1st October 2014 - Eurozone Inflation Heading Lower

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1st October 2014 - Eurozone Inflation Heading Lower

Major European Indexes:

FTSE 100          6,622.72 (-0.36%)

Dax          9,474.30 (+0.55%)

CAC40          4,416.24 (+1.33%)

SMI          8,835.14 (+0.67%)

On the eve of the next ECB meeting many will be keen to see what Mario Draghi's reaction will be to the latest data showing inflation in the Eurozone stagnant for the second month in a row at 0.3%. This is the lowest we have seen since October 2009 and even though it is only marginally worse than the 0.4% reported in August it is well below the European Central Banks target of 2% inflation.

The data may prompt the ECB to implement some form of QE similar to the one that the United States is just exiting now.

As Mr. Draghi prepares himself for tomorrow it is hard to say whether it is too early for a major announcement such as an asset buying program. Only last month they dropped their benchmark rate down to 0.05% and created a huge fund to allow banks to borrow at reduced rates for up to 3 years so long as the funds were lent to businesses and households. The fund was substantially undersubscribed and many feel that the majority of European banks are holding out to see whether the ECB will relent and look to purchase more diverse securities in the near future.

If the Central Bank does decide to go down that route it will be very difficult to satisfy all the 28 member governments as to which securities will be included or even available to the program.

With unemployment staying level for August at 11.5% across the region, any level of confidence in the EU will need to come from a solid report later tomorrow.

Any immediate changes to policy may been seen as a nervous reaction to a dire situation however considering the EU has been staring down the barrel of this scenario for quite some time, any news will be good news for the average European.

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