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European Contraction Fears Weigh On Fed Hikes

STIR FUTURES
  • Fed Funds implied hikes have slipped with growing Eurozone contraction fears following notable misses in the preliminary PMIs for July with EA services at a 15-month low of 50.6 and mfg a 25-month low of 49.6.
  • Sitting with a 78bp hike priced for next week (-1bp), 139bp for Sep (-1.5bps) and 182.5bp for Dec (-5.5bps) to 3.41% now seen as terminal with larger drops further out and almost 60bps of cuts for 2023.
  • It ramps up focus on today’s US PMIs following a weak Philly Fed survey contradicting a tentative bounce in the Empire State survey.

Cumulative hikes implied by FOMC-dated Fed Funds futuresSource: Bloomberg

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  • Fed Funds implied hikes have slipped with growing Eurozone contraction fears following notable misses in the preliminary PMIs for July with EA services at a 15-month low of 50.6 and mfg a 25-month low of 49.6.
  • Sitting with a 78bp hike priced for next week (-1bp), 139bp for Sep (-1.5bps) and 182.5bp for Dec (-5.5bps) to 3.41% now seen as terminal with larger drops further out and almost 60bps of cuts for 2023.
  • It ramps up focus on today’s US PMIs following a weak Philly Fed survey contradicting a tentative bounce in the Empire State survey.

Cumulative hikes implied by FOMC-dated Fed Funds futuresSource: Bloomberg