Summary
United States: Quiet Data Week Ahead of Critical CPI Report
- It was a light data week following the U.S. Labor Day holiday. The ISM services index came in stronger than expected, and the underlying details pointed to service sector resilience with business activity and new orders notching their highest reading this year.
- Next week: CPI (Tuesday), Retail Sales (Thursday), Industrial Production (Thursday)
International: European Central Bank Delivers Record Rate Hike
- Against a backdrop of persistent and elevated inflation, the European Central Bank (ECB) delivered a record rate hike at this week’s monetary policy announcement, raising its Deposit Rate by 75 bps to 0.75%. The ECB also said it expects to raise interest rates further, revised up its CPI inflation projections, and said that inflation remains far too high. Against this backdrop, we now forecast the European Central Bank will raise its Deposit Rate another 50 bps in late October and also 50 bps in December, lifting the Deposit Rate to 1.75% by the end of this year. We expect a final 25 bp rate increase to 2.00% in early 2023.
- Next week: U.K. CPI (Wed.), Australia Employment (Thu.), China Retail Sales & Industrial Output (Fri.)
Credit Market Insights: Mortgage Rates on a Tear
- Mortgage rates darted higher this past month as the average 30-year fixed-rate mortgage rose for the third straight week to 5.89%, up from 5.66% the previous week and 4.99% a month ago. The 90 bps rise since early August has pushed mortgage rates to their highest since 2008 and topped an earlier high of 5.81% set in June.
Topic of the Week: The Beige Book Offers Some Clues
- The Fed’s Beige Book, released eight times per year, offers timely insight on regional economic activity. Overall economic activity was little changed from the prior report, while the outlook over the next six to 12 months weakened.
