How have interest rates expectations changed after the first tariff letters? ...Middle East

Rate cuts by year-end

Rate hikes by year-end

We got some slightly more hawkish repricing for a couple central banks. The pricing for the Fed consolidated around 50 bps after the NF report which is the Fed's baseline scenario of two rate cuts by year-end.

For the ECB there's some hawkish repricing probably due to positive rumors around a US-EU trade deal. In fact, a trade deal would further decrease uncertainty and likely lead to increased economic activity, especially given the fiscal and monetary impulses. We might even see the market price out the last rate cut altogether with a trade deal.

There was also a hawkish repricing for the RBA after they surprisingly delayed the rate cut and sounded cautious about rushing on monetary easing.

Finally, despite the US tariff letters threatening much higher rates if countries don't reach a trade deal, the market largely ignored them. The context is much different than April when the tariffs led to very dovish expectations for the central banks. Now the market continues to expect deadlines to be postponed indefinitely and trade deals to be reached eventually.

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