Markets bet on delay in Fed rate cut

[The British economy continues to show greater resilience]

The UK economy continues to show greater resilience than feared, avoiding a technical recession despite headwinds from a series of public sector strikes, which, when adjusted for, actually point to a some potential economic growth. While it's too early to say there's been a major reversal in trends, UK consumers do appear to be in better shape than most economists had predicted after headline inflation eased and energy markets showed some signs of stabilization.

[Investors are betting on the postponement of the Fed rate cut date]

Investors expect the federal funds rate to peak at just above 5% in July, with only one rate cut by the end of the year; There were two rate cuts before the end of the year. Investors' bets on the level of U.S. inflation in a year's time rose to 3.9 percent on Friday from around 2.4 percent ahead of the nonfarm payrolls report. Economists and Fed officials in particular worry that the data will prove that services inflation will be more stubborn and difficult to contain than goods inflation.

[Federal Reserve is expected to raise interest rates further]

As investors begin to accept the message from Fed officials that more time is needed to cool inflation in the face of a resilient labor market, they are betting that rates will stay on for longer. Barclays, which had previously forecast the Fed would raise interest rates in March and May and then paused, now forecasts a hike in June.

[Barclays believes that the Fed will still increase in June, rather than stay on hold]

The Fed is expected to raise interest rates three times instead of twice, and it is expected to pause interest rate hikes after raising interest rates to 5.25%-5.50% before June. Barclays had previously forecast the Fed would raise interest rates in March and May, and then paused the pace of rate hikes. Now, Barclays has changed its forecast and believes that the Fed will still raise interest rates in June, that is, the next three meetings will raise interest rates by 25 basis points, raising interest rates to a level of 5.25%-5.50%, but it is expected to cut interest rates 6 times next year.

[Inflation in the Eurozone is expected to remain higher than the target value of the European Central Bank until 2025]

Inflation in the euro zone, while moderating, is still expected to remain slightly above the ECB's 2% target in 2025. The core inflation rate, which is currently a data of particular concern to the ECB, is expected to peak at 5.2% in the first quarter of 2023 before falling back to 3.6% in the fourth quarter of this year, the survey showed. The ECB is still expected to raise its key policy rate to a peak of 3.25% from the current 2.5%. The first rate cut is expected in the second quarter of 2024.

[The market will focus on this week's US CPI data]

U.S. consumers’ flash one-year inflation expectations rose to 4.2% in February, up from the final value in January. The initial reading of the overall consumer confidence index came in at 66.4, up from a final reading of 64.9 last month. Consumer prices rose in December, rather than falling as previously estimated, and the previous two months were also revised upwards. At present, the market will focus on the CPI data of the United States this week to obtain further developments in the level of inflation in the United States, so as to determine the further direction of the Fed's benchmark interest rate.

[U.S. stock funds experienced capital outflows for the 12th consecutive week]

Investors pulled money from U.S. stock funds for a 12th week in a row, as a report showing strong U.S. job growth last month stoked fears that the Federal Reserve will keep raising interest rates this year. U.S. equity funds posted a net outflow of $474 million, compared with a net outflow of $473 million the previous week.