Eurozone braces itself for potential deflation

The markets awoke to a minor surge in bullish sentiment this Wednesday, despite a further collapse by oil.

Brent Crude fell below $50 per barrel for the first time since May 2009, touching $49.69 after the bell this morning. This bad news could get a lot worse this afternoon, as the US announces its crude oil inventories; with analysts expecting an increase on last week’s figure, Brent Crude could find itself desperately using $49 per barrel as a support level. However, in this current oil-adverse climate, even this mark may be optimistic.

The Eurozone was uniformly positive this morning, even with upcoming CPI figures suggesting a slip into deflation. With good German unemployment change, and a slight increase in German retail sales joined by an increase in Italian unemployment, the Eurozone is its perpetual chaotic self. Yet as had been the trend recently, the Eurozone indices lurch back and forth between the reality of its poor performance, and the strength this gives to Draghi’s QE push.

A slip into deflation would be yet another signal that the Eurozone is crying out for economic stimulus; however with this a well-worn tale, the confirmation of deflation may instead wipe out any positivity found this morning. Investors have been consistent in their inconsistence with regards to their reactions to Eurozone data, so it remains to be seen how the markets will react to another round of dismal figures.

It appears that the FTSE has been trading off the back of European positivity, as the normal weight of its struggling energy-sector was overcome, despite oil’s latest plunge into the abyss. As the UK sees a day light in home-grown news, the FTSE’s morning strength will be dependent on the performance of its energy-sector, and the impact of the Eurozone CPI to be announced later.

Finally, with futures pointing a growth for the US markets, they will have to weather a significant set of data this afternoon if they want to post any gains; ADP non-farm employment change will give indicator of the government released figure at the end of the week, a notorious instigator of volatility for the US markets, whilst America will be hoping for a turnaround from two months of disappointing trade balance when that number is announced later today. The US markets have been increasingly susceptible to the Eurozone chaos at the start of 2015; a strong set of data this afternoon will put the Dow Jones and company back on the right foot.