Eurozone: German elections, Ifo, money supply and inflation - Danske Bank

According to analysts from Danske Bank, the primary event in the coming days in the Eurozone will be the German federal election on Sunday. They expect good news for the European Central Bank in the form of higher inflation and money supply growth. 

Key Quotes: 

“In the euro area, the primary event of interest is the German federal election on Sunday. Angela Merkel’s CDU-led block is leading the polls, but is likely to need a coalition partner to form a government. Here many potential coalitions exist, so while Merkel is expected to gain a fourth term, her government coalition could continue with SPD while also the ‘Jamaican’ coalition or a CDU/CSU and FDP coalition is on the table.”

“On Monday, the German Ifo expectations are due for release. The Ifo expectations have increased rapidly throughout 2017. From 103.2 in January, Ifo has climbed to 107.9 in
August and we expect a further improvement in September. This week, we also saw ZEW beat consensus and increase to 17, up from 10 in August. In light of this increase,
we expect Ifo to show further optimism and increase to 108.4. 

"The figures on M3 money growth and loan growth for August are due out on Wednesday. In July, M3 growth was reported at 4.5% y/y, which is somewhat lower than the 4.9-5.0% level reported in previous months. However, we estimate money growth returned to this range in August. With regard to loan growth, adjusted loans to households seem to have plateaued at 2.6% from May to July and we estimate a similar figure in August. We also expect loans to NFCs to recover from the June dip to 2.0% y/y and report 2.5% y/y growth in August."

On Friday, the euro area HICP figures for September are due for release. We expect headline inflation to peak in September at 1.6% y/y, whereas we forecast inflation to  decline throughout the remainder of 2017 and 2018, averaging 1.2% in 2018. Core inflation we expect to be reported at 1.3% y/y in September, and we expect it to remain at this level throughout Q4 17. We still see subdued underlying wage pressure, meaning that core inflation is unlikely to pick up in 2018, maintaining the drag on headline inflation. Note that the German inflation figures are due for release on Thursday."

“Friday also brings data on German retail sales in August and the German unemployment Rate.”