Home » New inflation alert reactivates BTP sales. Schnabel worried, markets see ECB remain aggressive on rates

New inflation alert reactivates BTP sales. Schnabel worried, markets see ECB remain aggressive on rates

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New inflation alert reactivates BTP sales.  Schnabel worried, markets see ECB remain aggressive on rates

The surge in British inflation beyond the 10th wall has rekindled alarm bells in the market about the persistence of inflationary pressures. Yesterday the reaction was very violent especially in European bonds with yields shot up especially in the short part of the curve.

The yield of the ten-year BTP went up to 3.37% this morning compared to the levels below 3% at which it was traveling at the beginning of the week. The 10-year Bund in turn rose up to 1.15% compared to the 0.9% area two days ago. The BTP / Bund spread, on the other hand, is little moved in the 220 bp area.

Eurostat today confirmed that inflation in July marked an annual + 8.9% in the euro area. At this stage, the focus is on natural gas prices, which jumped up to 250 euros per megawatt hour at the Ttf in Amsterdam, the benchmark index in Europe, which will fuel inflation pressures. You look at the risk of further drops in supply levels from Russiain addition to climatic criticalities that are limiting the production and transport of LNG by river. “Until a week ago, imports from other sources more than offset the reduction in Russian supplies, but the situation could become more difficult in the coming months”, argue the Intesa Sanpaolo experts.

Recession alone will not extinguish inflationary pressures

The specter of inflation will inevitably affect the work of central banks and the market prices that the ECB will implement a substantial increase of 50 basis points in September as well. Expectations confirmed by today’s words of Isabel Schnabel, member of the board of the ECB, indicating how the inflation outlook has not improved and that further price rises in the short term cannot be ruled out.

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Schnabel considers the rise in inflation by now widespread, even if still dominated by specific dynamics in energy and food, and believes that inflationary pressures will not fade by themselves even in the event of a recession, because there is a supply shock component. “There is a strong indication that growth will slow down and I would not rule out that we enter a technical recession, especially if energy supplies from Russia are further cut off,” said Schnabel.

Towards a new 50bp hike in September

“In July we decided to raise rates by 50 basis points because we were concerned about the outlook for inflation,” Schnabel said in an interview with Reuters. “The concerns we had in July have not been alleviated. I don’t think this perspective has changed radically ”. Words suggesting Schnabel’s support for another 50bp hike could come next month. “Any decision will be made on the basis of incoming data,” said the ECB representative.

In September, the ECB will have to decide whether to raise rates by 25 or 50bps. Money markets are currently pricing in a half percentage point increase in September and a total of 117 basis points by the end of the year, up sharply from yesterday’s 110bps.

In the last 24 hours, fears of an inflationary spiral difficult to control have increased, thanks to the strong acceleration highlighted by British inflation, which reached 10.1% in July.

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