What are the main events for today?
EUROPEAN SESSION
In the European session, the main highlight is the Eurozone Flash CPI report. The headline CPI Y/Y is expected at 2.9% vs 2.8% prior, while the Core Y/Y measure is seen at 2.4% vs 2.4% prior. The ECB will likely want to see benign inflation figures in this and the next report to hold off from raising interest rates at the next meeting in September.
In fact, in the usual post-meeting “leaks”, the ECB signalled that it’s ready to hike rates in September unless the inflation outlook improved markedly. This means that the bar for a rate hike is low. Better core inflation figures and a de-escalation in the Middle East is what the ECB is hoping for. Right now, the market is pricing in a 68% chance of a rate hike in September with a total of 36 bps of tightening expected by year-end.
AMERICAN SESSION
In the American session, we have the US Q2 Employment Cost Index (ECI) and the final University of Michigan Consumer Sentiment index. The focus will be on the ECI as that’s the most comprehensive report on wage growth and the Fed watches it closely. The only drawback is that it’s not as timely as the Average Hourly Earnings data. The ECI is expected to tick lower to 0.8% vs 0.9% prior.
