Week ahead: ECB set to hike?

The European Central Bank (ECB) convenes to determine whether it should raise interest rates again or hold fire in the face of weakening economic activity in the Eurozone. Ahead of this the monthly CPI data from the US will be closely watched for clues about the Federal Reserve does later this month.

Here are the week’s key events:

Monday

With the week hinging on the US inflation report and ECB meeting it’s a relatively gentle start on Monday. New loans data from China is due and traders will be on the lookout for any fresh moves by the authorities to ease conditions for the country’s embattled property market. German wholesale price inflation figures, which have been declining the last four months, will be considered along with Italian industrial production data ahead of the monetary policy meeting later in the week.

Tuesday

Traders and policymakers at the Bank of England alike will be watching the latest data on the UK labour market and wages. There have been signs of cooling with the unemployment rate rising to 4.2%, but wages remain a headache for policymakers with annual growth in average total pay, including bonuses, accelerating to 8.2%. Elsewhere we will be looking at the German ZEW economic sentiment survey and US NFIB small business index for clues about how business activity is faring.

Wednesday

Is the Fed gliding into a soft landing? Latest CPI inflation data will provide a clue and signal what we can expect from the US central bank later in the month. CPI rose 3.2% from a year ago in July, which was less than expected. The core CPI was 4.7%, with both advancing 0.2% month-on-month. Investors were encouraged though that almost all the inflation is now coming from shelter costs. Elsewhere, the UK GDP figures will be useful ahead of the BoE later this month.

Thursday

A busy day with US retail sales and PPI inflation figures but the main event is the ECB rate decision, which appears on a knife edge. After raising rates 425bps through to July, the ECB left another hike in September on the table at its last meeting. Since then, there have been signs of marginally cooler inflation, but the economic picture has darkened. In July the ECB was more worried about inflation being too high than anything else – just. But that calculation may have become more balanced, and a pause could be the easier course of action. Governing Council Knot said last week that markets are maybe underestimating the chances of a rate hike this month.

Friday

A mix of economic data from around the world wraps up the week. First, Chinese retail sales and industrial production will drive sentiment in the Asian session ahead of final French CPI inflation data and UK consumer inflation expectations figures. Later on, traders will eye the next batch of US data, including the Empire State manufacturing index, industrial production and UoM consumer sentiment and inflation expectations.