Greetings,
We begin with the Eurozone where analysts expect deflationary pressures to start subsiding given the rise in oil prices over the past few months. According to some estimates, the decline in oil prices shaved somewhere around a percent from the recent CPI measures. That’s about to be reversed.
In fact, the latest inflation report from Germany showed headline inflation that was somewhat higher than expected.
Despite the jump in oil prices, however, markets remain skeptical of any immediate improvement in euro area inflation metrics. Forward inflation expectations remain depressed. Are the markets uneasy with the sustainability of these higher energy prices?
Source: @CapEconEurope
Furthermore, other indicators suggest that deflationary risks persist.
1. For example, German import prices fell the most since 2009, as the Eurozone imports disinflation.
2. Spain’s 2-year long consumer deflation persists.
3. Italian PPI decline on a year-over-year basis has been the steepest since 2009.
The ECB is under pressure to eliminate these risks. Below is the Eurosystem securities held for monetary policy purposes (QE), now exceeding €1.1 trillion.
Source: ECB
The central bank is also about to undertake corporate bond purchases (announced earlier). That’s why corporate bond sales have been on the rise recently.
Source: @fastFT
On the currency front, the month of May has not been kind to the euro as a result of a more hawkish Federal Reserve.
Source: @barchart
With shorter-term rates rising in the US, real rate differential has been driving the euro lower.
Source: Morgan Stanley
Elsewhere in Europe, Sweden’s GDP growth cools more than expected but remains strong on a year-over-year basis (4.2%).
Meanwhile, household credit expansion in Sweden is accelerating again (approaching 8% YoY).
Turning to emerging markets, we’ve now seen leadership changes in Argentina and Brazil this spring. Moreover, these countries seem to be shifting their economic strategy, which is essential in the post (China-driven) commodity supercycle economy.
Will Venezuela be next? Are we witnessing the “Latin Spring”, with some of the governments who rode the commodities wave now being replaced?
Indeed, the situation in Venezuela looks unsustainable as the opposition leaders who now control the legislative branch are attempting to push Maduro out.
Leave A Comment