Morning Bid: The 75bp club

Signage is seen outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022. REUTERS/Wolfgang Rattay

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A look at the day ahead in the US and world markets from Mike Dolan.

Most of the world’s major central banks are now ramping up historically sweeping interest rate hikes to cool their economies and reduce inflation, and there are some signs that it’s already working.

The European Central Bank is widely expected later on Thursday to match the US Federal Reserve’s mammoth 75 basis point interest rate series, with markets now pricing in 80% for what would be its biggest rate rise in history. The euro stabilized around parity with the dollar in advance. read more

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The Bank of Canada joined the 75bp club on Wednesday, raising its benchmark rate to a 14-year high of 3.25% and promising more. read more Facing higher G7 inflation rates, the Bank of England is likely to do the same next week.

And while markets waited for further signals from Fed chief Jerome Powell later on Thursday, his fellow politicians who spoke over the past 24 hours showed no signs of batting an eye on his tightening campaign. “We’re in this as long as it takes to bring inflation down,” Vice President Lael Brainard said. read more

Indeed, Goldman Sachs is now expecting a steeper path for US rate hikes, forecasting another 75bp hike from the Fed this month and further hikes to 3.75-4% by the end of the year. . read more

But just as the hawks take flight, there are some signs that the global economic slowdown they seek through tighter credit is already underway and undermining key energy and commodity prices that have overblown high interest rates. decades-long inflation.

The Fed’s own “Beige Book” survey of corporate America, used for review at its next meeting, showed some encouraging signs that price pressures, labor shortages and supply chain problems they were easing up. read more

But energy has been the biggest irritant and there was further relief on that front, helping stocks and bonds around the globe despite a barrage of interest rate hikes.

Although more stable on Thursday, Brent crude prices have plunged below $90 a barrel this week for the first time since before the Ukraine invasion in February, as signs of slowing Chinese demand and continued lockdowns. due to COVID that reached European price ceilings, support for households and plans. to reduce energy use in winter. [nL1N30F02T read more

Even European natural gas prices, up almost threefold this year, have retreated by about 40% the over the past 10 days.

New British Prime Minister Liz Truss will lay out her plan to cap soaring consumer power bills on Thursday, with a package expected to be well in excess 100 billion pounds. read more

Currency markets remained restive, however.

Even though the rampant U.S. dollar fell back a touch against the euro ahead of the ECB decision, sterling – which hit its lowest level since 1985 on Wednesday at $1.1403 before bouncing – fell back below $1.15 again amid concerns about foreign investor confidence in UK government bonds.

The yen, which plunged to its lowest in 24 years close to 145 per dollar on Wednesday, also fell back again despite growing anxiety among Japanese government officials at the speed of its decline and warnings of action to stop “speculative” moves.

Key developments that should provide more direction to U.S. markets later on Wednesday:

* European Central Bank policy decision

* Fed Chair Jerome Powell speaks; Chicago Fed chief Charles Evans speaks

* Swiss National Bank Chairman Thomas Jordan speaks

* Fed issues Beige Book of economic condition

ECB to decide between 50 and 75 basis point interest rate increase
Fed Terminal Rate
Pound History
Foreign flows into Japanese stocks

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Writing by Mike Dolan, Editing by Alison Williams; [email protected]. Twitter: @reutersMikeD

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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