Spain’s Harmonised Index of Consumer Prices (HICP) rose 2.4% year on year in January. This was slightly below the 2.5% forecast.
The update suggests inflation came in a bit cooler than expected. No other details were included.
Eurozone Disinflation Trend
Spain’s softer January inflation print (2.4%) supports the broader disinflation trend across the Eurozone. It also lines up with the latest Eurozone flash estimate, which showed headline inflation easing to 2.6%. Together, these readings add weight to the view that price pressures are starting to fade.
As a result, markets are becoming more confident that the European Central Bank will start cutting rates. Interest rate swaps now price in more than a 60% chance of a 25 basis point cut by the June meeting. Expectations are shifting toward easier policy as the main market theme.
For us, this argues for positioning for lower yields using interest rate futures. We are considering building long exposure through products such as Euro Schatz futures. This is a straightforward way to express the view that the ECB will respond to weakening inflation in the months ahead.
We also expect the euro to weaken, as the rate gap with the U.S. may widen. The price action seen in 2024—when rate-cut expectations began to build—offers a clear example of how this can pressure the currency. We see buying euro put options against the dollar as a cost-effective way to position for a move lower.
Equity Options Strategy
This backdrop can also support European equities. However, with volatility still low, outright long positions can be risky. The VSTOXX index is trading near 14.5, which makes long-dated call options on indices like the Euro Stoxx 50 more appealing. This approach keeps upside exposure to a potential rally while limiting downside risk.
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