Market Volatility Expected as Central Banks Prepare for Rate Hikes Amid Rising Inflation

The past week saw several significant economic developments that will influence market trends in the upcoming days. In the US, the August jobs report exceeded expectations, with nonfarm payrolls increasing by 162,000 and unemployment remaining at 4.1%. This stronger-than-expected labor market data makes a September rate hike easier to justify for the Federal Reserve.

The European Central Bank (ECB) is also on the radar as it prepares to raise interest rates by 25 basis points in September. The ECB's hawkish stance, fueled by rising eurozone inflation and energy prices, increases the likelihood of another rate increase after September. Isabel Schnabel, an ECB board member, has emphasized that policy may still need to become tighter due to high inflation expectations.

Meanwhile, the Reserve Bank of New Zealand (RBNZ) raised its cash rate by 25 basis points to 2.75%, citing rising inflation and fuel prices. RBNZ Governor Anna Breemen noted that another increase is possible but stressed the need to assess the effects of previous hikes. Higher fuel prices are now making the inflation problem harder, potentially forcing the RBNZ to keep rates higher for longer.

The global oil market continues to be volatile, with crude prices near $90 due to ongoing tensions in the Strait of Hormuz. Central banks face a challenge as high oil feeds into fuel, transport, and business costs, particularly in Europe where gas and energy prices are already elevated.