European markets on the slide as inflation data turns upwards

• Inflation dominates, with German regional figures and Australia CPI on the rise
• FTSE 100 continues recent bearish theme
• Euro heading lower ahead of next week’s likely ECB rate cut

European markets have kicked off on a negative footing today, with mainland indices showing particular weakness as regional inflation data highlighted the likely rise for eurozone inflation later in the week. With the inflation theme expected to dominate from here onwards, this morning has seen a raft of German figures that highlight the likely rise expected for the nationwide figure this afternoon. The two most populated and economically important areas, North Rhine Westphalia and Bavaria both saw their annual CPI figure rise by 0.2%, although some solace came from the fact that we have seen monthly inflation fall sharply. Meanwhile, Australian inflation rose to 3.6% overnight, serving as a reminder that we are likely to see the RBA hold off on any monetary easing this year. With Friday bringing both the eurozone CPI and US core PCE inflation metrics, this week could serve to highlight the growing concern that we are likely to see inflation remain above 2% for the remainder of this year.

Coming off the back of the biggest daily decline for a month yesterday, the FTSE 100 has continued its downbeat tone in early trade today. The one area of strength has come from the energy sector, with BP and Shell both managing to avoid the losses seen throughout much of the FTSE. This comes off the back of a fresh rise for crude oil, with WTI pushing into a four-week high in early trade today.

Elsewhere, the strength of the dollar has hindered sentiment for much of the commodity sector, with risk-off sentiment seen throughout equity markets driving the dollar higher. In the FX space, euro weakness has highlighted the potential bearish theme that could develop in anticipation of next week’s ECB rate cut, with recent comments from the Chief Economist Lane and French ECB member Villeroy both signalling that a first cut was largely a foregone conclusion by this point.