Eurozone CPI declines, but services sector remains a problem

• Political concerns continue to weigh on European stocks although UK markets may yet benefit from relative political stability.

• Eurozone CPI declines, but services sector remains a problem.

• US job openings kick of focus on employment.

European markets are on the back foot in early trade today, with political jitters continuing to keep mainland markets under pressure. Initial gains seen in the immediate aftermath of Sunday’s vote saw a short-term rebound for the CAC, but we are once again seeing those concerns resurface as we move steadily towards this weekend’s final rundown in France. The UK political landscape looks to take on a more serene footing, with Thursday’s election widely anticipated to bring a supermajority for Kier Starmer’s Labour party. Given the political shockwaves being felt around Europe, the prospect of a stable political environment could yet help place the UK economy as a haven for years to come.

Today’s eurozone CPI reading brought a fresh bout of disinflation for the region, with headline (2.5%) and core (2.8%) both providing a welcome decline. The services sector remains a problem, with the monthly (0.6%) and annual (4.1%) figures highlighting the fact that prices within that part of the economy continue to track well above the pace required to bring CPI back down to target. For now, energy prices provide a welcome driver of disinflation, with a 0.8% decline for June alone helping to keep a lid on the total inflation metrics. For traders, the fact that the eurozone inflation figure continues to move lower does provide grounds for optimism, with the ECB priced to cut rates once again in September. However, with services sector inflation showing little sign of slowing down, there is a fear that we could soon be talking about reflation rather than deflation.

Looking ahead, today sees the latest US JOLTS job openings report, with markets predicting the first sub 8-million reading since mid-2021. The gradual decline in job openings over the past two years have indicated a tightening within the jobs markets that has only recently started to align with rising unemployment claims. With ADP and headline payrolls also expected to fall this week, traders could yet start to question just how stable the employment situation is in the US right now.