following it though will be very interesting and I would expect the markets will be on edge throughout. Two key topics are likely to dominate this press conference, the return to positive inflation last month and Greece.

ECB President Mario Draghi may be unwilling to directly discuss the Greek talks but people will be very keen to discuss the central banks emergency liquidity assistance facility and whether it will continue to be offered to Greece. As it stands, deadlines are repeatedly being pushed back with Greek negotiations and the ECB could hold the key to forcing through a deal. Increasing the haircut on Greek debt it accepts from its banks would pile the pressure on Greek negotiators as it could prompt further withdrawals at the countries banks. If Greece is cut off from the ELAs altogether, capital controls would need to be enforced and Greek leaders would be forced to make a decision and fast. Even a hint that the ECB is considering this could cause widespread concern in the markets.

Eurozone inflation is likely to be the other topic discussed as people will want to know whether this impacts the policy makers intention to implement the quantitative easing (QE) package in full, i.e. until September 2016. With core inflation rising to 0.9%, there is a chance that some policy makers that were unconvinced about the QE program may start demanding its early termination. Should this happen, we can again expect to see some serious moves in currency, bond and equity markets. Such a suggestions should typically prompt a spike in the euro and eurozone bond yields while equity markets could crumble under the pressure of less liquidity.

The big event this week for the U.S. is Friday’s jobs report which provides an update on job creation, unemployment, labour market participation and average earnings in May. This is widely seen as the most important economic release of the month given the impact these metrics have on Fed policy, given its dual mandate of full employment and price stability. While the ADP non-farm employment change is generally seen as a poor estimate of the non-farm payrolls figure, people still track it closely for signs of a positive or negative surprise come Friday. We’ll also get trade balance figures from the US today as well as the ISM non-manufacturing PMI for May.

The S&P is expected to open 2 points higher, the Dow 25 points higher and the Nasdaq 3 points higher.

For a look at all of today’s economic events, check out our economic calendar.

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