Rate hikes by year-end

• RBNZ: 83 bps (67% probability of no change at the next meeting)
• ECB: 60 bps (77% probability of rate hike at the next meeting)
• BoE: 52 bps (64% probability of no change at the next meeting)
• BoJ: 42 bps (64% probability of rate hike at the next meeting)
• BoC: 42 bps (95% probability of no change at the next meeting)
• RBA: 35 bps (82% probability of no change at the next meeting)
• SNB: 16 bps (92% probability of no change at the next meeting)
• Fed: 2 bps (97% probability of no change at the next meeting)

We can see that the hawkish expectations haven’t changed much this week as the US-Iran stalemate remains in place despite some hopes for a deal.

The Fed is no longer seen cutting this year, but I’m afraid that could change quickly with the reopening of the Strait of Hormuz and falling oil prices. There’s a constant easing bias that is absolutely not justified by fundamentals. It’s still laughable to see the SNB being higher than the Fed in tightening expectations.

I think expectations for the BoJ are also mispriced. There’s no reason for the central bank to hike in June, all else being equal. Governor Ueda made it pretty clear that they will need to wait a few more months before deciding on the next rate hike.

In any case, the expectations continue to be driven mainly by US-Iran developments, but I feel like we are reaching a point where the Fed will start to place more emphasis on the data if the situation in the Strait of Hormuz doesn’t change. There is already a slow but steady change in stance and we might not be far from the Fed abandoning completely the easing bias.