Eurozone inflation expected to fall

Domestically, eurozone data disappointed and follows a mixed inflation report that was released at the end of June whereby the headline beat expectations, but while the data accelerated 5.5% in June it was lower than May’s 6.1% increase. The Core HICP inflation rose to 5.4% YoY in June, compared with May’s figure of 5.3%. But markets had forecasted a 5.5% clip. On Wednesday, the eurozone reported soft final June services and composite PMIs.:

Both headline services and composite PMIs fell four ticks from the preliminary to 52.0 and 49.9, respectively.  ''This was the first sub-50 reading for the composite since December and confirms our view that the eurozone is slipping into recession,'' analysts at Brown Brothers Harriman explained. 

''Looking at the country composite readings, Germany fell two ticks from the preliminary to 50.6 and France fell one tick to 47.2.  Italy and Spain reported for the first time and their composites came in at 49.7 and 52.6, respectively. Both fell more than two full points from May.  Italy has joined France below the key 50 boom-bust line and it’s only a matter of time before other nations do as well,'' the analysts added and explained that eurozone inflation expectations continue to fall:

''The monthly ECB survey showed inflation expectations for the next 12 months fell to 3.9% in May vs. 4.1% in April and 5.0% in March.  For three years ahead, inflation expectations remained steady at 2.5% vs. 2.9% in March.  The ECB will be happy to see the drop and should allow the doves to retain control of the narrative at the July 27 meeting''

Markets are expecting the ECB to hike 25bp two more times and World Interest Rate Probability, WIRP, suggests odds of a 25 bp hike are near 90% this month.