EUROPEAN DATA WRAP: EZ returns to growth while core/supercore HICP prints hotter than expected; UK mortgage activity lifts

Analysis details (15:00)

EZ Flash HICP, June

• A release which can be utilised by those on both the hawkish and dovish side of the spectrum and has ultimately had no impact on market pricing. As such, focus will be on the next PMI print and the services component’s pricing commentary in particular before another Flash HICP reading in the run up to the September policy announcement, at which point the accompanying economic forecasts will likely be the deciding factor in whether another 25bp lift is delivered.


• HICP Flash YY 5.3% vs. Exp. 5.3% (Prev. 5.5%); Ex Food & Energy 6.6% vs. Exp. 6.4% (Prev. 6.8%); Ex Food, Energy Alcohol & Tobacco 5.5% vs. Exp. 5.4% (Prev. 5.5%)


• Headline EZ inflation continues to moderate with the downside driven by a further easing of energy pressures, though base effects throughout the summer and the recent uptick in energy benchmarks could well exert influence throughout the summer. On the flip side, the in-focus food components remain the main contributor while the Services figure concerningly ticked up to 5.6% YY from 5.4%. While the latter is not too surprising given the high input costs and ultimately higher wages emerging from the sector, it does differ slightly to the corresponding month’s PMI that “price pressures in the services sector… has eased somewhat”. Though, as evidenced by the Flash HICP, the PMI also mentioned that input costs are rising strongly. Overall, the release can be used as a factor for both those looking for another hike in September and those arguing that the ECB may have already hit its peak. Post-June, the July Flash PMI showed services continues to lead private sector price upside and the block broadly gets another HICP Flash before the September 14th gathering.

EZ Flash/Prelim. GDP, Q2

• A return to growth for the EZ after a decline in Q4 and stagnation in Q1. However, the underlying details negatively bias the release given marked upside in the very volatile Irish and Lithuanian numbers while the German figure has been estimated at 0.00% and could well be subject to a negative revision. Reminder, the Ifo institute continues to talk up the odds of a German contraction in Q2 and a growing likelihood of this in Q3 as well, which would spark 12-months of downturn if correct. On the Irish upside alone, Rabobank calculates that the ex-Ireland EZ figure would be 0.1% QQ.


• GDP Flash Prelim. QQ (Q2 2023) 0.3% vs. Exp. 0.2% (Prev. -0.1%); YY 0.6% vs. Exp. 0.5% (Prev. 1.0%)


• Survey data since Q2 points to a continuation of the bleak backdrop for the EZ and its largest economies. A finding that adds conviction to calls/market pricing which indicate the ECB may well have already concluded its tightening cycle, with just a 25-30% chance of a 25bp hike implied in September.

UK Mortgage Approvals, June

• Mortgage Approvals 54.662k vs. Exp. 49.718k (Prev. 50.524k); Lending GBP 0.136B vs. Exp. 0.054B (Prev. -0.092B)


• The mortgage data has shown a jump in approvals for house purchases though a much more sizeable increase was seen in the remortgaging data to 39.1k (prev. 34.1k). Action which took place at an effective interest rate of 4.63%, +7bp for new mortgages and 2.92%, +10bp for the outstanding stock. Within the data, the BoE points out that while mortgage approvals jumped to their highest since October 2022 at 54.7k, it remains someway shy of the 2022 monthly 62.7k average. Given the BoE is expected to continue tightening, and we may even see vote(s) for another 50bp in August, prospective purchasers and remortgages locking in the ‘lower’ current rate is logical; particularly when wage upside and the moderation in energy prices/inflation is accounted for in terms of available income. Though, the finding does differ somewhat with that month’s RICS survey which pointed “to a renewed deterioration in sales market activity.” Overall, the release adds to the conviction that the UK economy has been faring reasonably well in the face of continued tightening, though it remains to be seen if the housing data uptick is a sign of economic strength or a function of expectations for further policy tightening.

31 Jul 2023 - 15:00- Fixed IncomeData- Source: Newsquawk