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Oil and rates surging ahead of US CPI today
Confirmed
In Short: Oil prices surged to USD 108 per barrel, while global interest rates are rising due to inflation pressures and central bank actions.
Oil prices surged to USD 108 per barrel, while global interest rates are rising due to inflation pressures and central bank actions. The European Central Bank raised its policy rates by 25 basis points, surprising markets and leading to expectations of more hikes in October and December.
The US Producer Price Index (PPI) was mixed, adding to the anticipation of the upcoming US August Consumer Price Index (CPI) release, which is expected to show a small decline in annual core inflation. However, rising bets for a rate hike by the US Federal Reserve are supporting the US Dollar.
The European Central Bank's focus on energy prices in its reaction function suggests further rate hikes are likely, with markets pricing in 3-4 more hikes over the coming year. The deposit rate is expected to reach 3.00% by December.
Despite higher energy prices and firm short-dated US interest rates, the dollar remains soft. The focus will likely return to US Treasuries ahead of upcoming auctions, with the US CPI release on Friday expected to provide clarity on the Fed's policy decision next week.
What's confirmed
- This is adding renewed inflation pressure and feeding through into global rates markets.
- In the euro area, the ECB hiked policy rates by 25bp, bringing the deposit rate to 2.5%, in line with consensus and market pricing.
- In the US, the PPI report was mixed ahead of next week’s FOMC meeting.
- Meanwhile, the European Central Bank raised interest rates by 25 basis points to combat energy inflation.
What's still developing
- In commodities, brent jumped to USD 108/bbl last night and held that level overnight.
- The communication at the meeting, including the new projections, came as a very hawkish surprise to markets.
- Read more in ECB Review - A "no-brainer" hike and more to follow, 10 September.
- One step ahead, HUAWEI has already revealed its latest foldable: the second generation of its triple-folding phones.
- Both the inner and outer displays use LTPO technology, allowing variable refresh rates between 1 and 120Hz.
- Polymarket still shows President Lula's chances of winning as some 7% ahead of Bolsonaro, but the gap is closing fast.
- At the same time, US short-dated rates remain relatively elevated as they await Friday's US August CPI release – what should be the final piece of the puzzle for the Fed's policy decision next week.
- Published ahead of the central bank's September 15–16 policy meeting, the report revealed positive overall sentiment tempered by growing uncertainty around rising energy costs, tariffs, and Middle East conflict.