ECB to do all needed to keep inflation target on track: Draghi

31 Oct 2015 | Author: | No comments yet »

Eurozone inflation at zero leaves room for ECB to act.

The prices of food, alcohol and tobacco (+1.5 percent), services (+1.3 percent) and industrial goods (+0.4 percent) all increased, but the factor that prevented the overall figure from rising was energy – the cost of which was 8.7 percent down on the same period last year.The 1.1 trillion euro ($1.2 trillion) stimulus program in essence prints new money — something only the central bank can do — and pushes it into the financial system through banks in the hopes that they will lend more and help businesses expand and hire.LONDON (Reuters) – European investors cut U.S. stock and bond holdings in October and allocations fpr European assets as they focussed on monetary policy divergence between the United States and elsewhere.

It means the measure the European Central Bank calls core inflation was 0.9 percent year-on-year, well below policymakers’ target of just under 2 percent. That figure—down 0.1% from the previous month, and 0.7% from the previous year—is the area’s lowest unemployment rate since January 2012, according to Eurostat. Allocations were cut 3 percentage points in September amid worries about the world economy, slowing Chinese growth and the timing of the first U.S. rate increase in almost a decade. Jobless figures also released by the EU’s statistics agency revealed a drop to 10.8 percent across the eurozone in September – the lowest rate for nearly four years. On the whole, the eurozone’s unemployment rates are improving: 23 member states saw unemployment decrease in the past year, and only four recorded an increase.

This quarter was especially promising: the third quarter unemployment decline ending September was the largest quarterly drop since 2007, according to the Chief European and UK Economist at IHS. Federal Reserve signalled it might raise interest rates in December, despite relatively disappointing economic data and the possibility of emerging market crises. “Recent macroeconomic data and even our forecasts for the medium- (to) long-term are not that exciting. It also complicates efforts by bailed-out members of the eurozone such as Greece to make their economies more competitive with European trade partners. We recognise risks are on the downside, but we think the case for `risk on’ remains in place, accompanied by hedges,” said Matteo Germano, global head of multi-asset investing at Pioneer Investments.

Analyst Howard Archer at IHS Global Insight said that “it looks like being a long and arduous slog before eurozone consumer price inflation gets up near the ECB’s target rate…Indeed it looks increasingly unlikely to happen before 2018. “Consequently, the odds continue to favor the ECB will deliver further stimulative measures at its 3 December policy meeting,” Archer wrote in a research note. The predictions of more stimulus and relative stability in China after a turbulent summer have boosted world stocks, which are set for 8 percent gains in October – their biggest in four years – after two months of declines <.MIWD00000PUS>. “In the euro zone and Japan, accommodative central bank monetary policy and a positive outlook for corporate earnings growth should lend support to equity markets,” said Boris Willems, a strategist at UBS Global Asset Management. Allocations to stocks and bonds from all developing regions saw rises compared with September, in some cases to multi-month highs. “We are still negative on emerging markets, both on the equity and bond side. However, our market breadth indicators for EM are suggesting that prices may be bottoming,” said Donatella Principe, head of institutional business at Schroders Italia Sim.

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