MNI US OPEN - ECB Rate Hike Case Bolstered by Record CPI

NEWS

ECB (MNI): Following the Eurozone CPI release, Bundesbank chief Nagel writes that we need a “strong” rate hike in September, and the ECB urgently needs to act decisively. Nagel added that he sees a risk that high inflation will persist even longer.

NORD STREAM (BBG): Russia’s Nord Stream Gas Flows Stop Amid Planned Maintenance
Russian natural flows to Europe via the key Nord Stream pipeline were halted at 4am local time and nominations were stopped at 6am, data from the operator show. Gazprom said Wednesday that gas flows via Nord Stream are entirely halted, as routine maintenance of the single working turbine at the link’s entry point in Russia has started. Works are scheduled to last for three days.

GERMANY (MNI): Chancellor & Econ, Fin Mins Speak As Russia Shuts Down Nord Stream
Comes as head of the German gas network regulator says to Reuters TV that, "We cannot technically understand the new maintenance by Russia...If we get the 20% gas volumes [through the pipeline] from Saturday again, it will be bearable, it depends on what Russia will do".

US-RUSSIA (MNI): Kremlin-Signals Of New START Talks w/US, But No Significant Progress
Wires reporting comments from Kremlin spox Dmitri Peskov stating that, "There are 'signals' about a resumption of New START Treaty talks with the US, but no significant progress." Under the New START Treaty the US is entitled to 18 on-site inspections per year to verify arms reduction levels, and Russia vice versa. However, inspections have been suspended by Russia 'temporarily' according to the Kremlin due to Russian inspectors not being allowed to travel to the US for reciprocal inspections according to Moscow.

BOJ (MNI): Easy Policy Needed To Achieve Aims - BOJ Nakagawa
The Bank of Japan must maintain its current easy policy to achieve sustainable price rises accompanied with wage hikes, board member Junko Nakagawa said on Wednesday. Japan's current headline CPI, 2.6% y/y in July, is largely on the back of higher resource prices and the weak yen, Nakagawa told business leaders in Hakodate City.

DATA

EUROZONE AUG FLASH HICP +0.5% M/M, +9.1% Y/Y (MNI)

EUROZONE AUG FLASH CORE HICP +4.3% Y/Y (MNI)

No relief for ECB policymakers in the latest flash eurozone inflation data, as the headline number soars to a fresh multi-decade high of 9.1%, up from 8.9% in July and ahead of market expectations of an increase to 9.0%.

Of more concern to the ECB will be the accelerated to 4.3% -- well in advance of expectation -- of the core reading. This will give further ammunition to the hawks looking for as much as a 75 bps hike at the next policy meeting on September 8.

CHINA AUG MANUFACTURING PMI 49.4 VS 49.0 IN JULY (MNI)

GERMANY AUG UNEMPLOYMENT RATE +5.5% (MNI)

FRANCE JUL PPI +1.6% M/M, +27.2% Y/Y (MNI)

FRANCE AUG CPI +0.4% M/M, +5.8% Y/Y (MNI)

FRANCE AUG HICP +0.4% M/M, +6.5% Y/Y (MNI)

ITALY AUG HICP +0.8% M/M, +9.0% Y/Y (MNI)

FOREX: NOK Slides as Norges Bank Step Up SWF Sales

• The greenback trades to the better ahead of the NY crossover, with the USD Index rising back above the 109 handle and trading well within range of the Tuesday highs. Monday's 109.478 marks the recovery and cycle high for the index, and would form a strong signal that the USD upside bias continues to underpin currency markets.
• USD trades stronger so far Wednesday in tandem with a softer equity outlook. US stock futures indicate another lower open on Wall Street later today, with Tuesday's lows in the e-mini S&P providing the first downside target at 3964.50. Despite softer stocks, however, CHF remains in a near-term downtrend, putting EUR/CHF at higher highs for a seventh consecutive session. The 50-dma remains the next upside level at 0.9812 for the cross.
• NOK the notable underperformer in G10 so far Wednesday, trading lower against all others following confirmation from the Norges Bank that they are to sell NOK 3.5bln per day across September (effectively buying more FX for the sovereign wealth fund). This is a notable uptick in FX activity from the August rate of NOK 1.5bln per day, as announced at end-July. EUR/NOK now through 9.90 and trading at highest levels since mid-August. Next key resistance rests at the 200-dma of 10.0076.
• Focus turns to the MNI Chicago PMI at 1445BST/0945ET. Markets expect the figure to hold at 52.1, inline with the July read. Canadian GDP data also crosses as well as speeches from Fed's Mester and Bostic.
• Additionally, after a brief hiatus, the ADP release their private sector jobs report with a new methodology, which markets could closely comb through for clues ahead of Friday's NFP release.

BOND SUMMARY: Core FI moves lower on EZ CPI; but gilts underperform on ONS ruling

• Core fixed income is close to the low of the day across the board following higher-than-expected Eurozone CPI (a one tenth beat for headline and two tenth beat for core). This followed some softer French HICP data but much higher Italian HICP data. The German curve has seen both Schatz and 10y Bund yields up around 2.5bp with peripheral spreads widening on the day (led by BTP-Bund with the 10y spread 2.7bp wider at writing).
• Gilts have been the biggest movers of the day after the ONS ruled that the energy support scheme is a direct fiscal transfer to households and would therefore have no impact on CPI or RPI (see more on that here). Technical support levels have been breached and 2/10-year yields are both up more than 10bp on the day.
• USTs have broadly followed the main direction of the German curve today, albeit with a generally lower beta.
• Looking ahead, the data highlights will be this afternoon's MNI Chicago Business Barometer (due at 14:45BST / 9:45ET) and the ADP employment report at 13:30BST / 8:30ET (with its new methodology).
• Today's speakers include the Fed's Mester, Logan and Bostic.
• TY1 futures are down -0-2 today at 116-30 with 10y UST yields up 1.9bp at 3.123% and 2y yields up 3.1bp at 3.475%.
• Bund futures are down -0.14 today at 148.06 with 10y Bund yields up 2.3bp at 1.531% and Schatz yields up 2.4bp at 1.163%.
• Gilt futures are down -0.96 today at 107.91 with 10y yields up 10.7bp at 2.809% and 2y yields up 10.7bp at 3.006%.

EQUITIES: Risk-Off Tone Persists, US Futures Eye Tuesday Lows

• Japan's NIKKEI 225 closed lower by -0.37% at 28091.53 and the TOPIX ended 5.22 pts lower or -0.27% at 1963.16.
• Meanwhile, China's SHANGHAI closed down 25.082 pts or -0.78% at 3202.138 and the HANG SENG ended 5.36 pts higher or +0.03% at 19954.39.
• Across Europe, Germany's DAX trades lower by 59.79 pts or -0.46% at 12900.46, FTSE 100 down 43.95 pts or -0.6% at 7317.57, CAC 40 down 39.33 pts or -0.63% at 6170.26 and Euro Stoxx 50 down 11.16 pts or -0.31% at 3550.21.
• In US futures space, Dow Jones mini up 42 pts or +0.13% at 31815, S&P 500 mini up 7.25 pts or +0.18% at 3994.75, NASDAQ mini up 47.75 pts or +0.39% at 12408.

COMMODITIES: Core Energy Prices Lower for Second Session

• WTI Crude down $1.26 or -1.37% at $90.43
• Natural Gas up $0.07 or +0.79% at $9.107
• Gold spot down $10.56 or -0.61% at $1715.5
• Copper up $1.55 or +0.44% at $356.4
• Silver down $0.25 or -1.35% at $18.237
• Platinum down $4.45 or -0.52% at $848.51