Inflation in the euro area, the European Central Bank and the Bundesbank report seem to be the main topics of macroeconomic events that may affect financial markets on Monday, August 19. There was also information about the stimulus package being prepared by the German government.
Data released today from the euro area show that the annual inflation rate in July in the euro area fell to 1 percent from 1.3 percent in the previous month and below the initial estimate of 1.1 percent. This was the lowest inflation since November 2016. As a result, inflation has moved further away from the target of the European Central Bank, which can only increase expectations for the ECB's decision in September.
The ECB is already expected to announce new steps to revitalize the eurozone economy on 12 September, with most economists surveyed by Bloomberg anticipating at least a reduction in the deposit rate. President Mario Draghi signaled last month that all options are possible, including the potential restart of quantitative easing. It would not be a big surprise for the market to re-launch the QE program by the ECB, which is another asset purchase program.
Help for the economy can also come from the German government. The German central bank Bundesbank warned in its report that German production will remain weak in the third quarter and may continue to fall slightly. This in turn could translate into another quarter in which Germany's GDP will shrink. In that case, we could talk about a recession. Therefore, in addition to monetary stimulus, there is also talk of fiscal stimulus.
On Sunday, Finance Minister Olaf Scholz said Germany is ready to spend an additional USD 55 billion on the economic crisis. This improved market sentiment, which primarily reflects the improvement in stock market indexes. German DAX rose 1.5 percent in the afternoon American stock indices also increased by over 1 percent. The most important thing for markets now can be the implementation of stimulus packages from the central bank and politicians. The institutions had previously set the direction for markets, now it seems that markets are putting pressure on both central banks and politicians.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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