Eurozone: Accommodation to continue - Westpac

Tim Riddell, Research Analyst at Westpac, explains that most EU country March ind production data were solid, but a softer annual profile for Germany and a dovish ECB Bulletin survey on EU labour underscore reasons for current accommodation.

Key Quotes

“Draghi (inter alia) again noted diminishing downside risks, but also a lack of cost and price pressures. The recent Italian Financial Stability Report also noted improvement but NPLs remain over 20% and their credit-to-GDP gap is still very negative. Italy may become more of an issue for Europe as focus on France wanes and local elections approach (in June).”

“The French presidential election was a victory over extremism, but concerns over how effective Macron will be after June’s Assembly elections should weigh over EU-27’s second largest economy. The positive impact and cutting of EUR speculative shorts may well be over.”

“EUR/USD appears to have peaked in front of 1.10-12 and is at risk of retracing at least some of its recent gains.”