GLOBAL ECONOMICSDAILY POINTS

Key arguments

• The ECB is fully priced to hike its deposit rate 25bps to 2.40%, with the focus on guidance versus market pricing of an October skip and another hike in December.
• At or near neutral, the ECB has less room for error than the Fed or BoE, while second-round energy effects are more material in Europe due to collective bargaining and heavy imported energy dependence.
• With little economic slack in the Eurozone, the energy shock means inflation projections will likely be raised and each of the ECB's prior scenarios pointed to the need to tighten.
• Record US diesel prices and soaring European natural gas prices are set to hit farmers, truckers and household heating costs, and will concern the ECB.
• Scotiabank forecasts the BoC hiking 75bps in Q4 through Q1, while expecting the Fed to hold at 3.75% through the rest of this year and all of next year.
• US August PPI is a warm-up to CPI, with PCE-relevant components including airline passenger services, portfolio management, and several healthcare categories.
• Turkey's central bank held at 37% and Peru is expected to hold at 4.25%, while Norway's krone weakened after a soft underlying CPI reading.
• Canada's Cabinet Planning Forum in Banff precedes next week's Investment Summit, with reports of a 66-page document listing over 160 projects.

Corresponding source evidence

1. Soaring European natural gas prices will a) concern the ECB, and b) are setting up a bad winter for home heating costs (chart 2).
2. And so the beat goes on in bonds with US Ts retaining a cheapening bias via 1–2bp increases in yields across the curve with an eye on producer prices this morning.
3. The ECB ’s present 2.25% deposit rate is at or close to neutral, unlike some other central banks like the Federal Reserve and Bank of England that we think are still mildly restrictive.