01 September 2021
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Eurozone inflation hits 10 year high

the ECB will nevertheless likely maintain a dovish tone at its meeting next week.

By Edward Bell

  • Inflation in the Eurozone rose to 3% y/y in August, its highest level in 10 years, thanks to a more than doubling in core inflation. Goods inflation accelerated to 2.7% y/y from 0.7% previously while services prices rose more than 1% compared with 0.9% a month earlier. Similar to many other major economies, the Eurozone will be enduring the effects of disrupted global supply chains and shipping shortages, suggesting that price growth may be elevated for some time. However, policymakers from the ECB have been at pains to suggest that they will keep policy accommodative even as price pressures increase.
  • India's economy expanded by 20.1% y/y in Q2 2021, a sharp acceleration from the 1.6% recorded in Q1. Private consumption and investment drove the improvement with consumption gaining by almost 20% and gross fixed capital formation up more than 55%.
  • The Caixin China manufacturing PMI fell below 50 in August, signifiying the sector is contracting. The August reading is the first month below the neutral 50 level since April last year and comes on the back of the disappointing official data released earlier in the week that showed a sharp slowdown in services activity. As China’s economy slows in Q3 there is growing expectation that the central bank there will take steps to make policy more accommodative in coming meetings, perhaps by cutting reserve requirements even more.
  • There was a moderate improvement in the manufacturing PMIS out of some other Asian economies with Japan’s Jibun survey for August rising to 52.7 from 52.4 a month earlier while factory activity Indonesia remains in contraction albeit at a slower rate: the manufacturing PMI there rose to 43.7 from 40.1 a month ago. India’s manufacturing PMI will be released later today with markets watching for any improvement from the 55.3 recorded for July.

Today’s Economic Data and Events

09:00 IN manf. PMI

11:00 TU manf. PMI

12:00 EZ manf. PMI August: forecast 61.5

12:30 UK manf. PMI August: forecast 601.

13:00 EZ unemployment rate July: forecast 7.6%

16:15 US ADP employment change August: forecast 638k

Fixed Income

  • The US Treasury curve steepened overnight, prompted by moves higher in yields in Europe earlier in the day. Yields on the 2yr UST nudged up less than 1bp 0.2093% while the 10yr UST added 3bps to settle August at 1.3088%.
  • The sharply higher than expected Eurozone inflation data helped to lift bund yields which rose almost 6bps on the 10yr to -0.385%. At the front end of the curve yields added 2bps to -0.722%. Klaas Knot, the central bank governor of the Netherlands, pushed back against some of the recent dovish commentary from other ECB officials by suggesting the bank could bring an end to its asset purchases in March 2022.
  • Locally, FAB priced a GBP 250m 5yr issue at UKT+95.


  • Currency markets were generally range bound overnight although the jump in inflation for the Eurozone helped to lift the single currency higher. After an initial pop the euro moderated its gains to end up 0.1% for the day at 1.1809. USDJPY held close to the 110 level while GBPUSD was little changed for the second day in a row.
  • Commodity currencies saw a bit more action with USDCAD rising on weaker than expected Canada GDP numbers while both AUD and NZD gained the most among developed market FX, rising 0.27% and 0.66% respectively.


  • Equity markets sank overnight as more and more data affirms that Q3 is shaping up to be a softening in the recovery. All major US benchmarks were lower with the S&P 500 down 0.1% while in Europe the FTSE led the declines, sinking by 0.4%.
  • Regional markets showed another day of mixed performance. The Tadawul was up strongly, adding 0.57% overnight while markets in the UAE were softer: the DFM added 0.1% while the ADX was unchanged.
  • Asian markets are leaning negative in early trade today with the Hang Seng and CSI both declining while the Nikkei is up a strong 1.1%.


  • Oil prices weakened in the run up to today’s OPEC+ meeting. Brent futures fell 0.6% to 72.99/b while WTI was off by 1% to USD 68.50/b. OPEC+ is expected to stick to its plan of adding 400k b/d per month at today’s meeting but internal projections from OPEC+ would suggest that they could contribute to an oversupplied market next year if they carry on adding volumes on a steady pattern.  

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Written By

Edward Bell Head of Market Economics

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