Monex Europe: Eurozone inflation could put pauses under question

Monex Europe: Eurozone inflation could put pauses under question


The week just gone has delivered on a promise of monetary mayhem, with decisions by no fewer than nine central banks sandwiched between CPI releases earlier in the week, and PMIs that landed on Friday.

For most of the week, the trend in markets has been a stronger dollar, especially after the Fed delivered fairly hawkish rates guidance on Wednesday night. However, the greenback did have its wings clipped by September’s flash PMIs, which showed services activity slowed faster than expected, although the DXY still managed to eke out incremental gains to notch a tenth successive week of gains. Given the abundance of economic developments over the past few days, we’ve decided to include a brief recap of this week’s main events at the end of this document.

Coming up next week, there is relief in sight for those looking for a break from Central Bank news, with policy decisions due from Banxico, NBH and CNB. That being said, we do not anticipate a repeat of this week's drama, with all three central banks set to keep official policy rates on hold. Granted the NBH will trim it’s emergency measures by a further 100bp, but this will simply bring the effective rate in line with official policy tools.

The end of the week will see the focus return to major central Banks, with key data releases for both the BoC and ECB set to land.  In the case of the former, having recently paused policy tightening for a second time this cycle, there is a risk that next week's GDP data could bounce them into restarting rate rises once again. In the eurozone, in contrast, it is another round of inflation data that will take centre stage.

With this week’s PMI data suggesting that inflationary pressures remain sticky, even as growth conditions soften alarmingly, risks are that another strong CPI reading could render claims the ECB has finished hiking premature, with an outlook that increasingly resembles stagflation likely to weigh further on the euro.