ECB expected to hike rates again in September, Barclays says

Gold is on track for a positive week as soft Eurozone jobs data cools rate-hike bets, but Barclays expects the ECB to still consider a second 2024 rate hike in September. Eurozone CPI rose 2.8% y/y in June (vs 3.2% in May), while energy inflation eased (8.7% vs 10.8%), yet “pipeline” cost-push pressures remain elevated in manufacturing and retail. With ECB policymakers citing balanced risks to inflation and growth and “all options” on the table, the debate over how proactive the ECB should be remains central for rates and gold.

Analysis

The key market mechanism is not the next headline CPI print; it is whether disinflation from energy is enough to let the ECB “look through” the shock, or whether sticky pricing power in services/manufacturing keeps policy restrictive. If the latter, Europe gets a poor mix for risk assets: lower input costs help margins only gradually, while discount rates and credit standards stay tight, which is usually hostile to small caps and deep-cyclical multiples.

Second-order effects favor gold and quality defensives more than the obvious energy beneficiaries. A softer oil path reduces near-term inflation pressure, but if wage and selling-price expectations remain elevated, real yields can stay volatile and keep bullion bid; that is supportive for GLD/GDX on dips. For BCS and other European banks, the near-term rate backdrop is less important than the eventual credit-cycle turn: net interest income can hold up for a few quarters, but slower loan demand and higher delinquencies are the real 6-18 month risk.

Contrarian view: consensus is likely overweighting the relief from lower oil and underweighting second-round effects from the prior energy shock. That means any rally in European cyclicals may fade unless the next two inflation prints confirm broad-based cooling, not just headline disinflation. Falsifiers are straightforward: a clean sequence of downside core CPI surprises and more dovish ECB guidance would force a rethink quickly.

Key Decisions for Investors

• Long GLD or GDX on pullbacks over the next 1-3 months; target another leg higher if ECB messaging stays ambiguous and real yields soften. Invalidate if U.S. 10-year real yields reclaim recent highs.
• Pair trade: long GLD / short EUFN into the September ECB window. This expresses the view that sticky pipeline inflation keeps policy tight enough to pressure European financials and broader risk assets while gold benefits from policy uncertainty.
• Stay underweight European cyclicals and small caps via VGK or sector baskets until August/September inflation data confirm services disinflation. The trade loses if core inflation re-accelerates and the ECB turns more hawkish than expected.
• Treat BCS as a watch item, not a clean outright long: it can benefit from volatility and trading activity, but a delayed-cut/high-for-longer regime is only supportive until credit costs begin to rise. Reassess if EU loan growth or delinquency trends weaken.