Takeaway

The presenter argues that rising crude oil prices, driven by Middle East tensions, are creating a headwind for risk assets. With WTI approaching $95 and Brent nearing $100, the speaker sees renewed inflationary pressure that could force more central bank rate hikes, a view that will be tested by this week's US PPI/CPI data and ECB meeting.

What the presenter said

• European markets are struggling for direction due to rising oil prices and elevated bond yields. [00:04]
• Key events this week are the ECB decision (Thursday), US CPI (Friday), and developments in crude oil. [00:18]
• WTI is approaching $95/bbl and Brent is moving towards the psychological $100/bbl level. [00:37]
• The main driver for oil is the conflict in the Middle East, raising concerns about supply disruptions. [00:45]
• A sustained rise in energy prices could renew inflationary pressure, creating a problem for central banks. [01:00]
• If oil continues to rise, markets may price in more rate hikes from the Fed and ECB, which is a headwind for equities. [01:11]
• US 10-year and 30-year bond yields have moved higher following the Labor Day weekend. [01:37]
• If upcoming US inflation data is in line with or higher than expectations, it will likely pressure risk assets by cementing expectations for a Fed hike on September 16th. [02:37]
• For the ECB, the focus is less on the expected rate hike and more on President Lagarde's tone regarding inflation from higher energy prices. [03:08]
• The DAX index (Germany 40) shows weakening momentum, having broken below its 21-day exponential moving average. [03:38]

Trade ideas

The presenter put forward no actionable trade ideas. The overall market view is that risk assets, particularly European equities like the DAX, face pressure from the combined impact of rising oil prices, higher bond yields, and potentially more hawkish central banks.

Levels and data cited

Price Levels * WTI crude oil: Approaching $95 a barrel. * Brent crude oil: Moving towards $100 a barrel (psychologically important). * Germany 40 (DAX) Support: 25,900, 25,725, 25,512 (particularly important), and the 200-day moving average at 24,700. * Germany 40 (DAX) Resistance: 26,000 (first hurdle), 26,166, and 26,355.

Data Cited * US Producer Price Index (PPI), August (expected): +0.4% * US Headline CPI, August month-on-month (expected): +0.4% * US Headline CPI, August year-over-year (expected): 3.4% (unchanged) * US Core CPI, August year-over-year (expected): 2.4% (edging lower from 2.5% in July)

Risks and what would invalidate this

• Further escalation of the Middle East conflict could disrupt regional oil supplies.
• A sustained rise in energy prices could put renewed pressure on inflation.
• Higher oil prices could squeeze consumers and businesses.
• Inflation data in line or higher than expected could put renewed pressure on risk assets.
• A hawkish tone from the ECB could put pressure on European equity markets.