European Markets Await Inflation Data
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European Markets Await Inflation Data

European markets are heading for a slightly higher open on Tursday, with investors focused on the release of preliminary eurozone inflation data for February, which will provide clues about the future path of interest rates in the region.

Eurozone Inflation still on the Rise

Regional markets closed lower Wednesday, with economic data released this week giving investors pause for thought. On Tuesday, data showed inflation in France and Spain accelerated unexpectedly in February. Investors in Europe, as well as the U.S., have become concerned that borrowing costs are set to rise more than previously expected, weighing on future growth, as inflation has proved difficult to tame.

Markets have fully priced in a 50-basis point hike by the European Central Bank in mid-March, and are contemplating another 50 bps in May. This puts a lot of attention on the preliminary Eurozone consumer price index for February later in the session, with median forecasts pointing to an annual figure of 8.2%, a drop from 8.6% the prior month.

A German flash estimate put the inflation rate harmonized with the rest of the EU at 9.3% in February, which would be an increase from 9.2% in January.

Futures tied to the Dow Jones Industrial Average rose on Thursday morning as earnings season pressed on and Salesforce. shares popped on a strong quarter and forward guidance.

Dow Futures Rise on Strong Earnings

The rise in bond yields and concerns of a potentially larger-than-expected hike from the Federal Reserve have fueled investor concern in recent days, putting a dent in the early 2023 rally.

You have a situation where if rates stay high, multiples need to come in, and it likely leads to a further downfall down the line in the economy because there is a lag effect to these rate hikes.

The dollar caught its breath in Asia on Thursday, steadying as U.S. yields went up while investors waited on European inflation data, after nasty surprises in Germany, France and Spain have given a boost to the euro this week.

With hotter-than-expected German inflation in February adding to pressure on the European Central Bank to raise rates after unexpectedly strong readings in France and Spain, markets are bracing for another uncomfortably high reading.

The expectation is for a slower rise, down from the last print of 8.6%, but this is contrary to France and Spain's CPIs which have recently re-accelerated. An upside surprise could lend some strength to the euro.

Elsewhere sterling was held back by remarks from Bank of England Governor Andrew Bailey, who said "nothing is decided" on future rate increases which had traders trimming back bets on higher rates. Sterling was down 0.2% to $1.2005.

Oil Prices Trade in a Tight Range

Oil prices kept to a tight trading range Thursday as traders weighed the prospect of a recovery in Chinese fuel demand against rising crude stockpiles in the United States.

U.S. crude inventories rose by 1.2 million barrels last week to just over 480 million barrels, their highest level since May 2021, the Energy Information Administration reported late Wednesday.

This was the tenth consecutive week of crude stock builds in the United States, and raised questions about demand destruction in the largest consumer of crude in the world.

On the economic front, investors await jobless claims, unit labour costs and productivity data. A speech from Fed Governor Christopher Waller is also slated for Thursday afternoon.