Rate cuts by year-end
- Fed: 10 bps (99% probability of no change at the next meeting)
Rate hikes by year-end
- RBNZ: 75 bps (69% probability of no change at the next meeting)
- ECB: 54 bps (79% probability of no change at the next meeting)
- RBA: 54 bps (78% probability of rate hike at the next meeting)
- BoJ: 46 bps (85% probability of no change at the next meeting)
- BoE: 35 bps (91% probability of no change at the next meeting)
- BoC: 33 bps (96% probability of no change at the next meeting)
- SNB: 16 bps (92% probability of no change at the next meeting)
(You can find last week's market pricing here)
We can see that the market pricing hasn't changed much since last week but the hawkish bets continue to get pared back slowly amid US-Iran deal optimism. Everything hinges on US-Iran negotiations now as that's going to influence future inflation and growth expectations.
One thing that keeps being funny is the market pricing rate hikes for the SNB and rate cuts for the Fed. The latest BofA FMS survey showed that most investors expect the Fed to cut rates. The more timely labour market data like US jobless claims, haven't been pointing towards rate cuts at all, on the contrary, there's been a clear and strong improvement.
The Fed has been missing on its target since 2021 and the end of the war might even boost economic activity. This might keep inflation higher for longer with the Fed eventually being forced to wait longer than expected or even hiking rates.
