Inflation debates continue, and investors eagerly await the ECB’s rate decision

by | Sep 14, 2023

  • US markets brush off a slightly higher-than-expected inflation print
  • Markets poised for a rate hike from the ECB
  • Brent oil pushes past $92 a barrel

Matt Britzman, equity analyst at Hargreaves Lansdown

“After a mixed session yesterday, UK markets are set to start on a better foot this morning, with the FTSE 100 on track to open around 0.2% higher. There’s some caution in the air for European markets as investors settle in to hear the ECB’s decision on rates off the back of recent reports that economic growth will be slower than expected. Expectations have been all over the place, with hopes that a pause might be on the cards reversing in recent days – markets are now pricing in a 63% chance of a 25-point hike.

The S&P 500 and Nasdaq ended yesterday higher, with futures contracts this morning showing similar unwavering trends. Investors assessed August’s CPI data, which was slightly higher than expected at a headline level but broadly in line with expectations. Yes, the narrative might focus on a headline rate that’s now risen for two consecutive months, but what’s driving markets is the game everyone loves; guess what the fed will do next. On that front, nothing’s likely to change at the next Fed meeting with markets all but certain another pause is on the cards. Where it gets interesting is looking to November and the potential for one further hike before arriving at what many hope is the end of this rate hiking cycle. Today brings more data points to mull over; retail sales are due before opening, and the all-important PPI is coming too, with markets expecting a rise of around 0.4% for the latter.

Oil prices can potentially upset the apple cart on the inflation front, with Brent prices above $92 per barrel. OPEC and the International Energy Agency have painted a bleak supply shortage picture through the fourth quarter off the back of production cuts from Saudi Arabia and Russia. Whilst this is unhelpful for inflation prints, oil prices at these levels are manageable in the grand scheme of things. If we look at the history books, inflation-adjusted oil prices have been considerably higher than where we are today, and barring any further shock events, there doesn’t appear to be too many catalysts for prices to push materially higher in the coming months.”

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