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Analysis

Fed rate hike expectations increase

BY Janne Muta

|juin 8, 2023

Equity markets got spooked by the two recent rate hikes from the RBA and the BOC. Bonds sold off sending the yield-sensitive Nasdaq lower. Investors are starting to think the Fed might hike next week. The Bank of Canada surprised markets yesterday with a 25 basis-point interest rate hike, following the earlier surprise hike by the Reserve Bank of Australia. The BOC rate hike to a 22-year high was driven by inflation concerns as the labour market and consumer spending remained strong.

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The US bond market was under pressure after the BOC rate decision, with yields rising and prices falling on fears of further rate increases. Expectations for the Federal Reserve's rate hikes have risen, but there is speculation that the Fed may pause rate hikes before raising borrowing costs later on. The probability of the Fed hiking by 25 bps next week increased to 36% from 22% the previous day, according to the CME FedWatch tool.

Nasdaq declined 1.88% while Dow managed a modest increase of 0.30%. DAX followed the lead and declined 0.58%, and FTSE ticked lower by 0.11%. Gold dropped 1.19% as the T-bond market sold off and the 10 yr yield moved strongly higher. USOIL gained 1.43% and created a higher daily low suggesting the production cuts are having an impact even though investors have been concerned about global oil demand. The EURUSD remained practically unchanged while USDJPY gained 0.38%.

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EURJPY

EURJPY is bullish above 148.62. Below the level, the market could trade down to 148.05.

USDJPY

USDJPY remains bullish above 138.45. Below the level, look for a move to 137.50.

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EURCAD

EURCAD is bearish below 1.4383. Above the level, the market might move to 1.4420.

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USOIL

USOIL is bullish above 71.09 and could trade up to 74.30. Below 71.09, the market probably moves to 70.30.

The Next Main Risk Events

  • CHF SNB Chairman Jordan Speaks
  • USD Unemployment Claims
  • CNY CPI
  • CNY PPI
  • CNY New Loans
  • CAD Employment Change
  • CAD Unemployment Rate

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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