Overnight, the U.S. Federal Reserve had delivered a quarter-point rate hike as widely expected. Chair Jerome Powell in his press conference said the Fed no longer expects a recession.
“Even though the Fed has left the door open for an additional rate hike before the end of the year, we believe that we’ve now reached peak cycle – the Fed tightening cycle is done,” said David Chao, a global market strategist at Invesco.
“We expect an increasing global risk appetite as markets continue to positively re-price recession risks, and ultimately look forward to and discount an economic recovery that could begin to unfold late this year.”
Futures only imply a slim chance – about 20% – that the central bank could surprise with a quarter-point increase in September. They also moved to price in sizeable rate cuts of 125 basis points by the end of next year.
ECB AHEAD
The European Central Bank is widely expected to raise interest rates by a quarter-point at its rate decision, but markets sense the end is also in sight, with at most one more hike expected after this week.
However, the slow retreat in inflation could pile pressure on policymakers to keep going or at least keep rates higher for longer.
“We, and the market, expect a 25 basis point (hike),” Jefferies economist Mohit Kumar said.
“But the key would be the guidance for future policy meetings… The market is pricing in a peak rate of 3.96%. In our view a 50/50 chance of another hike will be closer to fair.”
Another major event this week is the Bank of Japan meeting on Friday amid speculation of more tweaks to its ultra-loose monetary policy known as ‘yield curve control’, where its keeps market borrowing costs in a tight range.
Gold prices edged up 0.2% to $1,976.18 per ounce.
