ECB Rate Hike Decision Looms as US Producer Prices Surge
The European Central Bank is set to make its decision on interest rates at 8:15 AM ET, with a quarter-point hike fully priced in. The deposit rate would rise to 2.50%, and the Main Refinancing Rate to 2.65%. However, markets are more interested in Christine Lagarde's press conference afterwards for signals on whether this hike marks the end of the tightening cycle or leaves the door open for more.
The ECB's own 'neutral range' estimate tops out around 3.00% on the deposit rate, so today's move brings policy to the edge of explicitly restrictive territory. If Lagarde sounds hawkish, the euro rallies and European bond yields climb further, pulling US Treasuries along via arbitrage.
Meanwhile, US producer prices came in hot this morning, rising 0.4% month-over-month in August versus a flat reading in July. This reinforces the Fed's 'higher for longer' stance, making tomorrow's CPI report even more consequential.