Ongoing Greek saga may dominate ECB meeting

This week's European Central Bank (ECB) meeting (3 June) would ordinarily be the focus for bond markets, especially given the recent inflation uptick. But developments in the negotiations with Greece could dwarf anything ECB President Draghi says. 

The Q2-2015 oil-price pick-up is driving headline euro-area inflation higher sooner than the consensus had expected, and ECB staff forecasts will be scrutinised for any upward revisions to 2016 and 2017 CPI forecasts (from 1.5% and 1.8%), notes Standard Chartered. No changes is expected on these, or on the GDP growth outlook (1.5% in 2015, rising to 1.9% in 2016 and 2.1% in 2017). 

Excess spare capacity remains high, and it could be a long time before core inflation approaches the CPI target. Markets will look for further clarification on the ECB's decision to front-load bond purchases ahead of the quiet summer months. This announcement had to do with market functioning, not market levels, says Standard Chartered.