Eurozone inflation (surprise)

TheEuropean Central Bankmeets today/tonight depending where you’re reading!  One thing that will be on their mind, whether they admit it or not, will be the sharp turnaround in inflation seen for the Eurozone.  As we looked at earlier today there has been a noticeable shift in the global trends in inflationaway from deflation, and possibly towards hyperinflation.  Europe is no exception, the chart shows the turnaround in headline CPI inflation from the depths of the deflation scare in January 2015 to a 3 year high in December 2016.  And this has taken most bysurprise, as you can see with the dramatic surge in the Citi Eurozone Inflation Surprise Index rising to a 5 year high.

The “so what” comes when you think about the ECB’s mandate – to keep inflation positive, but below 2%.  It’s clear then that the best days of ECB stimulus have been an gone when you see inflation on the rise like this, so the open question on this will be “where to next for European bond yields and the Euro itself?”  You’d have to think, all else equal, that the answer may well be up in both respects.  What that will do for theequity valuation gapremains to be seen…
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Top Down Charts
Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.

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