Deutsche Bank: Strong PMIs and Higher Oil Reprice Global Rates
The US composite flash PMI surged to a five-year high of 58.4, while the Eurozone composite also beat expectations at 53.1, reinforcing the view that growth remains resilient. At the same time, Brent climbed above $103 a barrel as Iran maintained conditions for talks and refused full Hormuz navigation under the current blockade. That combination pushed rate expectations sharply higher, with October Fed hike odds rising to around 70%, ECB hike odds also increasing, and markets now pricing roughly 37bp of Fed tightening by year-end. Bond markets reacted aggressively. The US 10-year yield jumped 15.2bp to 5.11%, its highest since 2007, the 5-year moved above 5%, and a weak 5-year auction added to the pressure. Bund yields also rose, while the OAT-Bund spread widened to its largest since 2012. Equities weakened as higher yields and oil weighed on sentiment, with the S&P 500 down 0.75%. The main macro takeaway is that stronger growth, rising commodities and still-loose financial conditions are keeping pressure on central banks to tighten further, potentially at a faster pace than previously expected.
1, reinforcing the view that growth remains resilient. At the same time, Brent climbed above $103 a barrel as Iran maintained conditions for talks and refused full Hormuz navigation under the current blockade. That combination pushed rate expectations sharply higher, with October Fed hike odds rising to around 70%, ECB hike odds also increasing, and markets now pricing roughly 37bp of Fed tightening by year-end. Bond markets reacted aggressively.
11%, its highest since 2007, the 5-year moved above 5%, and a weak 5-year auction added to the pressure. Bund yields also rose, while the OAT-Bund spread widened to its largest since 2012. 75%. The main macro takeaway is that stronger growth, rising commodities and still-loose financial conditions are keeping pressure on central banks to tighten further, potentially at a faster pace than previously expected.