ECB hikes interest rates +0.75%

On Thursday, the ECB raised its key interest rates by 75 basis points to counter persistent inflation. The S&P Composite Purchasing Managers' Index (PMI) showed its second monthly decline in August, to 48.9 points. It shows a bigger contraction compared to July in both the manufacturing and services sectors. High inflation and a lack of economic visibility are the main reasons for this.

While both the ECB and the Fed will continue to raise interest rate until next spring, there are growing indications that the ECB may push its benchmark rate above 2%, which might push the single currency higher.

Swiss GDP grew by 0.3% in the second quarter (compared to 0.5% in the previous quarter), supported in particular by private consumption (+1.4%) and by investment in capital goods (+2.6%). The value added of the hotel and catering industry made the strongest progress over the quarter (+12.2%). On the other hand, construction (-1.7%) and trade (-2.1%) suffered the strongest declines.

In the second quarter, GDP growth in the euro zone was revised upwards to +0.8%, compared to +0.6% in the first estimate. Over a year, growth reached 4.1%, compared to 3.9% previously. Household consumption (+1.3%) was as dynamic as in Switzerland, but the acceleration of inflation and the fall in confidence do not give a lot of hope for the future. In Germany, production in energy-intensive sectors has already contracted sharply in July, especially vehicle production (-4.6% over one month).

In US The price index rose slightly by 0.1% in August compared to July, while economists were expecting a fall of 0.1%. Year-on-year inflation was 8.3%, lower than July's 8.5%, but higher than the 8.0% expected by the market. The US dollar benefited and appreciated by 0.9% against a basket of currencies. Investors are concerned about the US Federal Reserve's actions, which is pushing down stock prices and supporting the dollar.

Oil prices were under pressure after US inflation data. A barrel of Brent crude oil cost 92.97 dollars. That was $1.05 lower than the previous day. The price of a barrel of WTI fell by $0.54 to $86.73.

Higher-than-expected inflation caused a significant drop in the US stock markets. The Nasdaq 100 fell by 5,54%. The S&P 500 lost 4.32%. The Dow Jones did not do much better, falling by 3.94%.

The ZEW indicator, which measures the markets' expectations for economic development, fell by 6.6 points to -61.9 in Germany. Unexpectedly poor economic data from Germany also weighed on the single currency. The EUR/CHF rate has fallen by 0.9% since yesterday.

The US bond market moved into the red across the US yield curve. Pressure is mounting on the Fed to assess whether to raise rates by 75bps or 100bps at its next meeting on 21 September. The 10-year Treasury yield gained to 3.41% and the 2-year yield rose to close at 3.756%, its highest level in 5 years. Today, a new test awaits the markets with the publication of producer prices in the United States. In Europe, the 10-year Bund yield ended the session up at 1.73%.