01 November 2023
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Eurozone inflation decelerates to 2.9% y/y in October

By Jeanne Walters

Inflation in the Eurozone decelerated to 2.9% y/y in October according to initial estimates. The slowdown in price growth was steeper than markets had been expecting and was a sharp drop from the 4.3% rise a month earlier. The decline was material in energy and food prices. Energy price inflation, in particular, was deeply negative at -11.1% y/y as October 2022 represented a peak in the Eurozone’s energy price index. Even excluding energy and food, there was a slowdown in prices, with core CPI down to 4.2% y/y from 4.5% a month earlier and services inflation also ticking slightly lower at 4.6% from 4.7%.

The drop in inflation may be welcome news for the European Central Bank which held rates at its last meeting in late October. The price data was however paired with a negative GDP print for Q3 which showed the Eurozone economy contracting 0.1% q/q. The Eurozone has so far avoided a technical recession but growth in major European economies appears to be sputtering. Germany’s economy shrank in Q3, falling 0.1% q/q. And Q3 GDP data for France pointed to muted activity, rising just 0.1% q/q, markedly lower than the upwardly revised 0.6% q/q rate of growth seen in Q2.  

Preliminary data suggests that Saudi Arabia’s GDP fell 4.5% y/y in Q3, after gaining 1.2% y/y in Q2. The decline was driven by oil sector GDP, which fell 17.3% y/y after the Kingdom cut oil production earlier in the year. Non-oil GDP in contrast rose 3.6% y/y, lower than the 5.3% y/y growth recorded in Q2.

Despite the strong economic activity data seen recently, the US Conference Board consumer confidence measure declined in October. The measure fell to 102.6 from an upwardly revised 104.3 in September. The fall in the headline was driven by a 3.1 point decline in the present conditions index. There was also a decline in the future conditions index, but this fell to a smaller degree.

The Caixin China general manufacturing PMI for October fell below the neutral-50 mark, signaling a contraction in activity. The headline index fell to 49.5 from 50.6 in September. Consensus expectations had been for a rise to 50.8.

Retail fuel prices in the UAE will be lower in November, with average oil prices having moderated slightly in October despite heightened geo-political tensions. Mid-grade petrol prices will decline to AED 2.92/litre, down 12.3% m/m, from AED 3.33/litre in October. Diesel prices will be marginally lower, falling from AED 3.57/lire to AED 3.42/litre.

Today’s key economic data and events

  • 16:15 US ADP employment change (Oct) forecast: 150k
  • 18:00 US JOLTS (Sept) forecast: 9400k
  • 18:00 US ISM manufacturing (Oct) forecast: 49.0
  • 22:00 US FOMC rate upper bound forecast: 5.5%

Fixed Income

  • US Treasury yields rose marginally on Tuesday ahead of the Fed’s rate decision on Wednesday. The 2yr UST yield increased 3bps to 5.0873% while the 10y yields gained 4bp to 4.9307%.
  • Major European sovereign bond yields were generally lower, on the back of the lower Eurozone inflation. The 10yr Gilt yield fell 2bps to 4.5097%, while the 10yr German Bund yield declined 2bps to 2.804%.

FX

  • The dollar reversed the fall seen on Monday, gaining 0.51% against a basket of major currencies on Tuesday. EURUSD fell 0.38% to 1.0575, driven by news of a contraction in Q3 Eurozone GDP. GBPUSD fell 0.14% to 1.2153. USDJPY saw a sharp fall, declining 1.73% to reach 151.68, with investors having hoped for a more material reversal of the BOJ yield curve control policy.
  • Commodity currencies also fell against the dollar. AUDUSD declined 0.58% to 0.6337 and NZDUSD fell 0.33% to 0.5825. USDCAD gained 0.35% to 1.3875 on the back of weak Canadian Q3 GDP data.    

Equities

  • US Equity markets rose again on Tuesday, pairing some of the overall loss in October. The Dow Jones gained 0.38%, the S&P 500 rose 0.65% and the Nasdaq increased 0.48% on the day.
  • There were also gains across major European equity indices, driven by declining bond yields and some positive corporate earnings results. The Eurostoxx 50 gained 0.81%, the DAX rose 0.64% and the CAC 40 increased 0.89%. The FTSE 100, in contrast, declined 0.08%.
  • Locally, the DFMGI closed 1% higher while the ADGI gained 0.68%.

 

Commodities

 

  • There were falls in both Brent and WTI on Tuesday. Brent declined 0.03% to USD 87.41/b and WTI fell 1.57% to end at USD 81.02 /b.

Written By

Jeanne Walters Senior Economist


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