The Euro Bounces and Stocks Rally Following Increase in IFO Growth Projections

European stocks are higher on the day as the dollar eased slightly allowing the EUR/USD currency pair to bounce from the 1.0360 lows to the 1.0455 region. Oil prices are slightly lows following a 5% drop since the Fed announcement on Wednesday.  The Eurozone trade surplus narrowed in October, reflecting a decline in exports, while inflation remained stable in November according to the most recent HICP report.

Oil prices are moderately lower today and remain in consolidation mode following WTI is presently showing a 0.2% loss, at $50.82. Yesterday’s post-Fed low is at $49.95, which is the lowest level traded in six sessions. Markets will continue to digest the Fed’s ratcheted-up tightening bias, while the implementation phase of the agreed output cut by OPEC and non-cartel producers, which will formerly start on January 1, will see wary market participants closely monitoring the degree of compliance.

Eurozone trade surplus narrowed in October. The Eurozone posted a trade surplus of EUR 19.7 billion in October, down from EUR 24.4 billion in the previous month as exports decline and nominal imports pick up. Unadjusted data show an accumulated surplus of EUR 223.8 billion in the first 10 months of the year, up from EUR 191.4 billion in the corresponding period last year, and while nominal data will also be impacted by exchange rate developments, the dip in the headline surplus in October is still a negative sign going ahead.

Eurozone HICP Inflation Climbed 0.6% in November

Eurozone November HICP confirmed at 0.6% year over year, as expected and up from 0.5% year over year in the previous month. Energy price inflation fell back to -1.1% year over year in November, from -0.9% year over year in September, but food price inflation accelerated, which left core unchanged at 0.8% year over year, but lifted the overall rate excluding energy to 0.8% year over year from 0.7% year over year. Still low numbers with no signs of a real buildup of domestically generated price pressures, which allows the ECB to stick with a very expansionary policy for now.

ECB’s Weidmann said that monetary policy can’t address low growth potential, adding again that weak economic growth is primarily due to structural problems, which the ECB can ‘t address and that monetary policy mustn’t be overburdened as central banks won’t stand in for politicians. Weidmann also said that central banks don’t set policy based on elections, but even if that is the official line, it seems clear that when political events have repercussions on the economic outlook the central bank can’t ignore that.

The IFO institute lifted German growth projections, saying that economic expansion in the last quarter of the year may be stronger than anticipated. While the German institute left its forecast for full year growth this year at 1.9%, it has upped its projection for next year to 1.5% from 1.4% and the forecast for 2018 to 1.7% from 1.6%.