Market News & Insights
18 March 2014

The ECB’s Post St.Patrick’s Day Hangover

Yesterday’s CPI readings may well be giving the ECB and Mario Draghi a post St. Patrick’s Day hangover. The Euro zone inflation figure rose less than initially estimated in February, as it fell back to 0.7%. This figure is its lowest reading since October 2013 and down from last month’s January’s reading of 0.8%.


What is worrying for the ECB now is that the rate remains firmly below their target of just below 2% and now February’s figure of 0.7% matches last October’s level which triggered the surprise .25% rate cut from the Bank the following month. Draghi has stated in the past, the ECB did not expect to see the result of the November 2013 interest rate cut filter through fully for 6 months. Now that this deadline is upon us and the figures for the CPI have fallen off the pace and now lying .3% below the ECB’s 1% “danger zone”.  However there was slightly better news for the ECB with Core CPI for February, which excludes food and energy prices, left unchanged from its original estimate of 1%.


Following the release of the data, the euro added to losses against the U.S. dollar, with EUR/USD shedding 0.17% to trade at 1.3891, compared to 1.3899 ahead of the data.

The Eurozone has some lighter readings out this morning with the German ZEW Survey at 10 am the top of the bunch.


To the US, and while data of late has been mixed we have seen improvements of late compared with the start of the year.  Yesterday’s February Factory production figure rose by the most in 6 months rising from -0.2% to 0.6%.  The pickup contrasts with the housing industry, where another report showed builder sentiment rose less than forecast in March.


This week we will look to get a better insight into the US’s post winter weather trauma, starting with today’s CPI releases. The last 10 days of releases we have seen February Non Farm figures back in line with expectations and US Advance Retail Sales vastly improved, will this momentum continue into today’s releases and cement tomorrow’s continuing tapering exit strategy?


As stated in yesterday’s commentary, the UK has a relatively quiet week ahead with tomorrow being the exception. The headline figure of course being the Bank of England minutes.