The Week In Hindsight; 30 June 2014

European inflation figures for June surprised on the downside once again this Monday. The flash inflation gauge remained at 0.5% for the month, which was against expectations for a minor increase to 0.6%.

The barometer’s resilience at such levels comes despite an up-tick in continental energy prices, most notably in Oil, and the modest improvement in German CPI that was announced last week.

The outcome adds weight to a general consensus that the European Central Bank, after a late arrival to the party, has some distance to go before prices stabilise to a level that is conducive with long term economic growth.

Although this week’s rate announcement and press conference are not expected to yield any further stimulus measures; the continental inflationary bias remains firmly toward the downside.

Consequently; talk and speculation of the potential for additional stimulus from the ECB are likely to become a regular feature of general market commentary over the summer months, which supports the view that expectations for higher levels in European indices will remain well founded.

In the shorter term, continental markets face risks from elsewhere in the world. The headline act for the current week is US employment figures which are scheduled to begin emerging between Wednesday through to Friday.

These will likely set the mood of traders for the days and weeks ahead. Current official forecasts see 6.3% unemployment and 211k NFP jobs added to the economy as the most likely outcome. However, other forecasts suggest another move lower in unemployment, followed by a higher increase in jobs added.

Barclays Capital: 6.2% Unemployment // 250k Jobs added
Commerzbank: 6.2% Unemployment // 220k jobs added
Standard Chartered: 6.2% Unemployment // 190k jobs added
Deutsche Bank: Unemployment rate <6% year end

EU INDICES (DAX, Black)

EU INDICES