Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 15/09/26
Renewed US-Iran tensions have driven oil prices back above $105, reviving inflation concerns and prompting markets to price-in tighter monetary policy
The persistence of acute energy supply disruptions has corroborated the upside risks to inflation. In that context, the European Central Bank (ECB) increased its monetary policy interest rates by +0.25% to +2.50% for the Deposit Facility Rate. That decision was widely anticipated and fully priced-in by investors. A “no-brainer” as President Lagarde noted in the press conference, with expected inflation remaining above target for an extended period according to ECB projections.
On forward guidance, the data-dependent and meeting-by-meeting approach remains in place, with developments in the Middle East remaining a pivotal factor for the economic outlook. According to pricing in Overnight Index Swaps (OIS), investors price-in another +0.75% of cumulative hikes in the next 12 months, with the respective curve of expectations up by c. +15 bps week-over-week.
Regarding the US Federal Reserve (“Fed”), with no end in sight in the severe international energy supply disruptions, inflation running well above the 2% target and with the labor market remaining resilient in tandem with broader economic activity, the probability assigned by investors to a +0.25% hike in the Federal Funds Rate (FFR) to a range of 3.75% - 4.00% at the upcoming meeting on September 18th, has risen to 90% versus 50% a week ago, according to FFR futures pricing.
Apart from the decision, investors will closely monitor the post-meeting communique for a better assessment of monetary policy prospects. With the Fed avoiding any elements of forward guidance since Mr. Warsh’s term as Chair started in past May, the Federal Open Market Committee (FOMC) members’ updated economic projections and assumptions for the appropriate path of the FFR may take center-stage.
Recall that in June, the median assumption for the FFR stood at 3.8% for end-2026 and 3.6% for end-2027. Developments since then suggest a high probability for an upward revision of these assumptions. FFR futures pricing points to a target range of 4.00% - 4.25% by end-2026 and of 4.50% - 4.75% by end-2027 (too aggressive).
The Bank of Japan (BoJ) is widely anticipated to hike its policy rate by +0.25% to 1.25% on September 18th, the highest since 1995, taking also into account recent commentary from BoJ officials. According to OIS pricing, investors price-in another +0.25% to +0.50% of cumulative hikes in the next 12 months, with expectations curve up by c. +5 bps wow.
On the other hand, the Bank of England appears poised to stand pat for the time being, with the Bank Rate being maintained at 3.75% on September 17th, to allow for time to assess the developments in the Middle East and their repercussions to the economic outlook. The vote allocation will be closely watched to assess whether the next hike is getting closer, with 3 out of the 9 members of the Committee being in favor of an increase to 4.00% in the latest meeting on July 30th.
Global equity markets posted losses in the past week (MSCI ACWI: -0.9% wow), weighed down by a weaker prospect for an easing of hostilities in the Middle East and of supply disruptions for major international commodities, as well as by another substantial rise for market-based lending rates (US Treasury 10-year yield reached 5% for the first time since 2007) and expectations for tighter monetary policy.
The persistence of acute energy supply disruptions has corroborated the upside risks to inflation. In that context, the European Central Bank (ECB) increased its monetary policy interest rates by +0.25% to +2.50% for the Deposit Facility Rate. That decision was widely anticipated and fully priced-in by investors. A “no-brainer” as President Lagarde noted in the press conference, with expected inflation remaining above target for an extended period according to ECB projections.
On forward guidance, the data-dependent and meeting-by-meeting approach remains in place, with developments in the Middle East remaining a pivotal factor for the economic outlook. According to pricing in Overnight Index Swaps (OIS), investors price-in another +0.75% of cumulative hikes in the next 12 months, with the respective curve of expectations up by c. +15 bps week-over-week.
Regarding the US Federal Reserve (“Fed”), with no end in sight in the severe international energy supply disruptions, inflation running well above the 2% target and with the labor market remaining resilient in tandem with broader economic activity, the probability assigned by investors to a +0.25% hike in the Federal Funds Rate (FFR) to a range of 3.75% - 4.00% at the upcoming meeting on September 18th, has risen to 90% versus 50% a week ago, according to FFR futures pricing.
Apart from the decision, investors will closely monitor the post-meeting communique for a better assessment of monetary policy prospects. With the Fed avoiding any elements of forward guidance since Mr. Warsh’s term as Chair started in past May, the Federal Open Market Committee (FOMC) members’ updated economic projections and assumptions for the appropriate path of the FFR may take center-stage.
Recall that in June, the median assumption for the FFR stood at 3.8% for end-2026 and 3.6% for end-2027. Developments since then suggest a high probability for an upward revision of these assumptions. FFR futures pricing points to a target range of 4.00% - 4.25% by end-2026 and of 4.50% - 4.75% by end-2027 (too aggressive).
The Bank of Japan (BoJ) is widely anticipated to hike its policy rate by +0.25% to 1.25% on September 18th, the highest since 1995, taking also into account recent commentary from BoJ officials. According to OIS pricing, investors price-in another +0.25% to +0.50% of cumulative hikes in the next 12 months, with expectations curve up by c. +5 bps wow.
On the other hand, the Bank of England appears poised to stand pat for the time being, with the Bank Rate being maintained at 3.75% on September 17th, to allow for time to assess the developments in the Middle East and their repercussions to the economic outlook. The vote allocation will be closely watched to assess whether the next hike is getting closer, with 3 out of the 9 members of the Committee being in favor of an increase to 4.00% in the latest meeting on July 30th.
Global equity markets posted losses in the past week (MSCI ACWI: -0.9% wow), weighed down by a weaker prospect for an easing of hostilities in the Middle East and of supply disruptions for major international commodities, as well as by another substantial rise for market-based lending rates (US Treasury 10-year yield reached 5% for the first time since 2007) and expectations for tighter monetary policy.