All eyes on the ECB today

Euro Area unemployment at 6.6% plus last flash Consumer Price Inflation (CPI) reading at 9.1%, make the Euro Area is simultaneously showing the highest inflation and the lowest unemployment of its existence.

Better data than expected, strong inflation and hawkish Central Bank rhetoric knocked European sovereign bonds in August, meaning that for many country’s government bonds it’s been their worst monthly performance on a total return basis for the 21st century. 

If a swift pivot from the ECB is highly likely as soon as inflation peaks, the key question is when and how this will happen. Short term doesn’t look great after the additional gas supply disruption caused by Nord Stream and, despite the reversal of most commodities, natural gas prices are still through the roof, which makes more difficult to reach the peak in inflation. 

Today, we will see how much the ECB hikes, the key decision will be between  50 or 75bps hike.

US jobs report for August, was just about weak enough that it led investors to dial back slightly their expectations for another 75bps hike in September but without destroying the growth narrative. Latest payrolls number means the market is back to pre-pandemic levels.

Primary market remains inexistent for High Yield and Emerging Markets bonds, only few spare names and small amounts issued.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Bond Vigilantes

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