European Stocks Drop After EZ Inflation Drop Moderate

The euro lifted off lows and European shares sagged on Friday as a new five-year low in euro zone inflation was viewed as not extreme enough to drive the European Central Bank back into its increasingly bare policy cupboard.

Wall Street was expected to edge back up towards all-time highs though, suggesting the market’s recent upswing remained intact following this week’s strong run of U.S. data and the view that likely future action from central banks like the ECB will keep markets well oiled.

Consumer prices in the 18 countries using the euro rose by just 0.3 percent year-on-year in August, the lowest since October 2009 and well below the ECB’s preferred level of just under 2 percent, data showed on Friday.

But it was also right in line with economists’ expectations and helped cool speculation that the ECB, which meets on Thursday, would cut rates on its way towards U.S.-style quantitative easing — printing money by buying bonds — following strongly-worded comments from ECB President Mario Draghi last week.

The euro rose to the day’s high of $1.3195 EUR= against the dollar, and yields on core euro zone bonds inched away from record lows DE10YT=TWEB as the region’s share markets .FTEU3 also gave back their early gains.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza