Marketmind: Messy market mood as oil irks
A look at the day ahead in U.S. and global markets by Mike Dolan
World markets have hunkered down ahead of the week's big central bank decisions, uncomfortable about inflation signals being sent by rising oil prices and wary of overexuberence about the proximity of peak interest rates.
Even as incoming economic soundings and forecasts blow hot and cold about the growth outlook, crude oil continues to tick up to its highest levels of the year — stalking $100 per barrel for the first time since the summer of 2022.
The crude spur is more supply than demand related and most fingers point to the latest output cuts from Saudi Arabia and Russia. But U.S. production is falling too and the U.S. Energy Information Administration said output from top U.S. shale-producing regions is on track to fall for the third month in a row in October to its lowest since May.
Headline inflation rates are already backing up as a result of the energy price rebound and U.S. gas pump prices rose last week to $3.88 per gallon — the highest since October 2022.
None of this makes easy reading for Federal Reserve policymakers starting their two-day meeting later on Tuesday. While few expect another rate hike this week, all eyes will be on whether Fed projections retain their standing view that another quarter point rise to 5.5-5.75% this year is still in the pipeline.
In the meantime, futures markets are busily lifting Fed rate bets through 2024, with the implied policy rates for mid-year and yearend hitting highs for the cycle and rates through September now all near 5% or above as the 'higher for longer' Fed mantra sinks in.
The risks of that scenario for U.S. and global sovereign bond markets may not yet be fully appreciated and a prolonged period of
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