(Bloomberg)
And finally, here's what Katie’s interested in this morning
Narratives change pretty quickly when traders have their eyes trained on every incremental data point. Case in point: rate hikes are back in the conversation.
Citigroup said this week that markets would be wise to start hedging for the possibility that the Federal Reserve reverts back to raising rates after a brief easing cycle.
“The market should price in some risk of future hikes – look to 1998,” Citi’s Jason Williams wrote in a note. This cycle “could be more akin to the 1998 easing cycle, which was short-lived and led to more rate hikes. If inflation does not return to a consistent 2% the upside tails around future Fed hikes should increase from this very depressed level.”
Interestingly, Citi’s Williams published his thesis a day before the release of January’s inflation report, which showed that both the headline and core consumer price index rose by more than forecast last month. While a weaker-than-expected January retail sales print gave some comfort to bond bulls on Thursday, traders have pushed out their bets on the Fed’s first cut.
In the aftermath of the print, Kit Juckes of Societe Generale took it a step further than Citi. The chief FX strategist said that the Fed’s next move could actually be a hike rather than a cut, given that more than 500 basis points of tightening since 2022 has done little to cool the US economy.
“If the US economy reaccelerates, the Fed will eventually have to tighten again and the dollar will rally,” Juckes wrote in a note to clients.
And finally, here's what Katie’s interested in this morning
Narratives change pretty quickly when traders have their eyes trained on every incremental data point. Case in point: rate hikes are back in the conversation.
Citigroup said this week that markets would be wise to start hedging for the possibility that the Federal Reserve reverts back to raising rates after a brief easing cycle.
“The market should price in some risk of future hikes – look to 1998,” Citi’s Jason Williams wrote in a note. This cycle “could be more akin to the 1998 easing cycle, which was short-lived and led to more rate hikes. If inflation does not return to a consistent 2% the upside tails around future Fed hikes should increase from this very depressed level.”
Interestingly, Citi’s Williams published his thesis a day before the release of January’s inflation report, which showed that both the headline and core consumer price index rose by more than forecast last month. While a weaker-than-expected January retail sales print gave some comfort to bond bulls on Thursday, traders have pushed out their bets on the Fed’s first cut.
In the aftermath of the print, Kit Juckes of Societe Generale took it a step further than Citi. The chief FX strategist said that the Fed’s next move could actually be a hike rather than a cut, given that more than 500 basis points of tightening since 2022 has done little to cool the US economy.
“If the US economy reaccelerates, the Fed will eventually have to tighten again and the dollar will rally,” Juckes wrote in a note to clients.