EUROPEAN INFLATION: Potential Services One-Off Should Take Away From Core Upside
Further on the Eurozone HICP details - the services upside likely being a one-off to a decent degree fades any overly hawkish interpretation from the core print coming higher than expected (2.37% Y/Y, vs 2.3% MNI median, 2.35% prior). Key focus is now on the final data and how it reads through to the ECB's December projections. Again, keep in mind the following commentary from a national central bank senior official quoted in last Friday’s MNI ECB Exclusive: “I am not telling you anything new if I say that if inflation for 2026, 2027 and 2028 is below 2%, the cut is almost certain” – a noteworthy view considering markets currently price just a 50% implied probability of another 25bp cut this cycle.
Details from the HICP print below:
- The 3.35% Y/Y services print was a decent upside surprise vs the MNI median ahead of the national data of 3.2% Y/Y, coming after 3.24% in September. MNI flagged upside risks here following national-level data. However, that data also suggested that the acceleration was driven at least to some part through volatile categories (air fares, holiday villages etc), taking away from its feedthrough to the ECB's reaction function. Final data, scheduled for release November 19, will reveal in particular to what extent underlying and more persistent services subcategories moved in October and we will be watching more details in the national prints before then to see how widespread the effects were too.
- Core goods meanwhile countered some of that services upside, at 0.61% Y/Y (0.8% MNI median, 0.79% prior). Analysts see limited pipeline pressures in the category ahead, and thus project the Y/Y rate to exhibit little directional trends in the months ahead.
- Energy was seen as a key downside driver in October and came in roughly in line with expectations, at -0.96% (-1.0% MNI median, -0.37% prior). Food, alcohol and tobacco inflation also came in roughly in line with expectations, at 2.54% (2.6% MNI median, 3.02% prior).
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US 10YR FUTURE TECHS: (Z5) Testing Support At The 50-Day EMA
- RES 4: 114-10 High Apr 7 (cont.)
- RES 3: 114-00 Round number resistance
- RES 2: 113-12/29 High Sep 18 / High Sep 11 and the bull trigger
- RES 1: 112-22+/113-00 20-day EMA / High Sep 24
- PRICE: 112-16 @ 11:05 BST Oct 1
- SUP 1: 112-01 50.0% retracement of the Jul 15 - Sep 11 bull phase
- SUP 2: 111-26 Low Aug 26
- SUP 3: 111-13+ Low Aug 18 and a key support
- SUP 4: 111-01+ 76.4% retracement of the Jul 15 - Sep 11 bull phase
A short-term bear cycle in Treasury futures remains in play. Recent weakness has resulted in a print below the 50-day EMA, currently at 112-10+. A clear break of this average would undermine a bull theme and signal scope for a deeper retracement. This would open 111-13+, the Aug 18 low and the next key support. On the upside, initial firm resistance to watch is unchanged, at 113-00, the Sep 24 high.
