Markets Await ECB, as German PPI Falls Back Given Central Bank Room to Manuever

Eurozone stocks moved higher on Thursday ahead of the ECB meeting. Asian stock markets moved broadly higher, led by Japan, as the BoJ kept its accommodative policy unchanged and the Yen weakened. The ECB, which is expected to follow the BoJ’s lead and keep not only current policy, but the forward guidance unchanged. There is some lingering concern that the central bank could already drop the easing bias on QE at today’s meeting, so Bunds could get a boost from Draghi’s attempts to calm tapering nerves ahead of the summer break.  UK Retail sales rebounded more than expected in June buoyed by warm weather. German producer prices edged back to 2.4% year over year in June giving the ECB room to maneuver.

UK Retail Sales Rebounded More than Expected

UK retail sales rebounded more than expected in June, aided by a warm-weather prompted rush on seasonal items. The headline sales figure rose 0.6% month over month, rebounding from a 1.2% month over month contraction in May, which was the biggest negative print in four years. The year over year figure rose 2.9%, up from a 0.9% year over year gain in the month prior. Negative real wage growth is likely to keep continue to damper the performance of the retail sector in the months ahead.

German PPI inflation fell back to 2.4% year over year in June, from 2.5% year over year in the previous month. A tad higher than anticipated, but still continuing the recent downtrend as oil prices turn out to be weaker than previously thought. Headline Eurozone inflation also fell back in June as energy price inflation eased, so there is no really new message from the German PPI numbers, although at 2.4% year over year, the numbers remain elevated.

The Bank of Japan kept interest rates and quantitative easing unchanged even as it pushed back the projected timing for reaching 2% inflation. The central bank downgraded price outlook will raise more questions about the sustainability of the BOJ’s stimulus at time when other major central banks are turning toward normalizing their monetary policy.