ECB could promise too much for October as inflation stalls

FX:USOIL   CFDs on Crude Oil (WTI)
Inflation holds back the ECB

The chief ECB economist, Peter Prat, expressed concerns over the weak inflation in September, saying that while carrying out stimulus cuts ECB should not forget about inflation targeting. The official hinted at the ECB's high caution in this regard. It should be noted that the conduct of money supply shocks is a very sensitive and painful operation for the economy, since a wrong pace is fraught with a reduction in output and a pullback of inflationary expectations, which contradicts the regulator's intentions.

In September, inflation in the eurozone was 1.5%, excluding volatile components - 1.1%. This is still quite low for the regulator, given that the target level is 2%.

Oil momentum fades

The prices continued to decline during the session on Tuesday, as short-term factors restraining the production of shale firms in the US are gradually coming to naught. Twelve percent gain in the third quarter due to a mix of factors such as natural disasters and OPEC comments turned to a 5 percent drop less than a week ago, once again highlighting dilemma of the global surplus.

The pace of drilling activity accelerated last week showed the report of Baker Hughes , and a poll by Reuters pointed to the increase in production in September from OPEC. An important indicator remains the loading capacity of US refineries, which was the week before last week at 83.2%. In fact, this is an indicator of how quickly refineries will recover after the natural disasters. On the one hand, the pace is restrained by the scale of damage, on the other - the profit motivation to cover the gasoline deficit in the country, which provoked a price increase above $ 2. The largest refinery in the country Motiva Enterprises has already stated earlier that it is transferring current repairs to April next year. Other firms are likely to follow its example.

Last week, the market also hastened to take into account the threat of blockade of the oil pipeline of Iraqi Kurdistan by Turkey in an attempt to stop the separatist processes in the region. The threat is yet to be carried out.

A leap in US manufacturing

Natural disasters in the US caused an inflationary leap in the manufacturing sector along with the growth in orders, the ISM report showed. The base index jumped to a 13.5-year high in September. Labor demand in the sector has grown to the highest level since 2011 which opens path for robust NFP on Friday. The dollar hastened to respond rising to 93.70 against the basket of currencies, the highest since mid-August.

The key figure from ISM rose to 60.8 last month.

The cost of recovery in the shattered regions and the surge in activity in the factories added 0.4% to the GDP forecast for the third quarter, a model of the Federal Reserve Bank of Atlanta showed. In the third quarter, the US economy could grow by 2.7%, says the report.

Arthur Idiatulin
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This analysis is provided as general market commentary and does not constitute investment advice.


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