Softer than Anticipated German Zew Weighs on European Shares

European stock markets moved sideways on Tuesday. The DAX and FTSE 100 are posting slight gains, while IBEX and MIB are underperforming, as Spain’s Catalonia problem escalates with arrests among leading independence proponents and Madrid reportedly preparing to take over direct control if a second deadline on Thursday is not met. Slightly weaker than expected ZEW investor confidence numbers out of Germany meanwhile will play into the hands of the doves at the ECB especially as core inflation fell back to just 1.1% year over year in September. The rather cautious session in Europe followed a still largely positive close in Asia. Hang Seng and CSI 300 closed little changed, but Nikkei and especially ASX moved higher again, despite renewed North Korea jitters. Oil prices have moved up from lows with WTI trading above USD 52 per barrel again, after falling to a session low of 51.67.

The German ZEW investor confidence rose to 17.6 from 17.0, less than anticipated, but the second consecutive rise finally lifted the three months trend rate, if just slightly, for the first time since June. The current conditions indicator fell back to 87.0 from 87.9. Confidence in banks and insurance companies dipped, while investors are less pessimistic about the automobile industry. Expectations for inflation picked up for the Eurozone, as well as Germany, but despite these expectations for short-term interest rates fell back for a third consecutive month.

BoE’s Ramsden said there will be no QE unwind until the repo rate is higher. Ramsden was speaking during parliamentary testimony. He is the deputy governor for markets and is a new member of the Monetary Policy Committee. He marked himself as a dove, expressing a benign view on inflation, anticipating lower year over year rates as exchange rate base effects drop out of data, noting that there has been little sign of second-round inflationary effects and that inflation expectations remain well anchored.

UK September CPI Rose in August

UK September CPI rose to a new cycle high of 3.0% year over year after a 2.9% year over year print in August. The outcome matched the median forecast. The core CPI figure remained unchanged at 2.7% year over year, contrary to the median forecast for a rise to a 2.8% rate. PPI input prices rose to an 8.5% year over year clip after 7.6% in the month prior, while PPI output prices ebbed slightly, to 3.3% year over year from 3.4% in August. The outcomes in the inflation data are either at or near expectations and comfortably fit the range of BoE projections, leaving the central bank on course of what is now a widely expected 25 basis points rate hike at the November policy meeting.