European equity markets are rallying this morning following dovish comments made by the European Central Bank (ECB) President, Mario Draghi, who tried to reassure the market about the bank’s ability to act if a new recession were to materialise. Industrial production in the Eurozone suffered in April, falling by 0.5% owing largely to lacklustre car production, putting pressure on the central bank. Draghi cleared the path for additional stimulus if the economic outlook did not improve, sending the euro and bond yields lower, with the German 10-year Bund yields at historic lows.

It is a big week for other policymakers too, with the Federal Reserve and the respective central banks of England and Japan also set to meet. For the Federal Reserve, stronger industrial output and decent US retail sales have checked the speculation of a rate cut this week. US industrial production grew 0.4% last month, while manufacturing output rose 0.2%. Consumer sentiment, however, weakened in June.

Last week, equity markets flattened out after receiving a boost from the US-Mexico deal. Tariffs on Mexico were suspended indefinitely, helping the S&P 500 rally 2%, but negotiations with China are still of primary concern and President Trump has said that he is “perfectly happy” to increase the scope of the tariffs, which could extend to all Chinese imports to the US if threats are followed through on.

In the UK, meanwhile, the pound has fallen to its lowest level in 2019 as the odds on Boris Johnson winning the Conservative leadership contest and becoming the new Prime Minister have shortened. Johnson has promised to take Britain out of the EU with or without a deal by October 31st. There have also been reports that some Conservative Party donors have discussed the possibility of an electoral pact with the Brexit Party, with speculation growing that the next leader will need to call a snap general election.

Finally, oil prices have risen since an attack on two oil tankers late last week. Iran has denied accusations from the US that it was behind it, but tensions are rising: Iran has recently exceeded its agreed limits on uranium production in response to US sanctions and Washington is sending an additional 1,000 troops to the Middle East.

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