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Fed Hike Aftermath Series: Hike odds jump suggests market worrying over inflation

Last week, the media focus was largely on UK inflation report, followed by Bank of England’s (BoE) rare guidance on rates and less attention was paid to the market pricing of hike bets. The financial market’s pricing of hike probability clearly shows the investors are becoming increasingly nervous over inflation. The chart shows how the hike bets evolved dramatically in just matter of days.

On September 8th, the financial market was pricing 68 percent chance that Federal funds rate will remain at 1.125 percent or lower. The market was pricing next hike to be after H1 2018. However, after UK inflation report, showing August inflation quickened to 2.9 percent with core inflation at 2.7 percent was released, followed by U.S. inflation report showing inflation quickening to 1.9 percent in August, the financial market sharply corrected its hike forecast.

The market is currently pricing 56.9 percent chance that the next hike from the Fed will be in December and that is despite dovish commentaries from several FOMC policymakers. This clearly indicates that the market is becoming concerned over inflation and discounting dovish views from the rate-setting committee.

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November 24 15:30 UTC Released

USECRI Weekly Index*

Actual

145.6 %

Forecast

Previous

145.6 %

November 24 14:45 UTC Released

US1st Half-Mth Infl YY*

Actual

54.6 %

Forecast

Previous

54.6 %

November 27 09:00 UTC 30963096m

ITExport Prices*

Actual

Forecast

Previous

111 %

November 27 09:00 UTC 30963096m

ITImport Prices*

Actual

Forecast

Previous

116.1 %

November 27 14:00 UTC 33963396m

MXTrade Balance, $*

Actual

Forecast

Previous

-1.886 Bln USD

November 27 14:00 UTC 33963396m

MXTrade Balance SA*

Actual

Forecast

Previous

-1.559 Bln USD

November 27 15:30 UTC 34863486m

USDallas Fed mfg bus index

Actual

Forecast

Previous

27.6

November 27 21:00 UTC 38163816m

KRBOK Manufacturing BSI*

Actual

Forecast

Previous

87 Bln BRL

November 28 00:00 UTC 39963996m

BRCentral Govt Balance

Actual

Forecast

Previous

-22.725 Bln BRL

November 28 07:00 UTC 44164416m

DEGDP Growth QQ* Advance

Actual

Forecast

Previous

10.7 %

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