Headlines:
- Spain March preliminary CPI +3.3% vs +3.8% y/y expected
- North Rhine Westphalia March CPI +6.9% vs +8.5% y/y prior
- Bavaria March CPI +7.2% vs +8.8% y/y prior
- Saxony March CPI +8.3% vs +9.2% y/y prior
Initial reaction:
Aftermath:
Markets:
- CHF leads, USD lags on the day
- European equities higher; S&P 500 futures up 0.6%
- US 10-year yields down 0.8 bps to 3.558%
- Gold up 0.2% to $1,968.92
- WTI crude up 0.8% to $73.58
- Bitcoin up 0.9% to $28,637
There weren't many headlines in European morning trade today, with the focus staying on inflation numbers from German states and Spain. The early reports led to a fall in bond yields, as headline annual inflation came in softer than February and in the case of Spain, it even came in well below estimates.
That said, the figures do have a very important caveat to them. The spike in oil prices last year due to the Russia-Ukraine conflict is a big reason for the base effects adjustment to the readings we are seeing in March this year. As such, headline annual inflation may be lower but the core reading remains high.
In the case of Spain, core annual inflation is still sitting at 7.5%, down marginally from the 7.6% reading in February. Meanwhile, the monthly figures all still reflect positive price increases for all German states and in Spain as well.
The initial market reaction was a decline in yields, with USD/JPY also falling from 132.50 to 132.20 before recovering that drop thereafter as yields rebounded.
The dollar was slightly softer throughout, as equities gradually gained after a flattish handover from Asia. European indices opened higher but are now working their way up, gaining over 1% mostly across the board.
EUR/USD moved up from 1.0850 to 1.0880 and is sitting just below that while GBP/USD pushed from 1.2320 to 1.2363 before seeing gains ease a little after briefly hitting fresh eight-week highs.
The antipodeans are unable to capitalise too much, being stuck in a bit of a bind in recent weeks, with AUD/USD seen up 0.2% to 0.6695 and NZD/USD up by just 0.1% to 0.6230 on the day currently.
Going back to the inflation debate, this is the first month in which we will start to see the base effects adjustment come into play. I would argue that the monthly figures are going to be more important moving forward but either way, is this going to prove to be a hopeful turn or a false dawn? Only time will tell.