Market: Immediately!

Market: Immediately!

A look at the day ahead in European and global markets from Tom Westbrook

Sweden’s Riksbank is expected to make another round of massive interest rate increases today, with its biggest rise in three decades.

Later, the US Federal Reserve begins a policy meeting that is likely to set the tone for markets in the coming months, after the inflation surprise prompted markets to rethink expectations.

Just over a week ago, markets were aiming for a peak near 4% for the US Federal Funds benchmark rate. Now the two-year yield is up 4% and the markets are seeing a peak of 4.5%.

Futures suggest there is a 1/5 chance that Wednesday’s Fed will make its biggest increase since 1984 and go a full percentage point.

The SNB is also expected to deliver a massive 75bps hike and the market sees an external opportunity for the BoE to implement its biggest increase since 1989.

Thinking about such large increases relatively late in the cycle is evidence of how badly inflation is affecting markets and policy makers. Even the Bank of Japan is under pressure, as Japanese inflation has exceeded its target.

Concerns over the next moves of central banks kept Asia wary of extending Wall Street’s rebound late. MSCI’s broadest index of Asia Pacific shares rose 0.9% and the dollar slipped around recent peaks. [MKTS/GLOB]

British markets seem poised for a steady return from a day off to commemorate Queen Elizabeth’s funeral. Steady, that is, with sterling rising above its lowest level in 37 years, gold bonds are looking to their worst quarter in decades and their range limited.

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2-year Treasury yield approach 4%

Key developments that may affect the markets on Tuesday:

Swedish Riksbank rate decision

Product prices in August German

Eurozone Current Account for August

Housing starts in the US August

The US Federal Reserve begins its two-day meeting

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