German constitutional court ruling supports deflationary backdrop
Last week Germany’s Constitutional Court decided to pass the final ruling on outright monetary transactions on to the European Courts of Justice. As a recap, OMT are market transactions that would be carried out by the ECB in order to support the bond markets of member states. In isolation this could be perceived as being positive for the Euro as the actions of the German court could be viewed as a failure to take a decision using German law, instead choosing to pass it onto a Euro friendly legal institution. This should thus act to bolster the dis-inflationary backdrop for the Euro in the mid-term, offering support to most Euro crosses too. We also note that UK economic statistics are likely reaching a level from where positive surprises are becoming harder and harder to achieve. Ultimately deflationary pressures are driven by debt overhangs, which remain at concerning levels in the Euro zone periphery
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MIG Bank