Major bourses in Europe failed to hold early gains and traded around the flatline on Thursday, with falls in utilities and cyclicals shares offsetting gains for financial, tech and industrials. Traders widely expect the ECB to raise interest rates for a second time in over ten years today, although the size of the rate hike is not certain. Most investors expect a 75bps rate hike but a 50bps increase is also a possibility. Market volatility is set to continue during the session amid cautiousness and uncertainty regarding the energy crisis, the economic outlook, and prospects that rising borrowing costs will severely compromise growth.

The ECB is widely expected to raise interest rates for a second time in September, with most analysts pointing to a 75bps rate hike although a 50bps increase is also a possibility, as the central bank battles high inflation and a looming recession. A 75bps hike would push the key refinancing rate to 1.25%, the highest level since November 2011. Annual inflation rate in the Euro Area increased more than expected to a new record high of 9.1% in August and is likely to reach double-digit levels in the coming months. At the same time, the energy crisis intensified after Russia halted natural gas flows via the Nord Stream 1 pipeline indefinitely, further threatening the outlook for the winter. The most recent economic indicators already point to a weaker performance, with PMIs showing a contraction in private sector activity for a second month while retail sales and industrial production slowed and confidence among both consumers and businesses remains very low.

Mexico’s annual inflation rate rose to 8.70 percent in August of 2022 from 8.15 percent in the previous month, the highest reading since December of 2000 and slightly above expectations of 8.67 percent. Prices accelerated for both goods (10.55 percent vs. 10.07 percent in July), due to processed foods and beverages (12.94 percent vs. 12.09 percent), and services (5.19 percent vs. 4.90 percent), as housing costs edged higher (3.12 percent vs. 3.02 percent). At the same time, energy prices rose faster (7.25 percent vs. 4.76 percent). The core inflation rate rose to 8.05 percent, the highest since 2000, and picked up from 7.65 percent in the prior month. Monthly, consumer prices rose by 0.70 percent, above market expectations of 0.66 percent, but easing from the 0.74 percent increase in July.

WTI crude futures dropped to an eight-month low around $82 per barrel on Thursday after tumbling almost 6% in the previous session, as a weakening demand outlook driven by aggressive monetary tightening and persistent economic concerns in top importer China continued to grip energy markets. Major central banks are set to raise interest rates further to combat inflation, with the European Central Bank expected to deliver a more aggressive hike when it meets later in the global day, while the Federal Reserve repeatedly signaled its intention to keep borrowing costs higher for longer. In China, disappointing trade data and renewed Covid lockdowns in major cities threatened further economic damages, adding to demand concerns. Meanwhile, supply-side risks remain as President Vladimir Putin said Russia would not supply energy to countries that supported a planned US-led price cap on Russian oil. The EIA also raised its global oil demand outlook, while slashing forecasts for US supply.

Chicago wheat futures extended gains to $8.3 per bushel in September, hovering at levels not seen since July after Russian President Putin criticized the UN-brokered deal with Ukraine of establishing a safe corridor for grain trade through the Black Sea. The comments raised concerns of disruptions from one of the world’s major exporters, risking lower supply and ending stock outlooks worldwide that led wheat prices to remain elevated from March to May. With the resumption of exports through Black Sea ports, Ukraine expects to sell over 20 million tonnes of grain reported to have accumulated in port silos since its invasion started on February 24, while aiming to clear stockpile space for the coming harvest. Further, top exporter Russia expects to ship 4 million tonnes of wheat in September, accelerating from the 3.5 million tonnes in August as its record-setting harvest is sold to the international market.

The central bank of Malaysia raised its key overnight policy rate by 25 basis points to 2.50% in its September 2022 meeting, the third consecutive rate hike and in line with market expectations, bringing borrowing costs to their highest level in over two years. Headline annual inflation rate increased to a 14-month high of 4.4% in July 2022 and is forecasted to peak in 3Q 2022 before moderating. At the same time, policymakers noted that economic activity in Malaysia continued to strengthen in recent months, underpinned by support from private sector spending. The central bank also said that the stance of monetary policy remains accommodative, and any further hikes will be gradual.