Summary for the 28th of June 2019


The low inflation problem in the Eurozone is difficult to find the reason for. The economic activity and the employment growth haven’t affected the hourly earnings and inflation rate as much as they used to be. The problem is troublesome for central banks that are using inflation target as their monetary policy, where they are depending on market demands and expectations to achieve the inflation goal.

The economic models the ECB are using couldn’t quite explain the recent low inflation growth. Mario Draghi talked last week about how globalization and digitalization could be the reasons. Lower global economic growth due to geopolitical uncertainty, raising protectionism and weakness from the emerging markets could also have led companies to be more careful of rising their sale prices, just so they could keep their market share.

Released consumer price index from Germany showed an increase by 0.2% to 1.6% in June, the market expected an unchanged price index. Though, the core inflation, excluded energy prices, had increased less. Inflation numbers from Spain decreased by 0.4% to 0.4%. The financial markets had priced in a 30% probability of an interest rate cut from the ECB by 10 basis point on the interest rate meeting in July and a 60% probability in September.

European Sentiment Indicator had decreased to the lowest level in 3 years. The decrease was equally between all the EU member countries, with more prominent between sectors where the manufacturing sectors decreased the most due to weaker global trade and rising uncertainty. Sectors that focused on domestic trade, like retails and construction, showed an increase in sentiment.

Indices for 28.06.2019
Dow: Unchanged (27th of June)
S&P 500: +0.4% (27th of June)
Nasdaq: +0.7 % (27th of June)
Nikkei: -0.4%  (28th of June)
Chinese indices: -1.2% (28th of June)
STOXX Europe 600 Index: +0.70% (28th of June)

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