Euro-Zone Inflation Beats Market Expectations

Daily Update

Yesterday’s Market

• EUR Markit Services PMI, Markit PMI Composite & Consumer Price Index
• GBP PMI Construction, Consumer Credit & Mortgage Approvals
• USD ADP Employment Change & FOMC Minutes

Yesterday Explained

Euro-Zone inflation ended 2016 at its highest level since September 2013 as soaring energy and food prices fed through. December CPI year-over-year rose to 1.1% from a prior month’s 0.6%, beating market estimates of 1.0%, while core inflation edged up to 0.9% against a prior reading of 0.8%. A strong turnaround in energy price inflation, to 2.5% from -1.1%, and a rise in food prices, to 1.2% from 0.7%, accounted for a forecast-beating December reading.

While the number will have cheered European Central Bank President Mario Draghi, and lent credence to his ongoing ultra-loose monetary policy, the uptick was expected as last year’s lower oil prices rolled out of the data. And looking forward, Euro-Zone inflation may well tick higher in the coming months as these base effects continue to diminish and the effects of the weaker single currency feed through.

The American dollar edged lower against all of its major rivals this Wednesday. The FOMC minutes from the December meeting showed that FED officers saw a stronger dollar holding down inflation, putting the greenback under selling pressure immediately after the release, reiterating that a gradual pace of rate hikes will likely remain appropriate while adding that Trump's upcoming administration generates "considerable uncertainty" over its effects on the economy. 

Today’s Market

• EUR Producer Price Index & ECB Monetary Policy Meeting Accounts
• USD Initial jobless claims, Markit PMI Composite, Market Services PMI & ISM Non-manufacturing PMI

Today Focus

The day will start with Producer Price index from Europe which measures the change in prices received by domestic producers of commodities in all stages of processing. This will be followed by Monetary policy meeting accounts from Europe which is an overview of financial market, economic and monetary developments in the Euro zone.

By Evening USA will release Initial jobless claims report which is an measure of the number of people filing first-time claims for state unemployment insurance. These will be followed by Markit PMI Composite & Market Services PMI which captures business conditions in the services sector. The day will end with ISM Non-manufacturing PMI which shows business conditions in the US non-manufacturing sector.