Inflation Data Unlikely to Prevent August Easing

European equity markets are poised to open a little lower on Tuesday ahead of the release of the latest inflation data from the U.K..

Core U.K. inflation has been running well below the Bank of England’s target of 2% for two years now, something the central bank has been willing to accept as the labour market was tightening, the economy was recovering and inflationary pressures were expected to pick up. Not only did the latter barely materialise, the result on June 23 has threatened the economic recovery in the U.K. which is likely to warrant further monetary stimulus, possibly as early as next month.

In a way, this makes today’s CPI release almost irrelevant as , regardless of what the number is, the central bank will be acting on the expected economic impact of the vote to leave the E.U.. Only a very sharp increase in the number could encourage the central bank to reassess its options but even then, it has shown its willingness to tolerate short term periods of higher inflation in order to support the economy.

The German ZEW economic sentiment release for July will follow shortly after and this is expected to show a substantial drop from June, likely driven by Brexit and the negative implications it is also likely to have for the fragile recovery in the euro area. The German economy is more resilient than most but even it is vulnerable to the negative knock on effects that another shock could have on the region and the ZEW number today is expected to reflect such concern.

This will be followed this afternoon by housing data from the U.S. and API weekly crude oil stocks for last week. U.S. earnings season will also be a key focal point for investors in the coming weeks and today we’ll get numbers from a number of large companies including Goldman Sachs, Microsoft and Johnson & Johnson.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.