Sujata Raho’s view of the future

Two weeks was needed for the UK’s money markets to change from anticipating no interest rate increases this year to bet on 35 basis points cumulative moves in November or December. Such bets exist almost everywhere. Rate-sensitive, short-dated bond yields rise and curves flatten. For instance, the U.S. 2–10 curve flattened 12bps in just a week.

Some are betting on the Fed raising its rate in September 2022, as some others have done before. A month ago, there was no Fed move predicted prior to 2023. On Tuesday, Australia’s central bank stressed again that they did not intend interest rate increases before 2024. But, it has not stopped money markets pricing a move in the late 2022.

Is it justifiable? It is clear that growth has slowed, in particular in China. The Q3 GDP declined to 4.9% and Monday’s data revealed that the U.S. Industrial Production fell 1.3% month on month in September.

While inflation may be less temporary than expected, increasing rates will not fix supply-side issues that cause prices to rise and decrease output.

This could be why bonds are not building on recent moves. Today’s yields were lower and the dollar fell to new lows for three weeks. Markets have been cheered by this, particularly after robust earnings during the Q3 season. Equity futures suggest firmer New York session and European sessions. This is following improvements across Asia.

A good piece of news is that Sunac, Kaisa and other Chinese developers made coupons payments. Evergrande could also receive an onshore bond coupon on Tuesday.

What is the future? Today’s agenda includes a slew of Fed/ECB policymakers and another for Andrew Bailey (Bank of England governor), and a slew of earnings including one from a FAANG — Netflix

You can see a graphic of Bond yields here:

https://fingfx.thomsonreuters.com/gfx/mkt/zdpxorqgqvx/Pasted%20image%201634589083278.png

There are key developments which should give more direction to the markets Tuesday

-Morrisons investors set to rubber stamp $10 bln CD&R takeover

Global Investment Summit – UK, looking at green finance and technology

A whisker away from the April 2021 record-setting high

ECB Speakers: Philip Lane (chief economist), Fabio Panetta (board member) and Frank Elderson

Speakers: San Francisco Fed President Mary Daly, Atlanta Fed President Raphael Bostic and Philadelphia Fed President Patrick Harker

Andrew Bailey, Governor of the Bank of England

-Emerging Markets: Indonesia has seen a holding rate, Hungary will increase 15 bps

-European earnings: Unilever (NYSE:), Deutsche Boerse (DE:)

-U.S. earnings: BNY Mellon (NYSE:), Halliburton (NYSE:), Proctor & Gamble, Johnson& Johnson, Netflix