Nervy markets await US inflation data after ECB hikes rate again

By Marc Jones

LONDON/SINGAPORE, Sept 10 (Reuters) - Nervy markets were waiting for key U.S. inflation data on Thursday after the ECB lifted its interest rates for a second time this year and oil held above $100 a barrel following U.S. and Iranian tanker missile strikes in the Strait of Hormuz.

Oil prices remained a concern for investors after Brent crude climbed above $100 a barrel on Wednesday for the first time since July, raising fears of renewed inflation pressure just as bond yields in major economies hover near multi-decade highs.

The European Central Bank's decision to raise its key interest rate to 2.50% from 2.25% on Thursday came as little surprise given the recent signals and barely moved the region's stock markets [.EU] and the euro.

Columbia Threadneedle's Global Head of Absolute Return Fixed Income, Keith Patton, said the focus was now on ECB President Christine Lagarde's response at her 1345 GMT press conference to the inevitable questions about the likelihood of further hikes.

"Depending on the language she uses, the market is probably waiting for a more dovish, data-dependent call," Patton said.

"The key question for me is have they done any modelling on what the detriment to growth will be if they did do another hike?"

Traders currently price ECB rates rising to 2.74% by December. But they are also pricing in another hike by this time next year and roughly a 40% chance of another after that.

Germany's 10-year bond yield held at 3.45%, the highest since the heat of the euro zone crisis in April 2011, while France's OAT yield was at another post-2008 high of 4.35%.

Away from the euro zone, the UK's 10-year and 20-year yields bobbed near respective post-2007 and 1998 highs of 5.26% and 5.87% and benchmark 10-year U.S. Treasury yields nudged up to 4.85%.

Investors were also digesting signs of looser U.S. fiscal policy after Donald Trump promised to pay every U.S. adult a $5,000 "Trump dividend" if his party wins November's congressional elections. The Treasury Department had also announced a $6 billion buyback of longer-dated U.S. bonds that disappointed some investors.

"Spending 4% of GDP to win an election," while the Treasury is buying bonds at the long end, "policy is not coherent," Columbia Threadneedle's Patton said.

OIL PRESSURE

In the commodity markets, Brent crude futures jumped another 3% to $104 a barrel amid the re-escalation of the Iran war and as traders grappled with the prospect of yet more inflationary pressure. [O/R]

"I think that Brent pushing through the $100 level will be seen by many in the market as a significant event in the current scheme of things," said Nick Twidale, chief market strategist at ATFX Global.

Twidale said traders who had been holding off in hopes of a Middle East peace deal may now "hit the trigger as the realities of a longer conflict kick in."

Overnight, MSCI's broadest index of Asia shares fell 0.5%. Japan's Nikkei finished 0.2% higher while South Korea's KOSPI dipped 0.25%.

Wall Street futures rose 0.1% ahead of U.S. inflation data later in the day that will set expectations for the Federal Reserve's meeting next week.

Investor attention will stay on the bond market. After the global ​selloff pushed 30-year yields to their highest level since 2007, Treasury Secretary Scott Bessent in August said that the ⁠government would increase buybacks of longer-dated bonds.

"Bessent has laid down the gauntlet to a group of sophisticated traders who don't like to be told what to do," said Matt Simpson, senior market analyst at StoneX.

"He may win a battle or two, but he'll only win the war if bond traders let him."

(Reporting by Marc Jones;Editing by Elaine Hardcastle)