ECB raises rates by 25bps

The ECB raised rates for the 10^th consecutive time yesterday. The 25bps hike took the deposit rate to an all-time high of 4%. Comments from the ECB hinted at the possibility of this being the final hike in the current cycle, saying “interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target”. The ECB also revised down growth expectations for the bloc. They now expect GDP growth of 0.7% in 2023, revised down from a previous forecast of 0.9%, while the forecast for 2024 has been lowered to 1% from 1.5%.  

The value of US retail sales rose 0.6% m/m in August, significantly higher than consensus expectations for a 0.1% rise. The rise on the month was however largely attributable to higher gasoline prices, lifting the value of fuel sales by 5.2%. Once those are stripped out the value of sales rose by a more muted 0.2% m/m.  US consumers are expected to come under increasing pressure in coming months with the resumption of student-loan repayments and signs of a gradual weakening in the labour market. Separately, US initial jobless claims rose by 3k to reach 220k in the week ending September 9^th, slightly below consensus expectations for a rise to 225k.

US PPI rose 0.7% m/m in August, up from a 0.4% m/m rise in July. The increase in producer prices was largely driven by higher gasoline prices, which rose 20% in August. Excluding fuel and food prices, PPI rose by 0.2% m/m.

Today’s Economic Data and Events

• 16:30 Empire manufacturing survey Sept: forecast -10
• 17:15 US Industrial production Aug: forecast 0.1% m/m
• 18:00 US University of Michigan sentiment survey Sept: forecast 69

Fixed Income

• US Treasuries yields ended the day higher on Thursday. Both the 2yr and 10yr UST yield rose 4bps to reach 5.011% and 4.286% respectively.
• There were broad-based declines in European bond yields on Thursday. The 2yr Bund yield declined by 3bps to reach 3.133%, while the 10yr dropped 6bps to 2.588%. Gilt yields also fell on the day, with the 2yr yield down 3bps to reach 4.930%.

FX

• The Euro fell following the ECB’s decision to hike rates by a further 25bps yesterday. EURUSD ended the day 0.8% lower at 1.0643. GBPUSD also fell on the day, declining 0.65% to reach 1.2409.
• Moves in commodity currencies were mixed. USDCAD fell 0.3% to 1.3508 and AUDUSD rose 0.3% to 0.644, while NZDUSD declined 0.1% to 0.5912.

Equities

• Global equity markets had a strong day yesterday, with a sea of green across European and US indices. In the US, the strong retail sales data out yesterday boosted hopes of a soft landing, leading the S&P 500 and the NASDAQ to both add 0.8% while the Dow Jones closed 1.0% higher.
• In Europe, bulls won the day despite the ECB’s rate hike and bearish language from Christine Lagarde. The composite STOXX 600 closed 1.5% higher with the DAX gaining 1.0% and the CAC 1.2%. The UK’s FTSE 100 closed up 2.0%.
• Locally, the DFM dropped 0.4% while the ADX added 0.4%. Saudi Arabia’s Tadawul ended up 0.2%.

Commodities

• Both benchmarks saw strong gains once again yesterday as they tracked ever closer to the 100 dollar a barrel mark on a third weekly gain in a row. Brent futures added 2.0% to close at USD 93.7/b while WTI added 1.9% to USD 90.2/b. They are both up by around a further 0.5-0.6% so far in early trading this morning.
• Warnings around tight supply in H2 amid ongoing additional production curbs by key OPEC+ members has seen prices rise to levels last seen in November 2022.