Investors are likely to play it safe ahead of the release of new US price data. This means the market is already facing the next major stress test of the week. Between risks in the Middle East, inflation concerns, and an unclear monetary policy path by the major central banks, investors lack a reliable navigational signal. At the same time, next Wednesday's Federal Reserve meeting could already be casting its first shadow. In addition to rate concerns, the geopolitical framework is likely to remain one of the central themes. Even though many investors have grown accustomed to the background noise of the crisis in the Middle East, the conflict is likely to continue hanging over the markets like the sword of Damocles. In recent days, the focus—aside from the ECB meeting—has been on US producer prices.
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ECB raises key interest rate by 25 basis points – Middle East conflict as a factor of uncertainty
As expected, the European Central Bank (ECB) raised its key interest rate by a quarter of a percentage point to 2.50 percent on Thursday afternoon. „The conflict in the Middle East continues to generate inflationary pressure, and inflation is likely to remain significantly above our target for an extended period,“ the central bank stated. The outlook “remains subject to a high degree of uncertainty,“ it added. However, higher inflation and lower economic growth loom, according to the statement.
US producer prices are rising – monetary policy concerns are rising
U.S. producer prices rose by 0.4 percent month-on-month in August, matching expectations and following 0.1 percent in July. In this context, concerns about interest rates are likely to have gained momentum.
US inflation data in focus today – economists expect inflation rate of 3.4 percent
Investors are also eagerly awaiting the release of new US inflation data (2:30 PM). In this context, economists expect an August inflation rate of 3.4 percent compared to the same month last year, following 3.4 percent in July as well.
The core inflation rate may have risen by 2.4 percent over the same period (previously: 2.5 percent).
The outcome of the US inflation data is likely to have an impact on monetary policy expectations regarding the US Federal Reserve. As early as next Wednesday (September 16), the US central bank intends to decide on the future level of the key interest rate. According to data from the CME Group's „Fed Watch Tool,“ 67.1 percent of market participants currently expect an interest rate hike totaling a quarter of a percentage point.
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