Global financial markets are closely watching the European Central Bank (ECB) meeting in September, with expectations of a 0.25% interest rate hike, driven by accelerating headline inflation from energy prices. However, what matters more is the direction of rates after September and whether the ECB will view the new rate level as sufficient to bring inflation back to its 2% target or if further hikes are needed. There are 10 key variables to monitor, including the new economic projections, the stance of ECB President Christine Lagarde, risks from natural gas prices passing through to electricity costs and production costs, and the transmission of monetary policy. Notably, gas prices are a major trigger, as Europe's gas reserves are at their lowest in five years, posing risks of supply shocks. Meanwhile, analysts at Yuanta Securities maintain a Slightly Underweight stance on European equities over the next 12 months, citing tight valuations relative to earnings potential, and recommend a Value Play strategy over broad index investment.
ECB expected to hike rates by 0.25%, raising policy rate.
ECB rate hike likely to push German 10Y yields higher.
