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  • The ECB meets this week and we expect them to be especially dovish in light of the subdued inflation figures released last week with core inflation of 1% y/y being particularly troubling for the ECB mandate. Investors will also begin to focus on Mario Draghi’s replacement as his tenure comes to an end in October.
  • The Sunday Times reports that the ERG are softening their stance with regards Theresa May’s agreement. The real possibility of a second referendum or Brexit being cancelled has impacted this group’s delusions and fantasies of the UK economy outside of the EU.
  • The Italian populist coalition continues to show signs of stress as the left leaning 5Star party disappoints in local elections and in recent polls. In many senses, 5Star are now perceived as the junior partner in the coalition with the right wing party The League. Both parties always made strange bedfellows, and as the average lifespan of an Italian Government since 1945 is less than two years, arguably their tenure has exceeded expectations.
  • Over the next few months the Federal Reserve is to review its monetary policy framework. One particular area of focus will be inflation targeting and their associated models. It has proved a conundrum for the Fed that inflation has remained so restrained in light of the significant amounts of monetary stimulus applied since the financial crisis (graph on right reflects the Fed’s preferred measure of inflation). Their views on this subject and others could have a profound influence on markets.