EUROPEAN INFLATION: Marginally Slowing Core Momentum Should Keep ECB Content

• In the FI space, Bund futures are softer today but continue to trade above their August lows. Resistance at the 50-day EMA, at 129.77, has recently been pierced. A clear breach of the EMA would signal scope for a stronger recovery within the multi-month range. This would open 130.06, the Aug 14 high. Key support and the bear trigger lies at 128.64. Clearance of this level would reinstate the recent bearish theme.
• A bear cycle in Gilt futures is in play and last week’s fresh cycle low reinforces current conditions. Note that on the continuation chart, moving average studies are in a bear-mode position, highlighting a clear downtrend - for now. First support to watch is 90.22 (pierced), the Aug 26 low. A clear break would resume the bear leg and open the 90.00 handle. Initial resistance is at 91.24, the Aug 18 high.

Comments after Friday's national-level August HICP data suggest analyst consensus for headline Y/Y stands somewhere between 2.0% and 2.1% (2.1% prior to national-level data) for tomorrow's EZ-wide release. Key highlights below:

• Barclays: "we track EA flash headline HICP inflation at 0.19% m/m NSA and 2.08% y​/​y (Barclays initial forecast 2.05% y/y) [...] EA flash core HICP inflation at 0.31% m​/​m NSA and 2.29% y/y (Barclays initial forecast 2.24% y/y)"
• Berenberg: "Overall Eurozone inflation will stick close to the target rate in August again – perhaps ticking up to 2.1% yoy in August [...] We maintain our call that [the ECB] will keep the deposit rate steady at 2%"
• Commerzbank: "The national consumer price figures for August available so far do not indicate any major surprises in the figures for the eurozone due on Tuesday. Inflation remaining close to the ECB's target level is unlikely to prompt the ECB to consider changing its key interest rates, either upwards or downwards."
• Goldman Sachs: "We upgrade our Euro area headline inflation forecast for August to 2.02%yoy, from 2.0%yoy previously, and revise up our Euro area core inflation forecast by 1bp to 2.21%yoy. This would imply seasonally adjusted sequential core inflation of 0.18%mom in August on our estimates"
• Morgan Stanley: "We confirm our forecast for euro area headline HICP inflation at 2.1%Y in August and core HICP at 2.2%Y [...] we stress some downside risks from rounding down, in particular for headline HICP inflation, which, with some variation across remaining countries, could land at 2.0%Y."
• ING: "We think that it is still too early to rule out a September cut [...] the ECB doves have been very silent since the end of the summer break, and it has been the traditional ECB hawks trying to shape the policy debate [...] there is a growing awareness among eurozone policymakers in general that the trade framework agreement between the US and the EU is anything but set in stone [...] a too-hawkish stance could eventually backfire and increase the risk of inflation undershooting"
• JP Morgan: "We expected Euro area core inflation to decline by 0.2%-pt to 2.1%oya. Based on country-level information released today, we now expect Euro area core inflation to be down a tenth to 2.2%oya. [...] We also raise our headline inflation forecast to 2.1%oya (or 0.2%m/m sa)"

Canada will also observe the Labor Day holiday, which will further thin out wider market liquidity, as well as result in closures/reduced trading hours across Canadian markets.