March 4 2017

Mar. 4, 2017 (Commerzbank AG) – Euro zone – Is inflation about to strike back?

The rise in the euro zone inflation rate to 2.0% in February was solely due to higher energy and food prices. But the signs are growing that underlying price pressure is set to rise. The unemployment rate has steadily fallen and inflation expectations have noticeably picked up of late. However, as wages have risen modestly so far, the core inflation rate is only set to rise gradually in 2018. The ECB is unlikely to change its course for a long time yet.

Further topics:

Forecast meeting: What will the Fed and the ECB do?

Our monthly forecast meeting focused on central banks. Now that even the doves within the Fed are calling for an imminent rate hike, we expect rates to be adjusted as early as mid-March. As regards the ECB, we now envisage a slower reduction of bond purchases than previously.

ECB Council meeting: wait and see

At the press conference, we expect ECB president Draghi to confirm that the bond purchase programme will continue as planned in its entirety. However, the Council is likely to refrain from offering any further long-term tenders for the time being.

Outlook for the week of 6 March to 10 March 2017

  • Economic data: The US employment report for February is likely to show that the US economy is still creating new jobs and wage pressure is slowly increasing.
  • Bond market: Central banks will move into focus next week. There are mounting signs of a Fed rate hike as soon as mid-March, which will keep the upward pressure on ten-year Bund yields alive.
  • FX market: Although the Fed is set to raise interest rates at a slightly quicker pace than we previously expected, we maintain our forecast of only moderate USD appreciation this year.
  • Equity market: Most of the company results released so far have turned out convincing, with MDAX companies outperforming their DAX peers. A stable earnings environment should continue to support the German equity market.
  • Commodity market: The price of Brent oil fluctuating around USD 55, and the five-year outlook from the International Energy Agency is unlikely to lead to any big changes in the market view on oil.


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