The probability of a higher-than-expected rate hike in the U.S. CPI rises

The Fed is in the midst of one of the fastest tightening cycles on record. For next week's interest rate meeting, the market now believes that the Fed has an 18% probability of raising interest rates by 75 basis points, and at least 50 basis points is already certain. The market has now priced in at least 50 basis points of interest rate hikes in September. The Fed funds rate futures show that the Fed is most likely to raise interest rates by 50 basis points in June, July, September and November, and 25 basis points in December. basis point.

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Dot Plot: The dot plot value is expected to rise to the low 3% range in 2023 and remain there until 2024, but still below the 3.5% priced in the Eurodollar market.

Forward guidance: Powell is expected to confirm that another 50bps rate hike is possible in July, but may not commit otherwise. The biggest hint of future action will be how it answers the question of whether there are "clear and convincing signs" that inflation is falling, with Powell expected to confirm that more evidence of falling inflation is still needed.

Economic forecast: Inflation and unemployment are expected to be adjusted upwards, reflecting the FOMC's optimism that it will gradually abandon its optimism that monetary policy can be tightened without affecting the unemployment rate. Headline PCE inflation is likely to rise sharply from the March forecast of 4.3%, but it could still fall to around 3% next year; the unemployment rate forecast is likely to rise slightly next year and reach around 4% in 2024, compared to March forecasts for 2022 and 2023 The annual unemployment rate will remain at 3.5%, rising to 3.6% in 2024.

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Former U.S. Treasury Secretary Summers said the Fed failed to explain its mistakes and failed to realize the damage to its credibility after the latest inflation data dashed hopes of a peak inflation. "It's clear that inflation peaking theories, like the 'transient' theories, are wrong," Summers said in an interview. "The Fed started forecasting in March that inflation would fall into the 2 percent range by the end of the year, frankly. “The predictions at the time were wishful thinking and look even more absurd today,” Summers said. “The Fed was right, but I don’t think they realized how much damage the mistakes of last year and the beginning of this year were doing. These mistakes mean that They are fundamentally untrustworthy."

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U.S. Treasury bonds suffered a massive sell-off after the May inflation data exceeded expectations, the yield curve flattened sharply, and returned to a negative range in 5s30s, the first inversion in a month. The curve flattened further with the bulk of buying in ultra-long-term Treasury futures in the afternoon US session. Front-end re-pricing reflects rising expectations for a 75-basis-point rate hike in the next few months; the U.S. bond bear market flattens, with short-end yields closing up 24 basis points, and 10-year and 30-year yields up 11 and 3 basis points, respectively ; Short- and medium-term government bonds led the decline, which narrowed 7.2 basis points and 15.5 basis points in 2s10s and 5s30s, respectively; the flattening trend of the bear market was triggered by both overall and core CPI exceeding expectations in May; front-end yields were re-priced by 50% as early as July There is a possibility of a 75 basis point rate hike, with a total of 165 basis points of interest rate hikes in the next three meetings, compared with the 145 basis point expected before the CPI announcement.

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Iran delivered a second Iranian-made tanker to Venezuela during Venezuelan President Maduro's visit to Iran. It is understood that the tanker is the second Aframax tanker built by Iran Marine Industries for Venezuela. According to the relevant contract, Iran will deliver two other oil tankers to Venezuela in the future. This type of tanker is 250 meters long, 44 meters wide, 21 meters high, has a water inlet of 14.8 meters, a speed of 15 knots, and can carry 800,000 barrels of oil.

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Russian gas deliveries to Europe via Nord Stream 1 have remained steady, while flows eastward from Germany to Poland via the Yamal-Europe pipeline have risen, operator data show. Gazprom said its gas supply to Europe via Ukraine's Suza import was steady at 41.9 million cubic meters, unchanged from the previous day.

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Sterling is likely to fall as the Bank of England is unlikely to meet market expectations for a sharp rate hike. Although the UK economy has shown signs of deterioration, but the market is still pricing in the Bank of England to actively tighten monetary policy expectations. The Bank of England is likely to raise its key rate by 25 basis points to 1.25% next Thursday and then to 1.50% in August, but will keep rates steady thereafter, with markets expecting at least four more hikes after June, each 25 basis points.

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German and Italian government bonds fell further on Friday after faster-than-expected U.S. inflation data for May prompted bets on a faster pace of interest rate hikes. German and Italian government bonds have fallen after the ECB policy decision on Thursday; German 10-year bond yields rose more than 1.5% for the first time since May 2014; Italian 10-year bond yields closed in February 2014 highest ever. Money markets have ramped up bets on the ECB's rate hikes, now expecting a 165 basis point hike by the end of the year, more than double the rate expected a month ago;

British government bonds also flattened in the bear market, with yields on 2-year and 5-year government bonds exceeding 2% for the first time since 2008 and 2014, respectively; both yields rose the most in a single week since 2010. Money markets expect the Bank of England to raise interest rates by 37.5 basis points on Thursday. A 184 basis point rate hike is expected by the end of the year, a jump of 40 basis points this week.

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The World Bank on Tuesday lowered its forecast for global economic growth in 2022 to 2.9 percent from 4.1 percent in January. Governor David Malpass said the risks of stagflation and the Russian-Ukrainian war have been hitting growth, and a recession will be unavoidable for many countries. At the same time, while global inflation is expected to moderate next year, inflation is likely to remain above target in many economies.