Equities | Europe | FX | Global | Monetary Policy & Inflation
Markets to Watch This Week: Markets Are Incorrectly Pricing Fed and BoE
- By Bilal Hafeez and Ben Ford
- 3 min read
Market Moves
US inflation took the market by surprise. And, for the first time since January 2021, it was to the downside. That is, prices rose 8.5% YoY (versus 8.7% YoY expected) while they remained flat MoM (versus 0.2% MoM expected). It helped reignite the risk-on attitude investors had previously adopted, with US equities extending their rally from June lows (Chart 1). It also benefitted risk-sensitive currencies, and Euro and US HY credit spreads.
Dominique and Henry, however, warn to not get too optimistic too soon because the dip in inflation was almost entirely energy related, and core inflation remains strong. Dominique continues to expect core inflation around 5.5% YoY at year-end. As a result, she thinks the Federal Reserve (Fed) hikes more than is priced (175bp by YE). Our network largely agrees.
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