European stock markets are expected to start Tuesday's session with investors digesting the oil price rise and escalating tensions between the United States and Iran, on a day when Wall Street returns to trading after the Labor Day holiday. Brent approached $98 per barrel, after new attacks between the US and Iran raised fears of disruptions in the Strait of Hormuz. Tehran threatened to create a new restriction zone near the strait, while Washington intensified attacks on Iran-linked vessels.
The European Central Bank meeting on Thursday is at the center of attention, with markets assigning a 100% probability to a 25 basis point increase, which would bring the deposit rate to 2.50%. The question for investors is no longer whether the ECB will raise rates, but what Christine Lagarde will say about the next steps. Deutsche Bank also now anticipates a 25 basis point increase in December, taking its forecast for the terminal rate to 2.75%. The German 10-year Bund reached multi-year highs, reflecting the upward revision in ECB rate expectations.
European markets ended the first session of the week with modest changes. The PSI 20 gained 0.32% to 9,419.13 points, supported mainly by Galp, EDP group and BCP. The CAC 40 rose 0.33% and the Euro Stoxx 50 gained 0.17%. Conversely, the DAX fell 0.15%, the FTSE 100 lost 0.08% and the IBEX 35 dropped 0.14%. The eurozone GDP grew 0.6% in the second quarter on a quarterly basis, while the European Union as a whole advanced 0.7%.
On Friday, the US CPI for August will be released, with consensus pointing to year-on-year inflation of around 3.4% and core inflation of 2.4%. On Thursday, the US PPI will also be released. US markets enter this week after a stronger-than-expected August employment report, with 162,000 jobs created, increasing the probability assigned by markets to a Fed rate hike in September to about 60%.
