Daily Financial Market Outlook

The passage of the Greek austerity vote yesterday should clear the way for today's implementation vote to pass. In turn this increasingly casts aside the threat of near-term default and its associated financial dislocation. Financial markets responded accordingly yesterday with equities posting their second successive daily rise and interest rate market yields backing up sharply. With the threat of this crisis receding for now, markets will refocus on the ECB. President Trichet stated earlier this week that the Council was still in 'strong vigilance'; mode signalling that European turbulence has done little to distract the ECB from tightening monetary policy further in July. Today's preliminary estimate of Eurozone HICP should highlight the ECB's motives. Inflation looks set to rise and could even top the consensus view of 2.8% in June from 2.7%. The ECB appears committed to minimizing the chances that a rise in headline inflation spreads to inflation expectations. Albeit that in peripheral economies a period of deflation looks most likely as these economies desperately struggle to regain competitiveness within the strictures of the currency union