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The Bank of Canada is the only central bank that meets during the last week of May. There is little doubt that policy will remain on hold. The economy has generally performed in line with the Bank of Canada's expectations. Speculators shift to a net long positions in the futures market, for the first time since last September strikes us a premature. We suspect that this net long position was established at the end of the Canadian dollar's two-month upside correction. 

The economic highlight from the Eurozone will be April money supply data. M3 has been trending up for a year. It is expected to have accelerated on a 3-month year-over-year basis to 4.5% from 4.1%. It had bottomed at 1% in April 2014. More importantly, credit extension is accelerating a well. This is important because this is the last data point to set the condition for the TLTRO that will be available in the middle of June. Lending to households had turned positive recently and now lending to business is expected be turn up too.

The unresolved Greek crisis continues to hang over the market. No doubt it will be a point of discussion at the G7 meeting being held in Dresden on May 27-29. Just like there has been greater progress since Greek Prime Minister Tsipras reigned in his finance minister, is it really beyond the pale to suspect that if Merkel would reign in her finance minister (who has recently appeared to advocate referendum and a parallel currency for Greece), it would also be helpful? What Europe has to convince its G7 partners of is that is it not turning a broken state into a failed state.

The immediate problem is that Greece owes the IMF about 1.6 bln euros spread out over four payments in June. Recall that the last payment to the IMF was made possible only because the Greek government borrowed from a reserve account held by the IMF itself. If that reserve account is not repaid in a few weeks, the IMF will begin another set of procedures against Greece. It is true that Greece has cried wolf many times, saying it would not make a debt payment, but then somehow, miraculously, found the means to make the payment.

Three non-EMU European countries will report Q1 GDP figures in the week ahead. The UK is expected to revise up its preliminary estimate of 0.3%.  Industrial output and construction figures for March were stronger than the ONS projected. Sweden, where the central bank has set a negative repo rate and is engaged in a bond-buying program is likely to have grown just less than 1% after growing a little more than 1% in Q4 14.  Switzerland's growth is expected to have slowed to 0.3% from 0.6%.

Turning to Asia, there is a Japanese economic report every day of this week. The picture that is likely to emerge from the data is an economy that is picking up after losing some momentum as Q1 wound down. Retail sales, overall household spending, and industrial production are expected to have improved. However, if the main thrust of the aggressive monetary easing was to fuel an increase in inflation, it has been considerably less successful. With last year's sales tax increase dropping out of the base effect, core inflation (which excludes fresh food) is expected to be around 0.2%.

Lastly, before the weekend Chinese officials confirmed the long anticipated mutual recognition of mutual fund listing between the mainland and Hong Kong (SAR) will begin July 1. This represents a new era for asset managers. Previously foreign asset managers accessed Chinese savings by partnering with local mutual fund companies. The mutual recognition will allow Hong Kong domiciled funds to sell directing into China and allows China-based fund managers to sell their product in Hong Kong. The initial quota will be CNY600 bln (~$97 bln) evenly split between the two. This is seen as enhancing the case to include Chinese "A shares" into the MSCI indices and demonstrating the liberalization that may see the yuan included in the SDR later this year.

Marc Chandler
Global head of currency strategy at BBH
Marc to Market

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