REFILE-European shares gain as prospect of ECB boost helps carmakers

30 Nov 2015 | Author: | No comments yet »

ECB Draghi’s Deflation Antidote Is Beginning to Work: Analysis.

European Central Bank President Mario Draghi’s pledge to pull out all stops to revive inflation may be the right prescription for euro-zone economy. Even after 432 billion euros ($457 billion) of public-sector debt purchases through Nov. 20, the ECB is struggling to stoke inflation, with prices rising just 0.3 percent this month from a year earlier in Germany, the region’s largest economy. Economists surveyed by Bloomberg unanimously predict officials will increase stimulus again this week, less than halfway through the quantitative-easing program, and most foresee multiple measures.

Manufacturing and services PMIs have been on an encouraging upward trajectory this year, which is also borne out by pickup in European Commission services confidence. With expectations so high, “Draghi cannot beat them, but only meet them,” said Marius Daheim, a senior rates strategist at SEB AB in Frankfurt. “We are in wait-and-see mode.” “We are well below 0.5 percent in terms of the 10-year bund yield,” he said. “If the ECB includes other asset classes in its asset-purchase program, this takes some downside pressure off government bond yields. The cost of insurance to protect against inflation going above ECB’s 2 percent target has recently edged higher, and is now above the record low hit in December 2014.

Realized inflation will likely get a leg up over the next few mos. due to base effect from the steep declines of oil in fourth quarter of 2014, but that should be no surprise. Third-quarter ECB Survey of Professional Forecasters shows inflation will reach 1.5 percent in two years, compared with 1.2 percent estimated in March.

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