Market Movers
Market focus will continue to be on the developments in Ukraine.
We expect euro inflation to decline to a new cycle-low of 0.3% y/y in August. The decline should follow due to lower energy price inflation, whereas core inflation is expected to remain stable at 0.8% and food price inflation should be less negative. The persistent low inflation in the euro area has resulted in a considerable decline in market-based inflation expectations during August and another decline in actual inflation could result in new downward movements in inflation expectations. However, we 'only' expect a very dovish stance from the ECB together with an announcement of further details about purchases of Asset Backed Securities, see Will ECB Easing Work?.
In the US focus is also on inflation as the release of the PCE figures will provide us with more information about when inflation will reach the 2% Fed target. Core and headline inflation are expected to come out at 1.5% y/y and 1.7% y/y, respectively. An increase in food prices is the main reason for the higher headline PCE, while lower energy prices are pulling in the opposite direction. In the US personal spending and Chicago PMI will also be released today.
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