Yields will tell the narrative of Europe and UK inflation expectations.

This week will be one to keep an eye on the bond market. This morning in Europe the PMI numbers came in better than expected for Europe and less than expected for the UK. This had a negative effect on both currencies and didn't help in reversing the downward trend that we saw at the end of last week. For the rest of the week there will be more economic health indicators coming out for Europe and the US but the main events will be central banks talking. 

​Today Draghi, the head of the ECB, will be speaking. With the strong growth in the Euro zone it will be important to see if there are any changes in his outlook for the asset purchasing program or when rates will need to start an upward rise. Any concerns about inflation will be another point the markets will be looking at. On Thursday the BOE will have an interest rate decision. Many are expecting no change in the interest rate but the central bank's outlook for inflation is going to be important. 

​Financial conditions between the UK and Europe will play into the Brexit talks as businesses pare back expansions in the uncertainty of a deal. When looking at how market are perceiving the news coming out of the two countries and the progress of a deal, look at the spreads between inflation prone countries in the Euro zone, like Germany and the UK. In Germany the inflation threat is pushing rates up all across the yield curve while in the UK many are skeptical that Inflation will be as big of a threat in the post Brexit world.