UK CPI Data Eyed, September Fed Hike Unlikely

European equity markets got off to a decent start on Tuesday, taking a lead from the rebound in the US on Monday which came as Lael Brainard suggested that the Fed should avoid removing accommodation too quickly.

Brainard’s comments echoed those of fellow permanent voter on the FOMC Daniel Tarullo who also claimed in recent days that he’d like to see further evidence that inflation will continue to go up and be sustained around the target. While consensus does generally appear to be building for a rate hike, it once again looks very unlikely to happen in September with two Governors yet to be convinced it is warranted.

The Last Word Before Blackout

The implied probability of a rate hike in September has now fallen from 24% to 15% which has helped spur stock markets higher, almost entirely reversing Friday’s declines in the US and helping offset the disappointment of the ECB in Europe.

FedWatch

Source – CME Group FedWatch Tool

With the Fed having now entered the blackout period ahead of the meeting next week, attention is likely to shift back to the economic data and other events this week. Of course, next week’s meeting will remain on people’s minds over the next seven days.

In the meantime, focus will shift back to Europe with UK inflation and eurozone economic sentiment data being released. Inflation in the UK is already on the rise and is expected to continue higher in the coming months as input costs from abroad continue to filter through to the consumer and threaten to weigh on spending. We’re expecting both the CPI and core CPI figures to edge higher to 0.7% and 1.4% from 0.6% and 1.3%, respectively for August.

Economic sentiment in Germany and the eurozone is expected to stage another small recovery in September having suffered considerably in the immediate aftermath of the Brexit vote. We’ve seen little evidence yet of Brexit having any significant impact on the euro area and yet investors and analysts clearly remain sceptical, with the numbers remaining well below the June levels.

OANDA MP – Markets Rattled by Fed Remarks (Video)

We’ll also hear from Mario Draghi this morning when he speaks at the 2016 Alcide De Gasperi Award ceremony in Trento. The disappointment of Thursday is still fresh in the memory of investors wanting to know whether and when the ECB will respond to the low inflation and growth environment, both of which suffered downgrades to forecasts in the most recent economic projections. Draghi is unlikely to provide any details though with the ECBs priority appearing to be the challenged faces with the current program and the availability of qualifying instruments.

Economic Calendar

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.