Today's Forecast --EUR: German GfK disappoints, CPI due --29th July 2008


German regional CPI numbers will be rolled out throughout the day, along with the final national figure. We are looking for headline CPI to surprise to the upside at 3.3% (cons. 3.1%, prev. 3.3%). Despite the recent retreat in oil prices, the ECB is struggling to anchor inflation expectations across the Eurozone. In recent sentiment surveys price pressures were cited across the Eurozone as one of the key drivers behind the deterioration in the economic outlook. ECB commentary has been limited of late but the Governing Council probably feels there is scope for one more hike before economic weakness eliminates the room for manoeuvre. Yesterday, The German GfK consumer confidence sentiment for August came in lower than expected at 2.1 (cons. 3.5, prev. 3.6). The large undershooting of consensus forecasts comes on the back of last week’s Ifo result, and is now at a 5-year low. All the components within the GfK registered large declines compared to the previous month, especially business cycle expectations which once again turned negative. The number marks a bad start to a crucial data week for the Eurozone. Our economists are now forecasting a 35% chance of a recession in the Eurozone, given crucial sectors such as construction and industrial output are already contracting. PMI numbers out of the Eurozone on Friday will likely confirm these trends. Eurozone CPI will be released on Thursday and we expected a slight gain to 4.1% from last month’s 4.0%. French consumer confidence will be due at 6:40 GMT (UBSe. -46, cons. -47, prev. -46).