Eurozone inflation heads higher, but the path to 2% remains clear

• Eurozone inflation head higher, although this is likely to be a short-term phenomenon
• UK house prices on the rise, as mortgage providers battle it out
• US jobs report ahead, with bulls hoping for a weak showing

European indices are back under pressure once again this morning, with a rebound in eurozone inflation adding further cause for concern. Coming off the back of yesterdays German and French CPI gains, the 2.9% eurozone inflation gauge may add some hesitation for those expecting a rapid return below target after last month’s 2.4% reading. Nonetheless, todays gain had more to do with base effects, and the ECB will likely be aware of the impending slump that will likely begin once the big February (0.8%) and March (0.9%) monthly CPI figures are stripped out. With that in mind, there is a good chance that in three-months’ time, there will likely be pressure on the ECB to act after a slump below 2% for headline CPI.
The UK housebuilders will hope that today’s improved house price index and construction PMI marks the latest step in a recovery that ultimately sees the sector boom once again in the years ahead. A better-than-expected Halifax HPI reading of 1.1% helped mark the strongest period of house price gains since mid-2022, gaining 2.7% over the past three-months. Meanwhile, an improved construction PMI did continue to see the housebuilding segment underperform, but the pace of that decline eased as the PMI hit a four-month high of 46.8. With banks seemingly waging a mortgage rate price war in a bid to gain custom at a time of low transactions and high margins, the environment for prospective homeowners does appear to be improving of late. Looking ahead, there is a good chance that falling interest rates are coupled with higher wages to bring a strong push higher for house prices.
Today’s US session will be dominated by the latest jobs report, with markets looking for signs of weakness that might further embolden bulls over the potential for a March rate cut from the Fed. Expectations of a rise in unemployment and weaker payrolls do highlight the possibility of a “bad news is good news” response from markets, with equity bulls hoping to see payrolls remain under pressure for the time being.