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Market Outlook: EZ Inflation Soars As ECB Continues To Hold A Dovish Stance

By TickmillMarket OverviewOct 29, 2021 03:55AM ET
Market Outlook: EZ Inflation Soars As ECB Continues To Hold A Dovish Stance
By Tickmill   |  Oct 29, 2021 03:55AM ET
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Overnight Headlines

  • China's Evergrande (OTC:EGRNY) Makes Another Payment, Avoiding Default For Second Time.
  • Japan's Factory Output Drops Steeply As Nation Heads To Polls.
  • ANZ Expects RBA To Scrap April-2024 Yield Target (NYSE:TGT) Next Week.
  • NAB Sees RBA Scrapping Yield Target at Tuesday's Meeting.
  • US Dollar Wallows Near One-Month Low As Strong Euro, Stock Rally Weigh.
  • Oil Prices Set For First Weekly Drop Since Aug As Supply Concerns Ease.
  • Bad Bets Trigger Waves Of Tumult In Short-Term Bond Markets.
  • Ether Rises To Record High, Renewing Alt-Season Expectations.
  • Asian Shares, US Futures Slip After Earnings Disappointment.
  • Apple (NASDAQ:AAPL) And Amazon (NASDAQ:AMZN) Stock Dives Set To Erase $200 Billion In Value.
  • Coca-Cola (NYSE: KO) Nears $8 Billion Deal For A Controlling Stake In BodyArmor.

The Day Ahead

  • Asian equity markets are mixed this morning as market moods continue to fluctuate. Yesterday saw equities rise on Wall Street and in some European markets, but futures prices point to falls today. Australian retail sales rose by a faster than expected 1.3% in September. In France, Q3 GDP grew by 3.0%, up from a 1.3% gain in Q2. That is the first of several Eurozone GDP reports this morning.
  • Eurozone inflation is forecast to accelerate in October, already released data for some of the largest countries in the region point to a rise. We look for annual headline inflation to print 3.6% (from 3.4% in September), while the consensus expectation is an even more significant rise. That is well above the European Central Bank's 2.0% target. At yesterday's ECB policy update President Lagarde, while admitting that the increase in inflation was more significant than expected, still asserted it was likely to be temporary. We expect 'core' inflation to be unchanged at 1.9%, which might provide some solace to the ECB.
  • Nevertheless, with inflation possibly set to rise further before its next policy meeting in mid-December, the Governing Council's unity in maintaining a 'dovish' policy stance seems set to be tested. The first estimate for Q3 GDP growth in the Eurozone is expected to show a quarterly growth of 2.0%, which would be slightly different from the rate seen in Q2. That would mean that the Eurozone grew more quickly than the US last quarter. Nevertheless, recent reports suggest that supply issues also constrain output in the Eurozone, so the growth outlook is uncertain.
  • Bank of England (BoE) money supply and credit data for September may provide some insight into recent spending trends in the UK. Mortgage approvals and lending data may show whether housing market activity has slowed as the temporary cut in stamp duty has been removed.
  • The September US consumer spending numbers that will be released today were included in yesterday's GDP report. Expenditure slowed in Q3 compared to the first half of the year but there seem to be some tentative signs that it was picking up again to the end of the quarter. The report will also contain the consumer expenditure deflator, the Federal Reserve's preferred inflation measure. It is likely to show a further rise in inflation in September.
  • Government bond markets remain volatile. Shorter-dated yields in many markets continue to firm as markets price in the possibility of tighter monetary policy. Longer-dated yields have retraced some of the falls seen earlier in the week but are generally still below their levels of last Friday. In currency markets, both the euro and GBP/USD rose. The EUR/USD moved up in afternoon trading despite comments from ECB President Lagarde that seemed intended to reassure that Eurozone monetary policy would remain very stimulative.
Market Outlook: EZ Inflation Soars As ECB Continues To Hold A Dovish Stance

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Market Outlook: EZ Inflation Soars As ECB Continues To Hold A Dovish Stance

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