ECB Rate Hike Looms Amid Elevated Oil Prices

The European Central Bank (ECB) is expected to hike interest rates for a second time this year, bringing the deposit rate to 2.5% from 2.25%. This decision comes as inflation in the eurozone reached 3.3% in August, with energy inflation surging 14.3%. Oil prices have also risen above $100 a barrel due to ongoing tensions between the U.S. and Iran.

The ECB's rate hike is seen as fully priced in by markets, but investors will be paying close attention to President Christine Lagarde's press conference for insight into the bank's plans for further hikes. Upward revisions to inflation and growth forecasts could provide clues to additional hikes, particularly if Lagarde reiterates a meeting-by-meeting approach and data dependency.

A hawkish tone from the ECB and potential further rate hikes could weigh on European equities due to elevated bond yields already tightening financial conditions. Meanwhile, U.S. PPI data is expected to rise 5.3% in August, up from 4.8% in July, which could drive up rate hike expectations and impact equities.