Bloomberg News reports that traders were found pushing the market-implied odds of yet another 3-point rate hike of the Federal Reserve in September, instead of an anticipated more minor half-point shift, to the peak level since the last meeting of the central bank.
On Wednesday, the highest level was reached immediately following an article in Wall Street Journal, which suggested that it is likely that the more significant move appeared. While it was for a brief period that it sustained, the swap contract rate referencing the Fed’s September meeting has remained approximately higher by two basis points on the same day since August 5th at the peak level, while the robust employment data of July was found pushing the same to the earlier high.
As George Goncalves, who is associated with MUFG Securities Americas Inc. as the head of macro strategy, the market has realized that Federal Reserve will continue to keep the financial conditions tight. Although in his words, it is a bit of chicken and egg, if it is a 75-basis point surge in market pricing, the Fed must take it.
He further stated that the inflation data that is scheduled to arrive must be well below what has been predicted to stop the Fed from tightening “expeditiously.” However, September 13th is when the following consumer price index numbers are due.
Bloomberg News reports a surge in policy tightening anticipations following solid August jobs reported in the past week. On Wednesday, Loretta Mester, the Fed Cleveland President, repeated that she believes the US central bank must get rates above 4% by the beginning of 2023. Jerome Powell, the Fed Chair scheduled to speak Thursday, may stress the need for further tightening for slowing the labor market after he delivered a hawkish message in late August at the Jackson Hole.
Treasuries were found to gain on Wednesday after a steep selloff, with trading resuming Tuesday after a long weekend. As the policy tightening wagers pared before Thursday’s European Central Bank meeting, the slide in Treasury yields lagged sharper plunges in the UK gilts and mainly in the eurozone bonds. In the meantime, the Bank of Canada was raising the policy rate by 75 basis points in conjunction with a line of anticipations.
