European stocks hovered at a 3-month high and the euro was just above a 7-1/2-month low on Wednesday, as euro zone inflation remained barely visible and underlined just why the ECB is set for more stimulus.
Asian shares and the dollar had both wobbled overnight after weaker than expected U.S. manufacturing data, though European investors were still mostly focused on Thursday’s expected move from Mario Draghi’s ECB.
A preliminary reading of November consumer inflation raised fresh alarm for the ECB as it stayed at just 0.1 percent, miles from the central bank’s target of just under 2 percent.
Markets are expecting another salvo of ECB easing measures, including an expansion of its bond buying program and even higher charges for commercial banks that hoard excess cash.
“It (euro zone flash HICP data) is not consistent with the trend that the ECB was expecting,” said Ruben Segura-Cayuela, a euro zone economist at Bank of America Merrill Lynch.
“We are expecting a one year extension on QE purchases and quantities to go up to as much as 70 billion euros a month. We also see a cut in the deposit rate, we think 10 basis points, but it could 20.”
London’s FTSE gained 0.3 percent too, while the pound GBP= was left near a 7-month low by weak construction data and UK government bonds GB10YT=RR were…