Rate cuts by year-end
- Fed: 5 bps (99% probability of no change at the next meeting)
Rate hikes by year-end
- RBNZ: 90 bps (60% probability of rate hike at the next meeting)
- ECB: 64 bps (76% probability of no change at the next meeting)
- BoE: 62 bps (83% probability of no change at the next meeting)
- RBA: 60 bps (81% probability of rate hike at the next meeting)
- BoJ: 45 bps (93% probability of no change at the next meeting)
- BoC: 34 bps (94% probability of no change at the next meeting)
- SNB: 21 bps (91% probability of no change at the next meeting)
(You can find last week’s market pricing here)
The hawkish bets increased pretty much across the board this week amid the US-Iran stalemate and persistent price pressures. The RBNZ is certainly the most notable one as traders rushed to price in a rate hike at the upcoming meeting following a hot CPI report.
We’ve also seen a meaningful jump in rate hike expectations for the BoE after yesterday’s Flash PMIs as businesses across both the manufacturing and services sectors reported the steepest rise in average cost burdens in more than three years, with some measures of input price inflation reaching their highest levels since the survey began nearly three decades ago.
For the ECB, RBA and SNB the market pricing got a bit more hawkish but mostly because of the US-Iran stalemate. On the other hand, for the BoJ and BoC it barely moved as there’s been much less urge for rate hikes due to more subdued economic conditions.
The Fed pricing remains out of touch with the reality. The economic data has been showing economic resilience and even improvement in the labour market, though it could worsen the longer the Strait of Hormuz remains closed. As for all the other economies, price pressures have been increasing in the US too.
The US stock market has been trading at new record highs and that’s a positive for the wealth effect and financial conditions. The US dollar has also lost all its war-led gains. There’s literally nothing to justify the rate cut bets.
