Treasury, European Rates Traders Have Their Hands Full This Week

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by Tyler Durden
Monday, Sep 19, 2022 - 12:01 PM

By Ven Ram, Bloomberg Markets Live analyst and reporter

The dawning week couldn’t have been bigger in its import for the markets even if Treasury and other traders had asked.

Monday is perhaps is the calm before the storm, with Japan closed and the UK observing a day of mourning for the Queen. On Tuesday we get the first of several monetary policy decisions in the developed markets with Sweden’s Riksbank’s review coming under scrutiny. The central bank is widely expected to raise rates by at least 75 basis points, which given how inflation and inflation expectations are evolving in the economy shouldn’t come as a surprise to anyone. In fact, considering that this will be the Riksbank’s penultimate review this year, it may not be a complete surprise if the monetary authority were to go jumbo and raise rates by a full percentage point, giving itself some head start over the European Central Bank.

A day later we get the Fed, and the markets are still torn between a 75-basis point increase and an even bigger move. That apart, it would be interesting to see how the members’ dot plot evolves, with current market pricing making the version we have from June pretty much moot. From near-zero interest rates just a couple of years ago, are we going to a 5% zip code as former Treasury Secretary Larry Summers reckons?

On Thursday, oh, the slate couldn’t be fuller: will the Bank of Japan stay put with its policy? It almost certainly will, but as I have noted before, Governor Haruhiko Kuroda can’t wish to have his cake and eat it too. Of course, we have the Swiss National Bank too that day, and we know that they have the chutzpah to surprise the markets on the upside, which will of course put the franc on an even stronger stead. We also have the steady-as-she-goes Norges Bank, which is expected to keep going with its hikes. Then we get the Bank of England, whose policy actions have been, shall we say, underwhelming at best in the current cycle? Markets see a bigger hike, but maybe they should calibrate their expectations. We have the Turkish central bank thereafter, and perhaps there is no point spilling much ink over monetary policy in a nation where that very function has taken a back seat.

Phew, come Friday, we have the PMI numbers for September out of the euro area, but I am skeptical that a lackluster set of numbers will be a show-stopper for the ECB. And of course we have a mini budget from the UK’s new chancellor of the exchequer, and let’s see what magic rabbit Kwasi Kwarteng can pull out from his hat.

A full week anyone?