Marketmind: the ECB’s inflation conundrum

The logo of the European Central Bank (ECB) in Frankfurt, Germany on January 23, 2020. REUTERS / Ralph Orlowski

A look at the day ahead from Tommy Wilkes.

The European Central Bank meets later Thursday and all eyes will be on its comments on the inflation outlook.

Will it or will it not become the last central bank to warn that price pressures are more severe – and less transient – than they were a few months ago?

The difficulty for the ECB is that it wants to maintain its ultra-dovish stance to revive the region’s economy, but at the same time it has to contend with inflation expectations that are reaching seven-year highs above. by 2%.

The prospect of slower economic growth and tightening central bank policy flattens bond yield curves around the world, lowering longer-term borrowing costs. Europe is no exception, with German 10-year yields posting their biggest daily drop in eight months on Wednesday.

A busy day for the activity of the central bank elsewhere too. The Bank of Japan made another dovish statement, predicting that inflation will stay below target for at least two years. This only reinforces the idea that he will be lagging behind others in reducing crisis policies.

The Reserve Bank of Australia, meanwhile, jumped an opportunity to buy a government bond at the heart of its stimulus package, sending yields above target and raising the bets that it will become a another bank opting for an anticipated rate hike.

Supply chain disruptions continue to dominate the earnings season, with Volkswagen being the latest automaker to report lower than expected operating profit, in part due to the chip shortage.

Samsung reported its highest quarterly profit in three years, but expects component shortages to affect demand for chips.

Stock markets fell, with the German DAX opening down 0.2% and Wall Street futures barely higher.

Eurozone inflation expectations

Key developments that should give more direction to the markets on Thursday:

-ECB meeting

-German unemployment / preliminary CPI October (4.4% Y / Y / Reuters poll)

– Eurozone consumer inflation expectations Oct

-The Governor of the Central Bank of Norway, Øystein Olsen, speaks

-Emerging markets: meeting of the Egyptian central bank

– Q3 US flash GDP (Reuters survey of 2.8%)

-US core PCE flash Q3 (Reuters poll at 4.5%)

-Initial jobless claims in the United States

-USA 7-Year Note Auction

– US revenues: Allegheny, AllianceBernstein, Caterpillar, Comcast, Hershey, Mastercard, Merck, Newmont Mining, Moody’s, Royal Caribbean Cruises, T-Rowe Price, Yum Brands, Amazon, Apple, Gilead Sciences, Starbucks, United States Steel,

Reporting by Tommy Wilkes, editing by Sujata Rao

Our Standards: Thomson Reuters Trust Principles.

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