Data
watchers had better cancel any planned holidays: the words of central bankers
have driven markets of late, but now economic numbers will take the lead. The
publication of the Federal Open Market Committee (FOMC) minutes and recent statements of several
Federal Reserve officials have made it clear that in the run-up to the June
meeting data will be more important than ever: if they are strong enough they
would quite likely trigger a rate hike.
Investors face a double challenge:
anticipating how the numbers will look and where the threshold for the Fed
lies. The latter is especially tricky. What is clear is that volatility will be
high. Positive surprises in the US should have a negative impact on equities,
bonds, commodities, emerging markets but, to the extent that they weaken the
euro, would be welcomed by the ECB. This is a reminder that the euro is as much
driven by what the ECB does or says as by what happens in the US. With ECB
policy on hold, one can argue that the EURUSD rate is currently far more
dependent on the Fed than on decisions made in Frankfurt. Europe needs faster
growth in the US, both from a perspective of international trade and because of
the impact on the exchange rate.