Today before noon, inflation data from European economies came out and beat market expectations. The increase in the price level is faster than even the most unfavorable assumptions.
The preliminary data shows that consumer price inflation in the Eurozone will accelerate from 2.2% in July to 3.0% in August. This could be a reading well above market expectations of 2.7 per cent. If the preliminary data are confirmed, we will be dealing with the highest inflation rate since November 2011. This could spark a lively discussion at next week's European Central Bank meeting.
Prices rose on the back of a steady recovery in domestic demand and a low annual base due to the COVID-19 crisis. Energy prices rose 15.4 percent in August, following a 14.3 percent increase in July. Upward pressure should come from services (1.1 percent vs. 0.9 percent), industrial goods (2.7 percent vs. 0.7 percent) and food (2.0 percent vs. 1.6 percent).
With zero ECB interest rates, this means that negative real interest rates are deepening in the Eurozone, which may be most evident towards the end of the year. Thus, in order to preserve the value of their savings, Europeans may have to take risks, because without them they could not count on interest on accumulated capital to cover the rate of price increases.
Restrictions on flights over the ocean again
European banks' share prices rose on Tuesday and this seems to have happened after the inflation reading. At the start of the session, investor sentiment may not have been the best due to the EU recommending a halt to all non-essential travel from the US amid a Covid-19 surge driven by the delta variant.
PMI data showed China's manufacturing growth slowed in August and the service sector plunged, deepening signs of a slowdown in the world's second-largest economy but also raising hopes for more stimulus.
Oil holds high
Crude oil prices held at $69 a barrel on Tuesday, near 2-week highs. Investors are still assessing the damage to oil production in the Gulf of Mexico, where production of 1.72 million barrels has been suspended. However, work is expected to gradually return to normal.
Meanwhile, concerns about fuel demand increased when more official PMIs pointed to a further slowdown in the economy. Investors are also awaiting tomorrow's OPEC+ meeting, where the issue of production will be discussed. It is believed that the cartel will continue with plans to increase supply by another 400,000 b a day each month until December.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77.31% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
