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Tim Riddell, analyst at Westpac, suggests that Eurozone activity data and surveys continue to signal growing risks of recession and any inflation pressures appear to the downside.

Key Quotes

“This week, ECB officials have affirmed their recent stimulus package, despite numerous critics stating that ECB’s NIRP is distorting the economy and financial markets while impairing the struggling financial sector.”

“The departure of Draghi next month is unlikely to see any change in monetary policy, but Lagarde’s arrival could increase the urgency of the ECB’s much repeated pleas for both fiscal and structural support.”

“In the interim, Eurozone nations are compiling budget proposals for submission to the EC at the end of this month so fiscal relaxation is unlikely. Germany may be facing a recession and has a relatively favourable fiscal stance, but its finance ministry is not showing any sign of fiscal leniency. Even their recent carbon reduction initiatives are fiscally neutral.”

“Despite recent data weakness, Westpac’s Data Pulse has rebounded and the Surprise Index is holding. Although this does not imply a EUR turn, it may allow for interim bounces before ECB accommodation pressures trigger redefinition of a lower trading range.”