There was a mixed bag of data from the eurozone this morning, with Unemployment unexpectedly falling to its lowest level since August 2011 and growth exceeding expectations at 0.6%, but inflation remaining in negative territory for a third month. Another month of deflation won’t surprise anyone when you consider the low global inflation environment, substantial slack in the euro area, low levels of growth and recent strength of the euro. Even with the huge amounts of stimulus from the ECB, this is unlikely to dramatically improve any time soon.
Even the positive aspects of the data, being the unemployment and GDP numbers, aren’t good in the grand scheme of things. Unemployment remains in double digits for the eurozone as a whole and above 20% in Greece and Spain which is appalling given how far we now are into the crisis. The reduction in unemployment is good but given the levels is coming from, a gradual decline is not good enough. Unfortunately, governments hands are tied which means this is unlikely to change, with countries instead relying heavily on the ECBs ultra-accommodative policy to generate any growth or reduction in unemployment. Under the circumstances, it’s very difficult to be too optimistic and I remain convinced that it will remain trapped in this low growth, low inflation and high unemployment environment for a long time yet.
Still to come today we have some important data from the U.S., which given the apparent easing of global economic and financial risks – both of which were dropped from the Fed’s statement on Wednesday – has arguably become increasingly important with the performance of the domestic economy potentially being the key to the next Rate Hike. The inflation data – core personal consumption expenditure price index, the Fed’s preferred measure – stands out to me as being the most important of the releases, especially as the February number came within 0.3% of the Fed’s target. If it can build on this in March, it would surely increase the probably of a rate hike in June, which could be reflected in a strong dollar and rising U.S. yields. With the dollar index currently at 8-month lows and potentially looking like an overcrowded trade, it will be interesting to see how it reacts to the data today.
We’ll also get personal income and spending figures today, as well as the employment cost index which offers great insight into potential future inflation trends, with rising costs often passed on to the final consumer. Following this we’ll also get the UoM consumer sentiment data and Chicago PMI so there’s plenty of data for the markets to absorb throughout the session. Not to mention more earnings reports to come ahead of the opening bell, which could influence overall market sentiment on the final trading day of the week.
For a look at all of today’s economic events, check out our economic calendar.
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