Eurozone inflation slumps, easing pressure on the ECB

• BoJ YCC shift sees USDJPY push through 150
• Eurozone growth and inflation move lower, easing the pressure on the ECB
• Earnings continue to dominate following yesterday’s McDonald’s boost

The Japanese stole the show overnight, with the latest Bank of Japan interest rate decision finally seeing the committee widen the yield curve control band by shifting their 1% barrier into a mere ‘reference point’. After an extended period defending the 150 level in USDJPY, today’s action has seen a rapid appreciation as markets look towards the BoJ and consider whether they are edging away from their ultra-accommodative monetary policy. With the BoJ raising their 2024 inflation forecast and allowing greater flexibility on bond yields, the yen looks likely to come under further pressure as Western central banks bring an end to their tightening phase.

European markets have continued their bounce back this morning with equities having stabilised somewhat over the course of this week thus far. Yesterday’s lower than expected inflation data out of Spain and Germany shaped expectations for today’s wider eurozone figure, with the latest CPI figure of 2.9% (from 4.3%) further easing any pressure on the ECB to tighten further. With eurozone growth coming in at an uninspiring -0.1% for the quarter, there is a feeling that tightening undertaken over the course of the past year has brought to the kind of soft landing and disinflationary environment the ECB has been aiming for. Their hope is that we do not see economy weaken to the point that they come under pressure before inflation has been brought under control.

Earnings continue to dominate today, with the likes of Pfizer, AMD, Amgen, and Caterpillar all reporting. While last week provided an unforgiving environment for the tech giants, we have seen a more optimistic tone take hold this week. Yesterday saw McDonald’s earnings come in 6% higher than estimated, with the fast-food giant managing to boost margins through tactical price hikes. While the inflationary environment seen over the course of the past year has put pressure onto supply chains and wage demands, however it has also provided an opportunity for those able to raise prices beyond cost to drive improved margins.