Market Expectations of Eurozone HICP

December 17, 2007

The latest Eurozone Harmonized Index of Consumer Prices excluding tobacco ("HICP") number was released by the European Statistical Institute ("Eurostat") on December 14, 2007. The HICP for November 2007 was 105.69.

Rounding values to the closest second decimal, this represents a year-on-year increase of 3.06% over the November 2006 HICP number. Based on activity in the Eurozone HICP futures contract at the close on Thursday, December 13, 2007, the market was expecting year-on-year (“Y-o-Y”) inflation as implied by the November 2007 HICP number to be 2.92%.

Looking ahead, the chart below presents market expectations for future inflation over the coming year as implied by the Eurozone HICP futures contract. The implied Year-on-Year rates, the dotted green line below, are based on market prices as of 3:00 pm London time on December 14, 2007. Please note that the implied inflation rates are rounded to the closest second decimal value.

Eurozone HICP futures contracts have been trading on the CME Globex platform since September 2005. Recently, CME Group launched implied spread functionality for all Eurozone HICP futures and futures spreads. This functionality has been available for a number of years on CME Globex for Eurodollar futures and the same principals apply to Eurozone HICP futures.

CME Globex Implied Prices are a way to provide CME Group customers with greater market liquidity and improved prices for Eurozone HICP futures.

Bids and offers in individual futures contracts are automatically combined by CME Globex to create additional liquidity in spread contracts, often at improved prices. These are called "Implied In" prices. Existing bids and offers in spread contracts are combined with bids and offers in individual futures contracts to create additional liquidity in other futures contracts. These are called "Implied Out" prices. For market makers, implied prices allow relatively low risk spread contracts to generate liquidity in the underlying contracts.  For market takers, implied prices mean more liquidity and better prices, whether trading spreads or the underlying contracts.  For answers to the most frequently asked questions, see the Implied Pricing FAQ.  This web page details how implied pricing works for Eurodollar futures on CME Globex, but the system is essentially the same for Eurozone HICP futures.

CME Group has also made available Request for Quote (RFQ) functionality for all Eurozone HICP futures and futures spreads. RFQ is designed to provide CME Globex customers with the ability to request a quote for a single instrument.  Any quote request will be disseminated via CME Market Data Platform and Market Makers will have the opportunity to respond by generating a two-sided market for the instrument. The ISVs which currently support RFQ functionality are:

Barclays
Bloomberg
FFastFill
GL TRADE
Orc Software
Patsystems
Prime Analytics
RTS Realtime Systems

To find out specifically how RFQ functions on your ISV you may want to contact them yourself. And if your ISV is not listed above contact them to find out when they will offer RFQ functionality for Eurozone HICP futures.

The Eurozone HICP contracts settle to 100 less the annual % change in HICP over past 12-months. Contract information is available at www.cme.com/hicp. Real time quote information can be accessed via www.cme.com/hicpprices. If you have any questions, please contact: