inflationsticky

According to the latest data released by the UK Office for National Statistics and the German Federal Statistical Office, key macro indicators for major European economies in August significantly exceeded market expectations. In the UK, seasonally adjusted retail sales rose 0.5% month-on-month in August, sharply reversing the contraction of the previous reading (-0.5%), and coming in well above the market forecast of -0.2%. Meanwhile, in Germany, the producer price index (PPI) increased 1.1% month-on-month in August, notably above expectations of 0.4%, and remained at last month’s elevated level of 1.10%.

This set of data clearly highlights the stubborn persistence of inflation in Europe. The improvement on the UK retail front suggests that household consumption has not yet cooled off fully. Germany, as Europe’s core industrial country, has kept its upstream PPI rising at a high rate, implying that cost pressures at the production end are continuing to transmit to end markets. Against the backdrop of a rebound in manufacturing costs coexisting with consumer resilience, the market’s earlier, aggressive bets on a rapid pivot to easing by the Bank of England and the European Central Bank within the year may have been overly optimistic.

In traditional financial markets, macro data stronger than expected is exerting tangible downward pressure on European bond markets, pushing up sovereign bond yields and supporting near-term moves in regional currencies. However, if the high-rate environment is prolonged passively, it will further heighten the risk of higher financing burdens for the real economy and added pressure on corporate earnings. Elevated risk-free rates will continue to drain liquidity from risk assets, limiting the valuation reset potential in both European and U.S. equity markets.

For the cryptocurrency market, the postponement of easing cycles in major economies is undoubtedly a headwind from the perspective of macro liquidity. $BTC and the liquidity premium of various risk assets rely heavily on a coordinated rate-cut wave by global central banks. Under the suppression of inflation re-accelerating and the possibility that rates remain elevated for longer than expected, the willingness of incremental funds to enter from outside the market will likely be noticeably restrained. The market should remain alert to downside volatility risks stemming from dashed liquidity expectations.📉

#EuropeanEconomy #InflationSticky #MacroOutlook