The markets ended last week with a positive note as the risky assets were lifted by dovishness of the ECB and the PBoC. Treasuries also gained but USD depreciated against the majors. The focus in developed markets this week will be on the inflation data. We expect the US headline and core PCE indices to remain unchanged and pick up respectively MoM, alleviating dovish FOMC members’ concerns over disinflationary pressures.
This week’s Eurozone flash inflation data is particularly important given Draghi’s dovish remarks on Friday that ECB will step up its asset purchase program if inflation keeps trailing its target. We expect the November headline inflation to decelerate to 0.3%YoY on lower energy prices while the core number should remain unchanged at 0.7%YoY.
In addition, the sentiment indices this week will continue to display that the economic prospects for the US and the Eurozone continue are diverging. US consumer sentiment indices from both Conference Board and University of Michigan will likely pick up while German IFOs and French manufacturing confidence should fall and stabilize respectively.
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