Price Surprises Surprising
The window for the ECB Governing Council to act on deflation pressures appears to be closing as even the Bank of Spain Governor noted on Monday that there was no risk of deflation in his country. He also backed up comments by fellow ECB officials noting that both lower rates and outright asset purchases are ‘difficult’. Markets will likely hold fire on euro longs ahead of the Eurozone inflation prints on Friday, but we believe there is merit in taking a step back to assess why the ECB itself seems less concerned about the current headwinds. Leaving absolute price levels aside, we note that global inflation surprises are to the downside, and if anything Eurozone prints have not been that ‘disappointing’.
Read the full report: UBS