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Fed Hike Expectations Trimmed On Peace Hopes

STIR FUTURES
  • Fed hike expectations have for the second day seen a trimming of earlier overnight optimism, with FOMC-dated Fed Funds pricing 208bps of further hikes for Dec’22 from a high of 218bps.
  • The drop came as inflation expectations slipped after Russia-Ukraine peace talks appeared to show convergence between the two sides. That has since been quashed by various Western officials, but the moves haven’t fully retraced.
  • The move has been more exaggerated in Treasuries (10Y yields 5bps lower on the day) and Eurodollars (blues down ~10 ticks).
  • The more immediate outlook is little changed though, with 44bps for May and a cumulative 86bps for June.
  • Harker (2023 voter) is the latest member to speak post-FOMC, revealing himself to be one of the five dots at the median of 7x25bp hikes in 2022. He was however keen to stress being “very open” to hiking faster depending on what happens to inflation and responses from Fed liaison programmes.
  • George (2022 voter) is another ‘new’ speaker tomorrow, expected to provide a more hawkish take. Text tbd but Q&A confirmed.
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