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Bedsides the continued developments in Italy, the most important event for global financial markets this week will be the FOMC meeting minutes  (Wednesday), according to analysts at Nordea Markets.

Key Quotes

“A meeting that proved to be more interesting than the usual transitional meeting (those without press conference and updated forecasts).”

“The FOMC stressed that the inflation target is symmetric and indicated some tolerance towards inflation overshooting the target. One could view this as timely and prudent risk management by the FOMC. By indicating a tolerance towards inflation above target, they dampened the likelihood of an “inflation tantrum” in the pricing of the front of the curve.”

“With slightly more than two further hikes (the FOMC median voter expects three in total) priced in already for 2018, it is hard to see more being priced in now, unless this overshooting-tolerance is less obvious after the FOMC minutes. It also means that we don’t expect US yields to rise much further for now. If the inflation symmetry is downplayed in the minutes (not our base case), then markets could catch up to our view that the FOMC will eventually hike three more times (four in total) in 2018.”

“Outside the US, Euro area/German PMI/IFO figures (Wed/Fri) will attract most attention. Our short-term models on PMIs/IFO actually indicate that a slightly less turbulent April in markets will show up in a steadier figure than otherwise indicated by recent months’ negative trend. So even though both PMIs and IFO may drop further next week, the falling trend could prove less material (Potential Euro-area surprise index positive news down the line).”

“Also the UK CPI  (Wednesday)  will be scrutinised by markets after the BoE opted against hiking rates in May due to falling inflation pressures. The April inflation report will show substantial negative base effects from FX  and we therefore see the biggest risks for another (potentially substantial) downside surprise on inflation for the Bank of England.”