EU Economic Update – 03 March 2015

European equities continue to push higher as economic data turns positive; waiting on the ECB

In Europe equity markets continued to push higher throughout the last week, supported by the approaching implementation date for the ECB’s QE program and a reduction in tensions over Greece.

Investor sentiment also received a further boost during this period as economic data emerging from the continent continued to point toward a nascent recovery in some segments.

In detail, German unemployment fell faster than expected while consumer confidence also increased moderately according to the most recent GfK survey. GDP for the fourth quarter in Germany was also confirmed at 0.7%, as expected.

Despite the more positive data in Germany and elsewhere across the euro-zone the shock numbers for the week came from Sweden, where Q4 GDP came in a considerable distance above almost all estimates.

The actual figure implied growth of 2.7% QonQ for the Swedish economy, which brings annual growth for 2014 to 2.1%. This was against Riksbank forecasts for 1.6% growth QonQ and 1.5%  year on year.

At the bloc level, both final CPI and Core CPI were confirmed at -0.6% and +0.6% respectively for the month of January.

This was before the most recent flash estimate for headline CPI inflation showed a minor increase in price pressures during February from -0.6% to -0.3%, which is thought to be the result of a rebound in oil prices off from their earlier lows.


The takeaway

On the whole, European economic data appears to be pointing toward a nascent recovery on the continent, ahead of the implementation of the ECB’s March QE program.

While we are still awaiting further information relating to exactly when the purchase program will begin, we have already been told, in the initial announcement, that it is due to run until at least September 2016.

However, we caution that if the European economic recovery were to continue to gain traction over the remainder of the year and if oil prices were to stabilise at or around recent levels, then it is possible that we will begin to see a recovery in inflation over the medium term.

While it appears unlikely, if this does happen then it could give rise to speculation that the ECB may be forced to curtail its easing program early, which would be a net negative for euro assets.

Looking ahead to the immediate future, we await the ECB press conference on Thursday, where Mario Draghi is expected to announce the finer details surrounding the bank’s asset purchase program. This has the potential to boost equity markets for the week, while renewing downside pressure upon the euro.

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