Euro Area Inflation Recovers

Analisi Giornaliera - 01/05/2015

Annualized Consumer Price Index Climbs Back to Unchanged From Negative Territory


After trending in negative territory for several months, annualized CPI managed to break the streak, rising to 0.00% as the influence of quantitative easing bolsters the outlook.  Nevertheless, ECB monetary policy has been unable to tackle the persistently high unemployment hampering regional growth.

Inflation Rebounds to Flat

European Central Bank President Mario Draghi’s bond buying bonanza has seen inflation rebound to flat after annualized CPI printed at 0.00%, out of negative territory for the first time since the 0.30% print on December 17th.  Adding to the positive momentum was the first instance of positive loan growth in nearly 3-years as easing frees up funds for lending.  The impact of monetary policy is being broadly felt through the common currency economy but has yet to demonstrably impact unemployment.  In deference to expectations, Euro Area unemployment stood firm at 11.30% despite estimates of the number dropping to 11.20%.  Unemployment numbers in Greece and Spain remain above 20% while Italy experienced a substantial move higher, reaching 13.00% compared to 12.70% prior.  Despite the continued sell-off in German sovereign bonds, equity benchmarks managed to post gains, with the German DAX gaining 0.19%.


Initial Claims Lowest Since Dotcom Bubble

In comparison to the situation across the Atlantic, US employment measures continue to show improvement with the latest initial jobless claims printing at the lowest level since the year 2000.  Claims submitted number 262,000 versus expectations of 290,000 and a prior figure of 296,000.  While this number could be revised higher in the coming week, it nevertheless highlights that despite weak job creation in the last few months, unemployment is relatively stable.  By contrast, the stagnation in personal income growth might translate to weaker spending down the road despite personal spending gaining 0.40% month over month.  All the pervasive optimism from initial claims and personal spending failed to stoke a rally in equity benchmarks with the Dow Jones Industrial Average retreating to negative territory year-to-date as losses also consumed the S&P 500.  The Nasdaq Composite experienced the greatest losses as questions about the valuations of technology companies saw the index fall -1.64%.


Canadian GDP surprises on the upside

Bank of Canada Governor Stephen Poloz dismissed claims that the decline in energy prices will affect the long-term viability of the Canadian economy, noting that lower prices will have an impact, but also that the improving fundamentals of the US economy will help reinforce the positive outlook.  His remarks were boosted by yesterday’s month over month GDP figures which rose back to flat from -0.20% in the prior period as the figures experience tremendous volatility.  The Canadian dollar has continued to appreciate against the US dollar as the rebound in oil prices encourages a reversal in the economy.  Meanwhile, Russia moved to drop interest rates, moving the benchmark towards 12.50% from 14.00% in response to a weakening inflationary outlook and shrinking economy.  Strong ruble appreciation coupled with weaker spending has heightened the risks of Russia entering a recession.


Copper Equidistant Channel Technical Pattern

The pervasive weakness in the Chinese economy coupled with slowing global trade flows have seen demand for industrial metals fall in recent months as economic activity cools.  The industry itself is plagued with substantial oversupply as mine and production expansion over the prior few years outstrips current demand fundamentals.  Nevertheless, copper is trading modestly higher, rebounding from the downward pressure, trending to the upside in an equidistant channel formation.  The prevailing strategy is initiating long positions at the lower channel line to be closed at the upper channel line.  Shorting an upward trending channel increases the risk and diminishes potential reward however, any move outside the channel should be viewed as breakout trade to be accompanied by additional volume and momentum.


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