This week we’ve had inflation data for the Eurozone, UK and the US. In each case core CPI inflation either exceeded or at least matched expectations. It becomes harder and harder to persist with a narrative of deflationary fears, but I’m sure some central banks will try. Certainly if the energy complex continues to weaken then it’s possible that there could be pressure on core data, but the boost to non-oil demand should be a counter. In addition to the inflation data we also got ZEW economic sentiment data for both Germany and the wider Eurozone. The data for Germany was strong, and beat forecasts, while the solid data in the Eurozone managed to disappoint relative to expectations. All in all not bad data, this week, in terms of painting a picture of an ongoing global recovery, but at this point in time the key takeaway is that it certainly will not dissuade hawkish FOMC members from voting to hike in December.
In Nigeria the CBN governor offered a reasonable explanation for the refusal to countenance further devaluation of the naira. Nigeria being a mono-export economy – energy products generate over 80% of exports – would gain nothing from a devaluation because Nigeria cannot gain market share from such an action. Furthermore Nigeria’s importers would be the primary victims of such a policy as their import bills would rise. I suspect the main complaint the CBN faces at the moment is to do with the selective restrictions of imported goods. It would take a long time – if at all – for the Nigerian economy to adjust and substitute some of these imports with domestically sourced alternatives. But for now my sense is that it’s best to wait and see what policy the new ensconced ministers come up with.
There are tentative signs that the dollar is gaining strength again, but I suspect we remain in a period of consolidation following recent moves. EUR/USD, for example, looks to be weakening but with rapidly diminishing momentum. The same can be said for EUR/GBP, which has again briefly flirted with a sub 0.70 number, or roughly 1.43 in GBP/EUR speak. In both cases I have a suspicion that these levels are either not sustainable in the short term or could suggest a significant weakening of the euro to come.
Both France and Italy have been warned that their fiscal expenditure is in danger of breaching Eurozone annual spending rules. Needless to say, the timing of the message could have been better, France is unlikely to heed this criticism as it moves towards a war footing given last Friday’s events.
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