Eurozone inflation sinks to 2y low as Eurozone economy shrinks:
CPI slowed to 2.9% in Oct, down from 4.3% and better than expected 3.1%. But Core CPI – that excluding food & energy is retreating less rapidly. It moderated to 4.2% in October from 4.5% the previous month. Our take: disinflationary trend is firmly in place in the EZ although wage inf’still stickiness and more difficult comps in H2 prevent core inflation to decline more meaningfully. We believe there is enough progress for the ECB to stay put (i.e rates hike cycle is over) and potentially cut rates next year if EZ economy slows down meaningfully Source: HolgerZ, Bloomberg
Germany's inflation slowed to 3.8% YoY in Oct from 4.5% in Sep vs 4% expected and lowest since Aug 2021 as energy prices dropped 3.2% YoY and food inflation slowed to 6.1% YoY
German October Core CPI dropped to 3.8% from 4.6% in September. Source: HolgerZ, Bloomberg
Is Germany already the sick man of Europe?
Source: Michael A.Arouet
German business outlook is improving, feeding rebound hopes
Ifo expectations index rose to 84.7 in Oct, up from 83.1 in Sep and way better than BBG consensus of 83.5. "What we see here does suggest that we see a certain stabilization,” Ifo President Clemens Fuest told BBG. “The German economy will be shrinking this year, but for the final quarter we do expect a stabilization, slight growth.” Source: HolgerZ, Bloomberg
This chart from Robin Brooks highlights what is curently happening at ECB level: QE for some and QT for others
This was NOT supposed to happen. Remember: founding principle for the ECB is separation of monetary and fiscal policy. That's why ECB QE was initially subject to the capital key, so it couldn't favor one country over another. Could this last for ever? Source: Robin Brooks
Disinflationary forces are intensifying in Germany, at least for now
German PPI deflation deepened with PPI down 14.7% YoY, the most since the start of the statistic in 1949. Even compared to the previous month, producer prices fell by 0.2%. Source: HolgerZ, Bloomberg
There is a different culture of public debt in Germany than in France
Nevertheless, French Finance Minister Le Maire hopes to find a compromise for new budget rules w/Germany. “We will continue to work w/Christian Lindner in the coming weeks to try to reach a Franco-German accord that could serve as a basis for a wider deal,” Le Maire said ahead of a meeting with his EU peers in Luxembourg. Source: HolgerZ, Bloomberg
Italy 10y risk spread over German 10y bunds back >200bps as budget day arrives
Italy PM Meloni to unveil tax-cutting 2024 budget today amid debt worries. Source: Bloomberg, HolgerZ
