Inflation across the 18-nation bloc fell to 0.5 per cent in March, according to preliminary estimates. That is the lowest level in over four years and likely to support expectations the ECB could act to counter the deflationary threat as early as this week when it holds its next policy meeting.But the question looming large is these methods were tried earlier and did not work.
But the low number was not a major shock. So after stocks briefly popped higher and the euro slipped in anticipation the ECB will soon act, traders shifted their focus to the looming end of the first quarter and reduced their positions.
As the second quarter looms, investors are drawing comfort from expectations of further stimulus from the ECB and Chinese authorities, which they hope will mitigate the gradual withdrawal of stimulus from the U.S. Federal Reserve.
the FTSE EuroFirst 300 index of leading shares was up 0.1 per cent at 1,333 points.Britain's FTSE 100 was up 0.2 per cent at 6,627 points.Germany's DAX was down 0.1 per cent at 9,574 points, while France's CAC 40 was down a similar amount at 4,405 points.During mid morning trade.
The euro rose a quarter of one percent to $1.3784, drifting up from Friday's one-month low. On Saturday, Bundesbank president Jens Weidmann said the euro zone was not in a deflationary cycle and the ECB should not over-react to low inflation data.
"The weaker CPI reading means that the ECB doves now have an argument in favour of moving sooner rather than later. Even if the ECB does not act this week, the euro should be under pressure from stronger US data," BNP Paribas strategists said.
German benchmark 10-year yields rose to 1.59 per cent, while in peripheral euro zone bond markets Spanish 10-year yields were steady on the day at 3.24 per cent, near Friday's eight-year low of 3.2 per cent.
Even after six consecutive quarters of decline, the fall in Spanish yields accelerated in the first quarter. The plunge of around 90 basis points in the first three months of the year is the biggest quarterly fall since the end of 1996.