The Euro Area has been riding high on the optimism of the latest lending data with sovereign bond yields trading at or near record lows thanks to the asset purchase program. There is even positive mention coming out of Greece as policymakers hope to arrive at a deal on Sunday. This negates the fact that Greece is still facing shortfalls as it attempts to pay pensions and salaries of public employees. Moreover, there is tomorrow’s EUR 200 million repayment due to the IMF, further complicating matters. Nevertheless, optimism remains supreme, especially after the latest CPI numbers released earlier in the session. Annualized inflation managed to beat expectations to the upside, moving to flat at 0.00% after printing in negative territory since the first measure of the year was released on January 7th. This might be evidence that the European Central Bank’s quantitative easing program is beginning to have an impact, but it nevertheless complicates the strategy going forward.
If inflation does rebound to the targeted level by the end of the year according to ECB forecasts, the need for continued quantitative easing will be negligible considering the latest loan creation figures which expanded for the first time in 3-years. However, the employment situation might temper any changes to policy. Euro Area unemployment remains sticky at 11.30% in spite of expectations that the figure would improve marginally to 11.20%. However, marring the figures was unemployment edging markedly higher in Italy. Instead of falling to 12.60% as was previously expected, Italian jobless numbers rose to 13.00%. Italy looks rosy in a side by side comparison with Spain and Greece which each boast levels above 20%. Youth unemployment is the far more concerning aspect, with each of the aforementioned nations recording levels above 50%. Much of the anti-austerity momentum is coming from this specific demographic, meaning policymakers must begin focusing on fiscal stimulus in order to prevent challenges to the Euro Area dream.
Euro Unemployment Overshadows Inflation Optimism
Market Trends - 30/04/2015