Ahead of the ECB’s meeting on Thursday where details of the ABS/covered bond purchase scheme are expected to be delivered, the market is particularly sensitive to developments that could spur a strong policy response. Today’s preliminary September CPI figures were seized upon to drive the euro to fresh lows, against both the dollar and sterling. Â
The disappointment was not so much with the headline rate that slipped to 0.3% from 0.4%, though after yesterday’s somewhat firmer than expected Spanish and German readings, there was hope of a slightly better report. Rather the problem was with the core rate, which the ECB does not give as much importance too in their rhetoric as the Federal Reserve. It unexpected slipped to 0.7% from 0.9%.  After testing the $1.2700 area in Asia, but midday in Europe, the euro was pushed through $1.26. The $1.25 level is the next obvious target.Â
The news also helped lift Spanish and Italian bonds, and helped buoy the equity markets. Greek bonds continue to under-perform. The benchmark 10-year yield is up about 25 bp to bring the increase to almost 70 bp. We are picking up growing concern among investors about Greece’s next year’s presidential election and the possibility that it forces new parliamentary elections. This in turn is thought to increase the likelihood of a Syriza victory and its anti-EMU stance.Â
Earlier in the European morning, France and Germany reported better consumption data. Household consumption rose 0.7% in France. The market had expected a 0.3% decline after the 0.9% rise in July. The 1.4% year-over-year rate in August was twice what the market expected, though down from the 1.8% reading in July. For its part, Germany reported a 2.5% increase in August retail sales. The markets expected a 0.5% increase after the disappointing 1.1% decline in July. Separately, Germany reported an unchanged unemployment rate (6.7%), but the second consecutive increase in the number of unemployed (12k), which is also the fourth increase in past five months.Â
