The Day at a Glance | February 2 2022

The Top

*Inflation in Europe surprised to the upside; markets are starting to take into account interest rate increases on behalf of the ECB starting in July.

*OPEC+ agreed to gradually increase crude oil production towards March (400 thousand daily barrels, like in the last few months).

*Public debt in the United States reached 30 trillion dollars at the end of January; equivalent to 125% of GDP, its highest level since World War II.

*Employment in the private sector receded during January in the United States (ADP -301k).

*Russia warns about high energy prices if the global transition towards renewable energy is too aggressive.

Economic environment

Inflation in Europe continues to accelerate. Europe`s most recent inflationary figures surprised to the upside by logging a new record 5.1% annual rate, contrary to expectations of a slowdown (4.4%e.). Energy still explains a large part of the increase in the consumer price index (28.6% annual). On the positive side, however, underlying inflation slowed down from 2.6% in December to 2.3% in January. The data was made known a few days before the European Central Bank will come together for a monetary policy decision. The ECB is facing pressures for it to change its current stance – it has maintained an ultra-accommodative stance despite persistent inflation; something that contrasts with the rest of the world (except Japan). It`s possible that the ECB will keep arguing that inflation is transitory and links it to energy prices during its meeting on Thursday; but if inflation doesn’t decrease in the following months, like the ECB forecasts it will, it`s possible that its stance will start to change. After this data was made public, the ECB is expected to revise its inflationary estimates upwards in its meeting in March; the central bank is also expected to start changing its tone in its press release and will start to point out the need to decrease stimulus. It`ll be important to find out whether or not President Lagarde still believes that an increase in interest rates is unlikely to occur in 2022, or if her stance has changed. The European money market is now taking into account a 10 base point increase in interest rates in July (before this data was made public, forecasts expected this to happen in September). For 2022, a 25 bp increase is being taken into account in the deposit rate.