Strong Inflation and Retail Sales Give the Euro a Boost

EUR/USD is firmer following Eurozone data. The high so far is 1.0989, and euro earlier pierced the 50-day moving average, which is presently sitting at 1.0969. Italian and Spanish HICP numbers came in higher than expected, the former at +0.2% year over year from -0.1% year over year in the harmonized figure, and the latter lifting to -0.3% year over year from -0.7% year over year. Together with a 5.3% year over year jump in Eurozone M3 money supply, the data suggests the ECB will have to revise up inflation projections, which will revive market suspicions that a tapering off is QE program may, at some point, be inevitable.

German April retail sales came in much stronger than expected at 1.7% month over month, while March was revised up to a still negative -1.4% month over month. The annual rate still fell back sharply to 1.0% year over year from 4.3% year over year and the three months trend rate decelerated to just 0.2% from 1.0% in the three months to March and versus 2.3% in the three months to February.

Eurozone M3 money supply growth jumped to 5.3% year over year in April, a much faster acceleration than expected, which brought the three months moving average to 4.7% year over year, above the official reference rate of 4.5%, although it seems a long time ago that the central bank really looked at M3 numbers, rather than headline inflation. The counterparts showed that bank lending stabilized, although overall loans to non-financial corporations continue to contract, which ties in with the fact that investment growth remains relatively weak. Household lending was unchanged over the year, although lending for house purchases continues to grow and that is something the ECB needs to keep an eye on.

A Greek exit is possible. According to an interview with Germany’s FAZ Lagarde didn’t rule out a possible Greek EMU exit although IMF spokesman Jerry Rise denied the comments, saying that there were problems with the translation of this interview. Lagarde did reportedly say that a Greek exit wouldn’t be easy, but wouldn’t necessarily mean the end of the Eurozone, while adding that it is very unlikely that Greece will reach a comprehensive agreement with creditors in coming days.

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