Eurozone Inflation and Growth in Focus

At 10:00 this morning, focus will turn to the release of Eurozone inflation as markets continue to consider the ECB’s future monetary pathway. While inflation has continued to ease from the record highs registered in October 2022, it remains above the target rate of 2% and higher than the level recorded in November, indicative of how the eurozone’s path back to the target may not be linear.

During their last policy meeting, the ECB’s met market expectations in leaving rates unchanged for the fourth consecutive time. Since then, the latest data release showed headline inflation eased from 2.8% in January to 2.6% in February. This came as energy prices fell 3.7% on an annualised basis.

Today’s Eurozone print follows the release of German CPI which yesterday met market expectations in easing from the 2.5% level recorded in February to 2.2% for March. When looking at the harmonised figures, the rate of inflation eased to its lowest level in almost three years as it hit 2.3%. According to some analysts, inflation in Europe’s largest economy may dip below the 2% target rate this quarter but rebound thereafter.

As markets continue to assess Frankfurt’s next move, money markets are almost fully pricing in a 25bps cut by June, with around a 10% chance of a hike when policy makers meet on the 11 April.

It’s also worth noting how the ECB continue to find themselves in a precarious situation given disparities in the level of inflation across its constituent countries. For example, while February saw headline inflation in Italy fall to 0.4% in Latvia, it remains as high as 4.1% in Croatia and 4.2% in Estonia.

On the topic of economic disparities in the Eurozone, the FT has run an article on the divide in growth rates across the Eurozone. The article shows that the four largest southern European economies (Italy, Spain, Portugal and Greece) have outpaced German growth by some 5% in the last seven years.

Many southern European countries have had less exposure to the energy implications of the fall out of the Russia-Ukraine conflict. Meanwhile, Germany relied on Russian energy to a far greater extent.

Tesla results upset the market yesterday as they missed expectations of vehicles delivered by quite some margin. They’d handed over 387,000 cars last quarter, about 50,000 short of market expectations and their lowest quarterly sales number since 2022.

The problem isn’t Tesla specific, as vehicle sales have been slowing but it is possibly a larger problem for Tesla for a number of reasons:

• They cut prices last year to keep volume high; this meant they’re working on lower profit margin, which they can probably tolerate more than German manufacturers because their supply chain is so integrated, but Chinese manufacturers are even more integrated with lower input costs, so discounting seems like a war that Elon probably won’t win.
• The tech they’re offering is no longer cutting edge; in 2020 Tesla was the only manufacturer where autonomous driving was there or thereabouts. In 2024 not only are there plenty of manufacturers with this capability, but there are also some that are using superior technology to achieve it.
• Lastly, Elon Musk is the figure head for the company and he’s a man of indisputable talents, but he’s divisive and, in a market that is creating more consumer choices by the day, you can probably get an equivalent product at a very similar price point from a company with a CEO that you know nothing about!

The 5% drop in the share price last night isn’t something that is going to bother anyone and Tesla is a notoriously volatile stock for such a large company, but this could (emphasis on the could, because we’ve been wrong before and will no doubt be wrong again) be the sales report that brings Tesla back down to earth*

*Insert witticism about SpaceX heading stratospheric when that IPO’s, possibly next year.