If Energy Prices Stay Elevated, ECB Likely to Raise Rates in September — Market Talk

0932 ET - If energy prices remain at the current elevated levels, the European Central Bank is likely to increase interest rates in September, Aberdeen Investments' Felix Feather says in a note. "An energy cost shock of that magnitude would be too great for the ECB to look through," he says. The ECB voted to keep interest rates on hold at 2.25% at Thursday's rate decision and said it would follow a data-dependent approach at future meetings. ([email protected])0927 ET - The European Central Bank is unlikely to raise interest rates again this year, says Brian Coulton at Fitch Ratings in a note. The central bank unsurprisingly kept rates on hold Thursday, and the key to where it goes next will be whether there are any signs of second-round inflation effects from higher energy prices, he says. "The recent volatility in oil prices is unlikely to have had a major impact on the ECB's interest rate deliberations." But knock-on effects seem unlikely as nominal wage growth remains low and unit profit growth has been in steep decline since 2023, Coulton says. "The risk of a significant rise in domestically-generated inflation looks quite low and we do not foresee any more interest rate hikes this year, he says. ([email protected])0921 ET - Bitcoin stays under pressure as the U.S.-Iran conflict and concerns about artificial intelligence spending weigh. The ongoing Iran war pushes oil prices higher, boosting expectations for U.S. interest-rate rises. Alphabet and Tesla both reported negative free cash flow for the second quarter and expect higher capital expenditures, fueling AI spending fears. Meanwhile, Republicans on Wednesday released an updated U.S. Clarity Act which aims to establish a regulatory framework for digital assets. Under the new proposals, presidents and federal officials would be banned from issuing or sponsoring cryptocurrencies. Bitcoin falls 1.2% to $65,107, LSEG data show. ([email protected])0919 ET - Markets might be overestimating how much the European Central Bank will raise interest rates, UBS Global Wealth Management's Dean Turner says in a note. As a result, UBS GWM continue to favour high-quality eurozone bonds, particularly in short- and medium-dated maturities, he says. "Markets currently appear to be pricing a more aggressive path for ECB rates than we expect," the chief eurozone and U.K. economist says. Unless energy prices retreat meaningfully, the ECB is likely to resume its tightening cycle at its September meeting before moving to a more prolonged pause, Turner says. ([email protected])0916 ET - The European Central Bank could increase interest rates in September due to renewed energy price pressures, Validus Risk Management's Pierre Roke says in a note. The ECB left interest rates unchanged at 2.25% during Thursday's rate decision but said that geopolitical uncertainty remains high. Investors price in a 72% chance of an ECB rate rise in September, LSEG data show. ([email protected])0911 ET - Treasury yields rise as the number of people filing for jobless insurance in the U.S. falls to 187,000 from an upwardly revised 209,000. Economists surveyed by WSJ expected an increase to 212,000. Oil prices are racing back toward $100. President Trump says on Truth Social that the U.S. would hold Iran responsible for future attacks by Houthi militants after the group fired on two Saudi tankers in the Red Sea. The ICE US dollar index is up 0.2%. U.S. stock futures are sharply lower with S&P futures off 71 points. The 10-year yield rises to 4.71% from yesterday's settle of 4.66%. The two-year increases to 4.35% from 4.30%. ([email protected])0909 ET - The European Central Bank is expected to raise interest rates in September, having raised in June and having left them on hold on Thursday, as expected, DWS's Ulrike Kastens says in a note. "However, the ECB made it clear that the full inflationary impact of the energy shock on inflation has yet to play out," the senior economist says. Therefore, caution regarding inflation risks remains warranted, she says. Based on the ECB's updated staff projections in September, DWS expects the ECB to deliver another rate hike, bringing the deposit rate to 2.50%. ([email protected])0902 ET - The European Central Bank left interest rates unchanged on Thursday, a decision that was widely expected given easing headline inflation and limited evidence of broader inflationary effects from the war in Iran, Carsten Brzeski at ING says in a note. The ECB could have raised rates immediately, but instead chose not to surprise financial markets, he says. However, the recent rebound in energy prices point to another rate increase. "The latest increase in energy prices has actually pushed the ECB closer to its more severe macro scenarios, calling for another rate hike," Brzeski says. ([email protected])0858 ET - Through the rear-view mirror, the European Central Bank's choice to hold interest rates clearly makes sense, with inflation down in June and few signs of knock-on effects from higher energy prices, ING's Carsten Brzeski says in a note. Yet, with energy prices soaring--and assuming the June hike was not just an insurance move--a hike in September looks almost like a done deal, he says. The latest increase in energy prices has pushed the ECB closer to its more severe macro scenarios for the impact of the war. "Unless oil prices start dropping significantly over the next weeks, the ECB's own macro projections in September will call for another rate hike, loud and clear," he says ([email protected])0855 ET - The European Central Bank kept its key interest rate at 2.25% as expected, after June's inflation data provided some relief, Schroders economist Tina Fong says. However, the decline in inflation to 2.8% from 3.2% in May wasn't enough for policymakers to declare victory, she says. "Inflation remains above the ECB's 2% target and the central bank's recent rhetoric has been relatively hawkish." In addition, the renewed flare-up in the Middle East has pushed oil prices back up, the eurozone economy has proved surprisingly resilient and Germany's fiscal stimulus package should provide an additional tailwind to growth over the coming months, she says. Taken together, the ECB should raise rates by a quarter-point in September, she says. ([email protected])0854 ET - Renewed Iranian attacks are likely to derail the Gulf's tentative economic recovery, says Nicolas Crittenden, an assistant economist at Capital Economics. The latest escalation threatens to reverse improvements that emerged after last month's U.S.-Iran ceasefire deal eased disruption to regional trade and energy flows. Crittenden says Gulf-wide private sector activity improved in June, led by Saudi Arabia. Exports to the region from major trading partners also strengthened, while flight numbers returned close to pre-conflict levels, pointing to a recovery in tourism and logistics. Renewed disruption to Strait of Hormuz traffic is likely to stall the recovery, with downside risks building around Capital Economics' forecast for Gulf GDP to contract about 6% this year. ([email protected])0851 ET - As one of the first movers earlier this year to hike interest rates amid inflation pressures, the European Central Bank's meeting reinforces the same instinct: to stay in front of the risk, not behind it, J.P. Morgan Private Bank's Madison Faller says in a note. The ECB said the full inflationary impact of the energy shock has yet to play out. "That keeps September as a live meeting, with the bar to hold edging higher," the global investment strategist says. On Thursday, the ECB left policy rates on hold, having raised interest rates at the June meeting. Energy and inflation pressures are clearly back in focus, she says. ([email protected])