ECB Hike Overwhelmed by Energy Price Surge

The European Central Bank's (ECB) interest rate hike was not the main focus of market attention, according to ECB President Christine Lagarde. In her words, it was a 'no-brainer' and already largely priced in.

Energy prices were the driving force behind the market dynamic, with Brent prices pushing above $100/bbl. This led to the EUR front-end fully discounting three more ECB hikes by mid-next year, implying a deposit rate of at least 3.25%.

Lagarde did not offer concrete guidance on the ECB's next moves, highlighting that 'the outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth.'

The 10-year Bund yield topped 3.5% for the first time since 2011, while the 10-year swap rate also reached a new high, surpassing 2023 levels.