Morning comment of 06/4/2017 - UBS

• The minutes of the US Federal Reserve indicated two more rate hikes this year. That has already been signaled pretty clearly. However, there was also discussion about how to tighten quantitative policy, with a suggestion that this additional tightening would also take place this year.
• The Fed is already tightening quantitative policy in an organic way. The increase in the Fed's balance sheet is slower than the increase in GDP. We expect a smoothed passive tightening; the Fed allowing some bonds to mature but making sure the balance sheet reduction is roughly the same from month to month.
• Chinese President Xi concludes his visit to Finland today, and will stop over in the US on his way home. Korea and trade are the specific concerns investors have around Xi's meeting with US President Trump. The perceived tone of the relationship (is it more "Merkel" or more "May"?) will also be important.
• The Euro area has far less excitement. Weidmann of the Bundesbank speaks and would no doubt love to be able to mention quantitative tightening, but is unlikely to be given the opportunity. Euro area consumer price inflation will weaken from February, in part owing to the timing of Easter.