EUROZONE DATA: Easter Timing Weighs On Services Inf, Other Components Sticker

Apr-16 13:09

The March pullback in Eurozone services inflation was heavily impacted by the timing of Easter, with non-travel/tourism related categories looking firmer.  While this won’t stand in the way of a 25bp cut on Thursday, it may add tension within the Governing Council around how far into the 1.75-2.25% neutral range the ECB can go. For now, growth risks related to tariffs and associated uncertainty clearly dominate the ECB’s reaction function, but services stickiness adds risk to sub-2% policy rate forecasts. 

  • Annual services inflation was 3.45% Y/Y, versus a 3.42% flash and 3.68% in February).
  • Package holiday inflation was 0.87% M/M, corresponding to a 2.92% Y/Y rate (vs 7.94% prior). That’s likely due to the timing of Easter, which fell in March last year but is in mid/late-April this year. Accommodation services (4.11% Y/Y vs 4.64% prior) and airfares (-4.54% Y/Y vs 1.52% prior) also eased, also driven by Easter-timing effects.
  • Meanwhile, other services categories were stickier. Services related to recreation and personal care, excluding package holidays and accommodation ticked up to 3.72% Y/Y (vs 3.65% prior), while communication, housing and miscellaneous services inflation also rose on an annual basis.
  • In the latter category, we note that insurance inflation re-accelerated to 8.78% Y/Y, from 7.77% in February and 8.04% in January.
  • The ECB’s seasonally adjusted services inflation index was revised up 0.03pp to 0.30% M/M in March, after incorporating the final Eurostat data from this morning (NSA monthly services inflation was revised to 0.44% vs 0.41% flash). That’s then the fourth consecutive month that sequential services inflation has rounded to 0.3% - almost 4% on an annualised basis.

 

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Historical bullets

STIR: Latest Extension Of Hawkish Fed Repricing On Retail Sales

Mar-17 13:05
  • Fed Funds implied rates sit as much as 3bp higher for 2025 meetings with the retail sales and Empire data digested.
  • Cumulative cuts from 4.33% effective: 0.5bp for Wed, 6.5bp May, 21bp Jun (vs 22.5bp pre-release), 30bp Jul (vs 31.5bp) and 61bp Dec (vs 64bp).
  • We suspect the control group is doing a lot of the work behind the rates sell-off (+1.0% vs cons 0.3, partly offset by a negative revision to an even weaker January) considering overall sales more clearly disappointed in both the latest increase and revisions.
  • The former appears to be welcomed from a growth angle as it ruled out a weaker print considering some particularly mixed indicators noted ahead of the release.
  • Elsewhere, the Empire State mfg index saw the highest input cost inflation in over two years but also sliding confidence in the admittedly volatile survey. Markets have fluctuated in putting more weight on inflationary positive and growth negative implications from US tariff setting in recent months. 
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US TSY OPTIONS: Apr'25 10Y Puts

Mar-17 13:01
  • over 13,000 TYJ5 109 puts, 1 last ref 110-15.5

US DATA: Control Group Jumps But Overall Retail Momentum Still Slowing

Mar-17 12:54

Headline advance retail sales were much weaker than expected in February at 0.2% M/M (0.6% expected, -1.2% prior rev from -0.9%), but this was offset by strong performances in core categories. Ex-auto/gas rose 0.5% (vs 0.4% expected, with the "beat" more than offset by a downward revision to prior at -0.8% vs -0.5% prelim). But control group sales rose 1.0% vs the 0.4% expected, more than offsetting the downward revision to Jan (-1.0% vs -0.8% prelim).

  • The control group reading - which is an input into GDP - was a 5-month high.
  • The reason for the discrepancy between the fairly soft headline growth and the very strong control is that the latter excludes gasoline (-1.0%, weakest in 5 months, after +1.3%) and food services which unrounded was the weakest in 24 months (-1.54% after flat in Jan). That said, control group sales also exclude categories that rebounded if only to soft rates of growth: auto dealers (-0.6% after -3.8%) and building materials (+0.2%, strongest in 5 months, after -1.9%, which was the worst in 12 months).
  • Bigger-picture, retail sales continue to slow: the 3M/3M annualized rate fell to 2.3% for headline (7-month low), with control group - which is a good gauge for PCE goods consumption in GDP - at 2.6% (11-month low). Ex-autos/gas 3M/3M annualized was a 56-month weakest 0.5% - the lowest since June 2020 (ie pandemic).
  • This is starting to show in the Y/Y rates total at 3.1% Y/Y (4-month low), ex-autos/gas at 3.5% (6-month low), though control group picked up to 4.4% from 3.7%.
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