|08-15-2014, 02:39 AM||#1|
Eurozone takes centre stage after the BoE show
If yesterday’s session was dominated by the UK with the inflation report and unemployment numbers, then today is most certainly Europe’s day as CPI and GDP data are both released out of the eurozone.
There is also the chance to drill down into individual country data, and most notably we get German GDP. Yesterday’s CPI reading out of Germany came in as expected at lower levels, but today’s reading is potentially more important. Later in the session we finally get some data from the US, with retail sales released and some Federal Reserve statements.
Yesterday’s inflation report from the UK saw BoE Governor Mark Carney put the emphasis back on to the electorate when it comes to the timing of interest rates. However instead of looking at the overall unemployment rate he is now look at average earnings numbers. The governor revised down the expectations for earnings, saying that he did not expect people’s average earnings to rise as fast as unemployment is falling. This will be music to the ears of some people, very much like it was music to the ears of the markets yesterday.
It was also nice to hear from the government that not only are the Bank now going to wait on raising interest rates, they are going to wait until you have enough money coming in to afford the rise in your mortgage payments. However, yesterday did show that despite talk of the positive numbers coming out of the UK, we do not yet have a fully recovered economy, and it could be a little while yet before we are in a position to move towards that sense of reality that people have been calling for.
If the UK is still showing strong signs, then the eurozone is still deep in the mire. Yesterday’s figures on inflation in Germany showed no signs of improvement, with CPI inflation in the eurozone’s biggest economy falling to 0.8%. Today’s inflation numbers for the region as a whole are to set to fall again, in line with Germany by 0.1% to 0.4%.
The situation between Russia and western Europe is of course not helping matters but the most worrying situation is the fact that the ECB plans implemented a few months back are showing absolutely no signs of making an impact. Inflation levels are still dangerously low and today will also see the GDP figure potentially fall from 0.9% to 0.7%. With the numbers remaining terrible there will be added pressure for Mario Draghi to do the only thing he hasn’t already put into the economy, and that is a round of QE. He stopped just short when announcing funding for lending schemes and TLTROs, but it is now looking like QE could now only be the only way out for the eurozone, as it’s also all they have left in their arsenal.
Ahead of the open we expect to see the FTSE 100 open flat, with the German DAX starting higher by 13 points.
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