US Markets Ignore Inflation Data, Eyeing Fed Rate Hike

Financial markets took a cautious approach to the end of the week, as inflation data from August reinforced expectations of an imminent US Federal Reserve rate hike. However, despite this risk aversion, stock markets in Europe and the US closed higher than expected on Friday. The key driver behind this was the decline in oil and gas prices, which retreated from their weekly highs.

The CaixaBank Research report highlighted that August's US headline inflation stabilized at 3.4% year-over-year (yoy), while core inflation nudged down to 2.4%, beating consensus expectations by a slight margin. In contrast, sovereign yields rose in the US but declined in the euro area.

The market-implied odds of a Fed rate hike increased to 88% from 72% on Thursday, with the central bank's monetary policy meeting scheduled for Wednesday. The Bank of England and Japan will also hold their respective meetings this week, while the final euro area August inflation figures are set to be released on Thursday.