All eyes on the Federal Reserve

Economics

This week we expect further improvement of the US non-farm payrolls for June. The ISM manufacturing index should have levelled out at cyclical highs, while consumer confidence probably remained stable.

The Federal Reserve is expected to raise interest by 25bp to 1.25%, moving to a tightening monetary bias. In Europe manufacturing sentiment should have moved up slightly. In Japan we expect the Tankan business indicator to have picked up in June.

Foreign exchange

The euro is close to another test of its long-term support line, which currently lies at 1.1920. As long as this level holds, we continue to give the uptrend the benefit of the doubt, expecting further gains back to 1.2350.

The dollar/yen outlook is further bearish towards 106.10/106.00 and should now remain below 108.25 to keep the immediate outlook bearish.

Fixed Income

Bond yields were again somewhat lower over the week. The key event of this week is clearly the Fed meeting on June 30th (Wednesday). We expect a 25bp. hike and a move towards tightening bias.

We do not expect any major surprise from the Fed committee and we see yields remaining broadly flat over the coming week.

Equities

Markets were once again stuck in a sideways holding pattern, mainly focusing on the outcome of the FOMC meeting next Wednesday. In the meantime terrorist attacks are continuously ham-pering the market.

Although upward potential seems to be very limited, a catalyst to move mar-kets in one or another clear direction might be the start of the next earnings' season at July 7.