The European Central Bank, or ECB, decided to raise its policy interest rate by 0.25% at yesterday's meeting, in line with market expectations. It was the second increase this year, bringing the deposit rate to 2.50%, the lending rate to 2.90%, and the refinancing rate to 2.65%. Meanwhile, Asian stock markets opened lower this morning, tracking the direction of U.S. equities. South Korea's Kospi opened down 3.3% at 6,802.50 points, and Japan's Nikkei opened down 1.5% at 64,276.82 points, amid broad-based selling. Crude oil prices surged above $100 a barrel on tensions in the Middle East, stoking investor concerns that inflation will accelerate and that the Fed may raise interest rates. Most recently, the CME Group's FedWatch Tool indicated that investors assign a 70.0% probability to a 0.25% Fed rate hike at the September 16 meeting, up from 61.2% on Wednesday, and a 30.0% probability that the Fed will hold rates at 3.50-3.75%, down from 38.8%. This followed the U.S. Labor Department's release of the August producer price index, or PPI, which showed headline PPI up 5.4% year on year, above the 5.3% expected and up from 4.8% in July. Core PPI rose 4.6%, in line with expectations, from 4.3% in July. Initial jobless claims fell by 1,000 to 206,000, above the 205,000 expected. The U.S. Energy Information Administration, or EIA, reported that U.S. crude inventories fell by 391,000 barrels last week, while analysts had expected a decline of 1.4 million barrels.
CME Group IncCME's FedWatch Tool is cited showing a 70% probability of a Fed rate hike, boosting demand for CME's rate-futures/derivatives business.
ECB raised its policy rate by 0.25% to a 2.50% deposit rate, pushing euro-area policy yields higher.
