3 May 2016
ECB’s monetary policy is starting to bear fruit - Rabobank
Research Team at Rabobank, notes that the Eurozone’s first quarter GDP came in at 1.6% y-o-y, higher than the market (and ourselves) had anticipated, and stronger than signalled by the recent string of monthly data (as reflected in our economic surprise index).
Key Quotes
“Consumption is increasingly being supported by falling unemployment. Investment was probably also a key driver of Q1 growth, although the current momentum is unlikely to be sustained in Q2.
The ECB will likely use this positive news as further evidence that the ECB’s monetary policy is starting to bear fruit, signalling that we simply need to be patient as the effects of the additional March package will still have to materialise.
Inflation data continue to be relatively subdued
April HICP inflation came in at a -0.2% y-o-y, which is no improvement from the data seen in the prior months. This weak inflation data is –at least partly– still driven by adverse base effects, notably in energy.
Core inflation continues to be substantially higher, although this, too, came in below expectations, and lower than the March figure. The drop to 0.7% was partly due to the timing of Easter and we expect core inflation to rise again in May.
On a brighter note, we do see some recent improvements in market implied inflation break-evens. This is most visible in the short-tenors. However, even the 5y/5y forward inflation swap has been creeping up in recent weeks, supported by commodity prices.
Still, this measure isn’t quite back to the levels seen around the turn of the year and as such the market maintains a sceptical view of the ECB’s policy effectiveness.”
Key Quotes
“Consumption is increasingly being supported by falling unemployment. Investment was probably also a key driver of Q1 growth, although the current momentum is unlikely to be sustained in Q2.
The ECB will likely use this positive news as further evidence that the ECB’s monetary policy is starting to bear fruit, signalling that we simply need to be patient as the effects of the additional March package will still have to materialise.
Inflation data continue to be relatively subdued
April HICP inflation came in at a -0.2% y-o-y, which is no improvement from the data seen in the prior months. This weak inflation data is –at least partly– still driven by adverse base effects, notably in energy.
Core inflation continues to be substantially higher, although this, too, came in below expectations, and lower than the March figure. The drop to 0.7% was partly due to the timing of Easter and we expect core inflation to rise again in May.
On a brighter note, we do see some recent improvements in market implied inflation break-evens. This is most visible in the short-tenors. However, even the 5y/5y forward inflation swap has been creeping up in recent weeks, supported by commodity prices.
Still, this measure isn’t quite back to the levels seen around the turn of the year and as such the market maintains a sceptical view of the ECB’s policy effectiveness.”