Morning Bid: Inflation – the only game in town

A preview of the day ahead in the European and global markets of Anshuman Daga

With the European Central Bank (ECB) meeting just a week away, inflation data is front and center for investors.

But will this really change the market consensus that big rate hikes are coming? Unlikely.

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A flurry of inflation data from Germany and Spain could set the tone for the region today, ahead of Eurozone figures due on Wednesday.

Although Fed Chairman Jerome Powell clearly warned against a quick reversal of his rate hike, sending markets into freefall, Rabobank points out that one of the biggest changes in Jackson Hole was actually the position of Europe.

Eurozone money markets are now pricing two-thirds of the chance of a 75 basis point rate hike that propelled the yield on two-year German bonds to two-month highs on Monday before stabilizing lower .

Expectations of an outsized rate hike comforted the euro, as the dollar languished on Tuesday after pulling back from a two-decade high against its major peers. Inventories rebounded in Asia after early declines. In a sign of the tough choices facing central banks, ECB Chief Economist Philip Lane struck a somewhat dovish tone, saying the ECB should raise interest rates at a “steady pace” until at the end of its up cycle.

He said this was partly to maintain leeway to correct the political trajectory if circumstances changed. The comments come just after another ECB board member, Isabel Schnabel, said on Saturday that central banks needed to tighten policy even in a recession to fight inflation. Read more

And as the energy crisis puts pressure on governments and regulators, European Union energy ministers are due to hold emergency talks on September 9 to find an answer to soaring gas and fuel prices. electricity. Read more

Meanwhile, Dutch railway workers will strike across the country on Tuesday, halting trains over a growing pay dispute.

Reuters Charts

Key developments that could influence markets on Tuesday:

Economic data: German and Spanish CPI, Austrian PPI, Swedish consumer confidence

Speakers: Norwegian Finance Minister Trygve Slagsvold Vedum delivers a speech on the state of the economy, Riksbank Governor Stefan Ingves participates in a panel discussion on inflation

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Reporting by Anshuman Daga; Editing by Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

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