What to watch

Focus is likely to be divided today with final prints of European service PMIs this morning having the potential to drive early sentiment while heavy supply (both corporate and sovereign) will be watched ahead of the FOMC Minutes later today.

• Note that markets price in a more aggressive rate hike path than at the time of the December FOMC meeting. The probability of a March hike is around 60% now, up from around 40% at the time of the December meeting. Looking towards the end of 2022, the differential from the pre-meeting levels is less considerable.
• The FOMC Minutes will be released today. Powell’s comments in the meeting suggest initiating runoff is not likely to take as long this time as it did in the previous cycle, and we’d interpret that to mean a decision of rates could be made even by end-2022. We may get a little more clarity in the minutes today, but the deliberations have probably only just begun, and this will be a key market focus early next year. If we did get more discussion of when the first hike would be, this would be seen as hawkish by the market with pressure on Treasuries, th Eurodollar strip and on to the dollar.