Hawkish FT Rates Article Catches the Eyes of the Bond Market

Its warning: Brace for a hawkish Fed this Wednesday

Highlights

• A further turn in the oil price spike has triggered a round of selling in stocks and bonds to kick off the week 

• Economists and investors are at odds on the Fed, with markets seeing the Fed as basically done, but more than 40% of the economists in an FT poll penciling in two more hikes 

• The Fed’s next decision comes against a backdrop of rising fiscal headwinds as major stimulus measures fade (student loans, faded COVID-19-era support) and the impulse turns negative 

• The latest update of our Beige Book Diffusion Index reveals a languishing economy (and mentions of the word “recession” hit the highest level on record) 

While We Were Sleeping

There is a whole lot of selling in stocks and bonds to kick off the week as a further firming in oil prices — Brent pushing towards $95 per barrel after more than an +11% three-week surge (over +30% since late June) — upsets the apple cart in both asset classes. While U.S. equity futures are up a smidge, the Euro Stoxx 50 index has lost -0.4% so far today, with losses regionally broad-based. In Asia, Japan was closed overnight but the rest of the continent was open for business. The only market in the green was the Shanghai Composite (+0.3%, but basically flat for the year, and the Hang Seng China Enterprise index with a hefty -1.6% slide); Taiwan (-1.3%), Korea (-1.0%), Thailand (-0.8%), Singapore (-0.4%) and India (-0.2%) all fell. All in, the MSCI Asia Pac composite is down -0.6% and the Emerging Market index has been faring even worse with a -0.8% drubbing. I recommend a read of China Economic Woes Rival Japan’s, or Worse on page A2 of today’s WSJ. Gold is steady at $1,926 per ounce while Bitcoin has advanced around +1% to $26,718 (market quotes time-stamped to 4:30 a.m.).