US August CPI data didn’t bring the hoped for soft surprise as was the case for PPI on Wednesday
Markets
Weekly jobless claims outweighed the ECB policy meeting, US CPI and a 30-y Treasury auction yesterday! The ECB as expected left its policy rate unchanged at 2%. New staff projections were little changed from June, basically confirming inflation has returned close to target and is expected to stay there over the policy horizon. (2.1% from 2% for this year; 1.7% from 1.6% in 2026 and 1.9% from 2% in 2027). Projections for core inflation were little changed and confirm 2% price stability as well. Growth was upwardly revised for this year 1.2% (due to a strong start of the year). It will ease next year to 1% .However, the context isn’t that bad with uncertainty on tariffs easing and fiscal support supporting activity further out. Interestingly, during the press conference, the ECB chair guided that risks to growth have become more balanced and, even stronger, that the ‘disinflation process is over’. Even in a data-dependent approach, this doesn’t suggest any further easing anymore. The German yield curve bear flattened with yields rising 3.4 bps at the short end (2-y). The 30-y declined marginally. Market pricing of a final ECB rate cut next year dropped to less than 50%. In the US, intraday market volatility was mainly driven by a sharp jump in US jobless claims (263k from 236k). US August CPI data didn’t bring the hoped for soft surprise as was the case for PPI on Wednesday. Headline inflation rose 0.4% M/M and 2.9% Y.Y (from 2.7%). Core prices added 0.3% M/M and 3.1% Y/Y. The follow-though of tariffs to consumers remains under control (at least of now). US yields initially spiked lower on the jobless claims (2-y below 3.5%; 10-y below 4%), but the move again couldn’t be sustained. At the end of the day, the US yield curve even slightly bull flattened with the 2-y only marginally lower (-0.2 bps) and the 30-y easing 4.25 bps supported by a solid 30-y auction. The euro outperformed but with an EUR/USD close at 1.1734, the tight sideways consolidation pattern easily holds. US equities still gain on mildly bad news/easing of financial conditions, with the three major indices closing at record levels. (Dow +1.36%).
Today’s eco calendar is thin in Europe. Even so, markets will keep a close look at Moody’s reassessing its credit rating of France (AA- with negative outlook). Will the agency reduce the rating to the A-category? In the US, the Michigan consumer confidence survey contains the closely watched inflation expectations gauges, but we don’t expect these to profoundly change the markets’ assessment for next week’s Fed meeting. Last but not least, US Congressional Budget Office updates its economic forecast to include the macro-economic effects of tariffs (period 2025-2028). Of late, markets tended to embrace a scenario that tariffs might at least partially mitigate the negative impact on budget/the debt trajectory of the Big Beautiful bill. If this is confirmed by CBO, it might, at least temporary, mitigate fiscal risk premia (at the long end of the US yield curve). Even so, we stay cautious to see the US 10-y yield settling below the 4% barrier for a long period.
News and views
The International Energy Agency is projecting an ever bigger record oil surplus for 2026. In updated forecasts, the agency rose estimates for global oil demand this year and the next slightly to 740k bpd, citing weaker oil prices and a “somewhat improved” economic outlook. Output, however, will exceed consumption by an average of 3.33 mln bpd in 2026 with the number even higher in H1 2026 (4 mln barrels per day). The 2026 average is 360k more than expected last month’s report and a record, barring the 2020 pandemic episode. IEA’s assessment followed the OPEC+ decision this weekend to restore a new layer of halted supplies by more than a year early. Oil prices fell yesterday and continue to do so this morning. Brent returns to the lower bound of the summer trading range around $65/b..
Gold prices over the last couple of days hit another record near the $3650 area. While the precious metal has already set more than 30 nominal records so far this year, the latest surge meant it has also topped the inflation-adjusted peak set in 1980. Demand for gold has been strong with the usual suspects having sustained a blistering rally: from geopolitical uncertainty over lingering inflation woes to huge debt buildup and the prospect of Fed rate cuts. Central banks are among the major buyers while ETF inflows have shot up too..”
Author
KBC Market Research Desk
KBC Bank
