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Eurozone Inflation sinks further

October 1, 2014

While the unemployment rate within the Eurozone remained stable, overall inflation readings fell expectedly from 0.4% YoY to 0.3% YoY according to the ECB data release yesterday. Noteworthy, however, is the sharp fall in Eurozone core inflation from 0.9% YoY to 0.7% YoY.

Although the final numbers for the German Q2 GDP surprised to the upside and have not been negative (0.3% YoY vs -0.1% expected), core European bond yields traded lower in a bull steepening mode (longer maturity yields fell more than shorter ones). Amid weaker than expected US housing data equity markets closed slightly weaker yesterday. Europe ex UK saw an equity rebound, probably in anticipation of decisive ECB action tomorrow. Today, US ISM and PMI data releases are likely to set the tone for risky assets. Expectations here are for flat to modestly lower readings.

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