Next week data from the Eurzone includes inflation numbers on Monday and Tuesday. Analysts from Danske Bank explained that next week the European Central Bank will introduce a new Euro short-term rate).
Key Quotes:
“Next week will bring the September flash HICP inflation prints for both Germany and the euro area on Monday and Tuesday, respectively. The euro area numbers are of high interest since it is not only headline inflation that has slumped (to only 1.0% in August), but market-based inflation expectations are also sliding again and are back below levels when the ECB September package was announced. Furthermore, core inflation has been hovering around 1.0% in the last two years, despite a decent pick-up in wage growth. This is challenging the ECB’s credibility in delivering its inflation mandate. Hence, inflation remains a dilemma for the ECB and since energy prices continue to suffer strong downward pressure from base effects (despite the drone attack in Saudi Arabia), there is no imminent catalyst to brighten the euro area inflation outlook. With energy price inflation falling further into negative territory and core inflation stuck at 1.0%, we expect headline inflation to print at 0.9% in September.”
“After years in the works, the €STR (euro short-term rate) will be introduced next week amid EONIA ceasing to be calculated as we know it (and permanently discontinued on 3 January 2022). The first €STR fixing will be published on Wednesday, 2 October, based on 1 October data. €str will be set entirely on daily information relating to money market transactions, not only to the interbank lending (as EONIA), but would also include other bank lending, such as money market funds, etc. The €STR is an unsecured borrowing rate (compared to EONIA, an unsecured lending rate). The €STR is calculated as a volume-weighted trimmed mean (with high/low 25% removed). We expect €STR to fix around -54bp given the fixed spread of 8.5bp and the current EONIA level at -0.457%.”
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