Rate hikes by year-end
- RBNZ: 58 bps (97% probability of rate hike at the next meeting)
- ECB: 38 bps (68% probability of rate hike at the next meeting)
- Fed: 34 bps (68% probability of rate hike at the next meeting)
- BoE: 30 bps (72% probability of no change at the next meeting)
- BoJ: 27 bps (72% probability of no change at the next meeting)
- BoC: 16 bps (98% probability of no change at the next meeting)
- RBA: 14 bps (97% probability of no change at the next meeting)
- SNB: 9 bps (95% probability of no change at the next meeting)
- Last week’s market pricing here
There’s been a slightly dovish repricing almost across the board following more central bank decisions and a couple of key data releases. The piricing for the RBNZ remained unchanged due to lack of significant news from New Zealand.
On the ECB side, several policymakers highlighted the lack of clear second-round effects and refrained from giving signals on a September rate hike. This led to some minor dovish repricing but today’s beat in Eurozone core inflation will keep the September meeting live.
The Fed left interest rates unchanged with three dissenters voting for a hike. The consensus was that Fed’s Logan and Fed’s Hammack would prefer a rate increase, but we also got Fed’s Kashkari joining the dissenting camp. I guess the fact that Fed’s Kashkari is a hawkish member, combined with the roughly 30% probability of a rate hike that was priced in before the release, led to some dovish repricing, even though nothing has changed in the bigger picture. Fed Chair Warsh didn’t offer any clues about the next meeting as he continues to limit forward guidance. Therefore, the next big event will be the US CPI report on the 12th of August as the data will likely decide whether the Fed hikes in September or not.
The BoE left the Bank Rate unchanged as widely expected with three members dissenting in favour of a rate hike (Pill, Greene and Mann). The consensus was looking for a 7-2 vote split, but given that Mann has been the closest to shifting vote, it didn’t surprise the market. The central bank maintained the non-committal tightening bias. The dovish repricing was triggered by BoE’s Governor Bailey after he told reporters to not leave the room thinking that the BoE is edging towards a hike. He then reinforced the message by adding that policymakers are not talking about an insurance hike.
The BoJ held interest rates unchanged today as widely expected with Takata (who’s the most hawkish member) dissenting in favour of a rate hike. The statement was largely unchanged with no hawkish signals. The near-term inflation forecast was revised downward, which doesn’t point to a heightened pace for rate increases. BoJ Governor Ueda didn’t offer any clear policy signal, but he mentioned that they could speed up the pace of rate hikes if financial conditions become too easy. That’s certainly not a problem at the moment as bond yields continue to hover around cycle highs, while the Nikkei is down 13% from all-time highs. The market pricing remained largely unchanged.
For the BoC, there’s been a slightly dovish repricing although we haven’t got significant news or data from Canada.
On the RBA front, we got the Austrlia’s inflation report for Q2. The data missed expectations across the board with the Trimmed Mean CPI Y/Y coming in 3.6%, below the RBA’s 3.8% estimate, giving the central bank room to keep interest rates unchanged for longer.
Lastly, we saw a dovish repricing for the SNB after a Bloomberg report said that the central bank was set to keep its key interest rate at zero until the end of 2027 before probably starting to raise it, according to people familiar with the thinking inside the central bank.
This article was written by Giuseppe Dellamotta at investinglive.com.
