ECB meeting this week likely to be overshadowed by ongoing Greek saga

This week's European Central Bank (ECB) meeting (3 June) would ordinarily be the focus for bond markets, especially given the recent inflation uptick. But developments in the negotiations with Greece could dwarf anything ECB President Draghi says. 

The Q2-2015 oil-price pick-up is driving headline euro-area inflation higher sooner than the consensus had expected, and ECB staff forecasts will be scrutinised for any upward revisions to 2016 and 2017 CPI forecasts (from 1.5% and 1.8%). 

"We do not expect changes to these, or to the GDP growth outlook (1.5% in 2015, rising to 1.9% in 2016 and 2.1% in 2017)" says Standard Chartered.

Excess spare capacity remains high, and it could be a long time before core inflation approaches the CPI target. Markets will look for further clarification on the ECB's decision to front-load bond purchases ahead of the quiet summer months. This announcement had to do with market functioning, not market levels.