Key Events for Today: German CPI in Focus, Dallas Fed PMI in the US Session
Key Takeaways
- •German CPI is forecast to accelerate to 3.0% annually from 2.8%, but is unlikely to change the ECB's near-term rate path.
- •The ECB is widely expected to raise rates by 25 basis points to 2.50% to counter inflationary effects of the US-Iran war, with little appetite signaled for further tightening.
- •Markets are repricing Fed expectations after Warsh's hawkish Jackson Hole remarks that financial conditions are not broadly restrictive.
- •The US dollar and gold have returned to pre-US Treasury announcement levels as debasement trades correct.
- •Markets now price a 60% chance of a Fed September hike, hinging largely on the September 11 US CPI report.
European Session
The European session offers a single notable release: German CPI, which is expected to show a yearly increase to 3.0% versus 2.8% prior. Germany is the euro area's largest economy, so its inflation prints serve as a key bellwether for euro-wide price pressures ahead of the eurozone aggregate figures. As always, the core measure, which strips out volatile food and energy components, will carry more weight because it better captures the underlying trend the ECB targets. Overall, the data is unlikely to change anything for the ECB, so the market reaction will probably be muted.
As a reminder, the ECB is widely expected to hike by 25 bps at its upcoming meeting, bringing the policy rate to 2.50%. This was also confirmed by "ECB sources", who said policymakers are ready to raise rates to stem the effects of the US-Iran war, but added that there is little appetite to signal further tightening. That reluctance to pre-commit to more moves suggests the ECB is treating this hike as a response to the war's inflationary fallout rather than the start of a broader tightening cycle, which is why even a hot German CPI print is unlikely to shift the near-term rate path.
American Session
The American session calendar is light, featuring only the Dallas Fed Manufacturing PMI, expected at 1.60 versus 1.30 prior. This is a low-tier indicator covering only the Texas region, and it has never been a market-moving release. Attention instead remains on how markets digest recent Fed commentary.
Markets are currently repricing Fed interest rate expectations following Warsh's hawkish speech at the Jackson Hole Symposium, the Federal Reserve's annual gathering in Wyoming where policymakers traditionally signal the direction of policy. The key passage was his statement: "I would be hard pressed to describe broad financial conditions as restrictive." The market interpreted this as him leaning against the recent easing in financial conditions and, as a result, retightened them.
This process has extended the corrections in the "debasement" trades, with the US dollar and gold essentially returning to pre-US Treasury announcement levels. Rate hike probabilities for the September meeting have also risen, with the market now pricing a 60% chance of a hike — an outcome that will likely be decided mostly by the next US CPI report on September 11, which stands as the last major inflation checkpoint before the Fed's decision.
