Euro a touch softer
The euro is under a little pressure this morning following lower than expected ‘flash’ inflation readings for September in France and Spain, dipping to around $1.1130 against the dollar and to £0.8325 against sterling. The pound is marginally firmer against the dollar from this time yesterday morning, trading at around $1.3375.
European bond yields are lower at the open this morning on the back of the inflation data, declining by around 5-7bps. In equity markets, European stocks are extending their gains, having added around 2% yesterday, while the S&P 500 closed yesterday’s session at yet another all-time high.
Notwithstanding ongoing developments in the Middle East, the price of Brent crude has fallen back this week, currently at around $71.5 per barrel, with reports that Saudi Arabia will begin to increase production from the beginning of December.
Headline inflation in France and Spain fell quite sharply this month according to the flash readings released earlier, declining to 1.5% and 1.7% respectively from 2.2% and 2.4% in August. This will contribute to a further decline in Euro area inflation (data due Oct 1st), after it fell to 2.2% in August from 2.6% in July.
A central back “sources” story doing the rounds yesterday said interest rate “doves at the ECB are preparing to fight for a cut” at October’s monetary policy meeting following a string of weaker-than-expected economic data, although they are “likely to meet resistance” from their more hawkish colleagues. Post this morning’s inflation data, the market is pricing about an 80% chance of a quarter-point cut next month.
For the day ahead, the main economic release is the August PCE inflation report in the US. The consensus expects headline prices to have risen by just 0.1% last month, which would push the annual rate of inflation to 2.3% from 2.5% in July, while core prices are expected to increase by 0.2%, which would result in the annual rate nudging up to 2.7% from 2.6%. Other releases scheduled include the Euro area Economic Sentiment Indicator and the ECB’s latest survey of consumer inflation expectations.