Danske Daily – 31 August 2017

New research from Danske BankMarket movers today

Focus remains on euro area inflation in August. Yesterday’s German and Spanish figures were both higher than expected but the upside surprise was driven mainly by energy price inflation and the higher inflation should not alter the ECB’s current view on its monetary policy strategy. We have revised our euro area headline inflation forecast slightly higher to 1.5% y/y in August but still believe core inflation will move in the opposite direction and decline to 1.1% y/y in August. As we have argued previously, the stronger euro will become a headwind to inflation in 2018 and 2019, see Euro Area Research: Stronger EUR keeping inflation far from the ECB’s target , 27 July 2017.

Euro area and German unemployment rate figures are also due for release today. Both figures have declined over the past years and the German unemployment rate is very low in a historical perspective. This has been one factor supporting consumer sentiment, which is at the highest level in more than 15 years. The ongoing strong economic situation in Germany bodes well for Angela Merkel in the upcoming election. See more about the possible outcome at the election in German Election Monitor No. 1: Next euro area election unlikely to rock the boat , 29 August 2017.

US inflation figures will attract attention in the afternoon with the release of the PCE figure. The decline in PCE core inflation in the first half of this year has sparked some concern about lack of inflation pressure within the Fed. Nevertheless, the Fed has said quantitative tightening will begin ‘relatively soon’ and we expect it to be announced in September. The Fed getting ready to pull the trigger on quantitative tightening means USD liquidity could start to become scarce from Q4. See more about implication of this in FX Edge: The return of USD scarcity , 29 August 2017.

Please note that we have published A Scorecard Approach to Investing in Sub-Saharan Africa , 31 August 2017.

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