Sanitation: Euro zone faces inflation hurdle before ECB

Morning Bid Europe

A look at the day ahead in European and global markets

By Rae Wee, Correspondent

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Euro zone preliminary inflation data on Wednesday will set the tone for markets ahead of the European Central Bank's rate decision a day later, as policymakers keep close tabs on the euro's strength.

Expectations are for consumer prices in the bloc to have eased slightly to an annual 1.7% last month. That remains comfortably below the ECB's 2% target as price pressures dissipate and give the central bank reason to stay on hold.

Today's Market News

Euro's upward potential

A view shows the logo of the European Central Bank (ECB) outside its headquarters in Frankfurt, Germany March 16, 2023. REUTERS/Heiko Becker

Recent data showed German inflation unexpectedly rose slightly in January, though France's came in less than expected.

A significant miss could raise alarm bells for ECB policymakers, who last month flagged growing concerns over the euro's quick appreciation against the dollar and its potential to push inflation even lower if it continues strengthening.

The common currency, while retreating from its highs above $1.20 hit in January, remains sensitive to uncertainties from U.S. President Donald Trump's chaotic policies. That risk continues to keep the dollar under pressure, meaning more upward potential for the euro.

AI-led disruption

The focus will also be on whether a rout in data analytics, professional services and software companies continues. On Friday, Anthropic's launch of plug-ins for its Claude Cowork agent sparked worries of an AI-fuelled disruption to those industries.

Selling pressure abated in Asia given the region's historical dominance in hardware manufacturing, while European and U.S. stock futures pointed to a steadier open.

The latest development highlights the disruptive threat to sectors once seen as AI winners, which analysts note is drawing a clearer line between the true winners and losers of a rally that has so far been fairly broad-based.

Results from Google parent Alphabet are also due later on Wednesday, where it is expected to report a 15.5% jump in revenue to $111.37 billion.

Investors will be focused on the company's spending plans for 2026, its outlook for cloud services demand and an update on AI capacity constraints.

Graphics are produced by Reuters.

Key developments that could influence markets on Wednesday:

Flash euro zone inflation (January)
Euro zone producer prices (December)
Alphabet earnings
U.S. ISM services PMI (January)
U.S. ADP private payrolls report (January)

Graphics are produced by Reuters.

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