Euro: More Reasons to be Hawkish
The Euro remains firm ahead of the ECB meeting on Thursday. Yesterday, the June consumer price index estimate came in at 4% double the central bank’s 2% inflation target. Today, Germany reported strong consumer spending and the lowest unemployment rate in 14 years.
Manufacturing sector PMI for the Eurozone was also revised higher in the month of June due to stronger activity in France and Germany. The combination of higher inflationary pressures and better than expected economic data could force the ECB to backtrack on their warnings and actually prepare the market up for more than one rate hike in the third quarter. Up until now the ECB has openly hinted that a rate hike in July will one-off, but given the recent reports, 2 rate hikes from the ECB this year is more than realistic. Eurozone producer prices are due for release tomorrow and given the rise in wholesale sales and import prices, we expect the PPI number to be hot. A 50bp rate hike by the ECB on Thursday may not be out of the question. Meanwhile Swiss PMI numbers hit a 3 year low while the prices paid or inflation component of the report jumped to a 1.5 year high.