Deflation is about to haunt the ECB – TDS

FXStreet (Delhi) – Research Team at TDS, suggests that the euro area looks set to endure five consecutive months of deflation, starting in February.

Key Quotes

“The further collapse in oil prices and what is likely spillover into core prices means the ECB’s 2016 inflation tracking is likely to be almost a full percentage point below their forecast of just six weeks ago.

It would take oil prices in the ballpark of $60/bbl by December for inflation to catch up to the ECB’s year-end forecast.

Even if the hurdle to a June rate cut is low, this still means that January or even March are likely too early to look for any new easing as there must be signs of persistence into 2017.

As we near our bund-UST tightener target of 145bps, we tighten the stop with target unchanged, instead preferring to focus on shorter-term gains in ERZ6/ERZ7 flatteners.”

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