European Central Bank Rate Hike in Focus as Oil Prices Exceed $100
Market Outlook Amid Central Bank Decisions and Surging Oil Prices
A look at the day ahead in European and global markets from Ankur Banerjee
Investor Sentiment and Market Conditions
Investors are perhaps starting to realise that elevated bond yields and higher oil prices are the new normal as the Middle East war spreads ahead of central bank meetings where policymakers may struggle to quell markets' inflation angst.
Central Bank Meetings in Focus
European Central Bank Policy Expectations
The European Central Bank will kick off the central bank bonanza later in the day with a widely expected rate hike, with the Federal Reserve and the Bank of Japan due next week.
Implications of Geopolitical Tensions
What comes next will be the prime focus as ECB President Christine Lagarde takes the stage in the wake of the biggest wave of attacks on shipping in the Middle East, where the over six-month long conflict is escalating again.
Market Reactions and Economic Indicators
Currency and Stock Market Movements
The euro was steady at $1.1637 ahead of the decision, while European stock futures pointed to a muted open.
Oil and Bond Yield Trends
Brent crude futures were perched above $100 a barrel for the first time since July, while long-term bond yields are at highs not seen since before the global financial crisis.
Impact on Global Sentiment
That toxic mix is weighing on sentiment with no end in sight for a war that is set to cast a shadow over U.S. midterm elections amid inflation worries.
Upcoming Economic Data and Rate Hike Probabilities
Data on U.S. producer prices are due later on Thursday with consumer price inflation scheduled for Friday. Analysts expect the data to play a key role in whether the Fed hikes rates at its September 15 to 16 meeting. Fed funds futures traders are pricing in about 60% odds of a rate hike next week.
Japanese Yen and Bank of Japan Outlook
And what of the yen? It stands tall at 153.39 per dollar, up 4% this month, shrugging off the rise in oil prices as traders brace for a faster pace of rate hikes from the BOJ.
BOJ Policy Signals
In a closely watched speech ahead of next week's policy meeting, board member Kazuyuki Masu warned of broadening price pressures that have pushed underlying inflation "very close" to its 2% target, hinting at rapid rate increases.
Key Events to Watch
Key developments that could influence markets on Thursday:
Economic events: ECB policy meeting (A rate hike expected)
August inflation data for Germany
August U.S. PPI inflation
(By Ankur Banerjee in Singapore; Editing by Kim Coghill)