Having just spent ten days on the beach in Ibiza, I am able to provide strong circumstantial evidence that European tourism is back, at least for a while. Granted, the clubs—which I am now too old to go to anyway—are still closed, but hotels, restaurants and beaches were full as ever. Given that 80-to-90% of activity on the island takes place outside, in a sunny and relatively windy coastal environment, the virus wasn't much of a threat, even though numbers had been climbing prior to our arrival. Indoor mask mandates, which are now commonplace, really was the only sign of the virus as far as we were concerned, notwithstanding having to navigate the byzantine testing and tracking rules for travel. The Dutch nurse who performed our pre-travel Covid-test informed me and my wife that tour operators on the island had hoped that August this year would see activity levels return to 50% of its 2019 level, before claiming that the true number is closer to 80%, and that operators are expecting to extend the season into October. If that's true, it adds to the evidence that economic activity in Europe will improve further in the next few months. That’s good news.
Read MoreIt’s difficult to get past the obvious at the moment. Markets have made their bet on further monetary easing, and they’re now waiting for central banks to deliver. Policymakers have been showering markets with promises to “act if needed,” and assurances from those stuck at the zero bound that the toolbox is far from empty. But they haven’t done anything yet, though this is a position that will be closely examined this week. Mr. Draghi will be at the spotlight first today when he delivers his introductory statement at the ECB forum in Sintra. The nebulous 5y/5y forward inflation gauge has crashed to new lows recently, and it seems to me that the consensus now expects a signal from Mr. Draghi that the ECB will cut its deposit rate, or re-start QE, as soon as September, which incidentally will be Mr. Draghi’s last meeting as ECB president. Meanwhile at the Fed, the only question seems to be whether The FOMC cuts by 25 or 50 basis points in the next few months, setting the stage for an interesting June meeting this week. To the extent that markets have priced-in monetary easing in response to the deteriorating trade negotiations between the U.S. and China, it would make the most sense to assume that the much anticipated Osaka sit-down between Mr. Trump and Xi—at the end of June—to be a catalyst for something in markets.
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