• Home
  • Pro
  • Partners
  • Help and support
  • English
  • 中文版
Pepperstone logo
Pepperstone logo
  • Ways to trade
    • Trading accounts

      Choose from two account types depending on your strategy

    • Premium clients

      Exclusive rewards and bespoke benefits for high-vol traders

    • Pricing

      Discover our tight spreads, plus all other possble fees

    • Pro
    • Active trader program
    • Refer a friend
    • Trading hours
    • 24-hour trading
    • Maintenance schedule
    • Risk management
    • Funding and withdrawals
  • Markets
    • Margin FX

      Get great rates on majors like EUR/USD, plus minors and exotics

    • Commodity CFDs

      Trade on metals, energies & softs, with oil spreads from 2 cents

    • Cryptocurrency CFDs

      Speculate on Bitcoin, Ether and more, with a trusted broker

    • Share CFDs
    • Index CFDs
    • ETF CFDs
    • Currency Index CFDs
    • Dividends for index CFDs
    • Dividends for share CFDs
    • CFD forwards
  • Trading platforms
    • TradingView

      Trade through the world-famous supercharts with great pricing

    • MetaTrader 5

      Explore the apex in trading automation with our execution tech

    • The Pepperstone platform
    • MetaTrader 4
    • cTrader
    • Trading tools
  • Market analysis
    • Navigating markets

      Latest news and analysis from our experts

    • The Daily Fix

      Your regular round-up of key events

    • Meet the analysts

      Our global team giving your trading the edge

  • About us
    • Who we are

      Pepperstone was born from the dream of making trading better

    • Company news
    • Company awards
    • Protecting clients online
    • Trading accounts

      Choose from two account types depending on your strategy

    • Premium clients

      Exclusive rewards and bespoke benefits for high-vol traders

    • Pricing

      Discover our tight spreads, plus all other possble fees

    • Pro
    • Active trader program
    • Refer a friend
    • Trading hours
    • 24-hour trading
    • Maintenance schedule
    • Risk management
    • Funding and withdrawals
    • Margin FX

      Get great rates on majors like EUR/USD, plus minors and exotics

    • Commodity CFDs

      Trade on metals, energies & softs, with oil spreads from 2 cents

    • Cryptocurrency CFDs

      Speculate on Bitcoin, Ether and more, with a trusted broker

    • Share CFDs
    • Index CFDs
    • ETF CFDs
    • Currency Index CFDs
    • Dividends for index CFDs
    • Dividends for share CFDs
    • CFD forwards
    • TradingView

      Trade through the world-famous supercharts with great pricing

    • MetaTrader 5

      Explore the apex in trading automation with our execution tech

    • The Pepperstone platform
    • MetaTrader 4
    • cTrader
    • Trading tools
    • Navigating markets

      Latest news and analysis from our experts

    • The Daily Fix

      Your regular round-up of key events

    • Meet the analysts

      Our global team giving your trading the edge

    • Who we are

      Pepperstone was born from the dream of making trading better

    • Company news
    • Company awards
    • Protecting clients online

Trader thoughts - why wait, get rates up hard and now

Chris Weston
Chris Weston
Head of Research
13 June 2022
Share

After the US May CPI print came in at 8.6%, marrying with a record low in the Uni of Michigan confidence print, the playbook has changed. The market is now seemingly actively wanting rate hikes – in a complete change from the script we’ve seen since 2008, the calls for the Fed to hike the fed funds rate (now at 100bp or 1%) above 2.5% into restrictive territory are growing louder and louder – why wait they cry, get the fed funds rate above 2.5% as quickly as you can and show everyone you mean business on inflation.

If we’re going there anyhow, the sooner we can get from A to B, the greater the chance we can get to the circuit breaker – that being, a series of lower inflation prints.

It seems odd that the Fed hiking by 75bp or more this week could get the markets to rally, but that is where we are. They should absolutely go 75bp, and there are even calls for 100bp, but the strong probability is they hike by 50bp, and offer a hawkish outlook that opens the door to a 75bp hike in the meetings ahead.

Again, why wait? Well, they are so scared of losing the credibility they’ve created around its key policy tool - that being forward guidance – the communication tool they used effectively to guide the markets to a 50bp hike at this week’s FOMC meeting. So, despite new information (the May CPI print) suggesting the facts have indeed changed, and the need to hike has radically increased, they will worry too much that the market will no longer follow their guidance as intently and they’ll lose control of its key policy tool here.

Anyhow, it’s dark in the markets.

Talk of poor liquidity in the underlying is compounding the issues, but there are many little side battles - we’ve a market taking on the BoJ, with the BoJ being forced to respond by buying over JPY1t, as bond sellers push bond yield to the upper limit of the BoJ’s yield curve control program - USDJPY tested 135.19 a new 20-year.

We’re seeing the market taking on the Italian sovereign debt markets – this is the elephant in the room. With Italian 10yr BTP’s trading at 3.86%, we see this blowing out to 232bp vs German bunds – not great for a country with 160% debt-to-GDP.

We see the US 2’s vs 10s Treasury yield curve going inverted today, with 2-yr Treasuries being punished and now trading +16bp at 3.21%. Credit spreads are blowing out, crypto is getting destroyed and equities are taking full notice, and they just can’t find a friend.

The market’s price in a rising recession probability by the day, not just in the US but many other G10 economies - but the most prominent factor is the circuit breaker isn’t there – why buy risk when global growth is slowing, and central banks have no grip on the situation? Traders have a need to price risk but there is such limited visibility it makes this consideration very challenging, so they pull their bids, and this is a short seller's paradise. Sentiment is so bearish and while this has been the signal for contrarian traders it feels like we are in the eye of the storm.

These are the times when it is advantageous to be in front of the screen - swing traders become day traders – going with the flow of capital is as prudent as it comes and momentum strategies shine – mean reversion can obviously work but that timeframe needs to come in.

Return of equity over return on equity for the investment crowd. For traders, it's about reading the room, following the flow, and nailing both the risk and position sizing. To some, these conditions are where real alpha is made, to others, it's about survivorship. These are tough times and a market that is asking a lot of questions and getting few answers is a market that needs respect.

The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.

Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.

Other sites

  • The Trade Off
  • Partners
  • Group
  • Careers

Ways to trade

  • Pricing
  • Trading accounts
  • Pro
  • Premium Clients
  • Active Trader program
  • Refer a friend
  • Trading hours

Platforms

  • Trading Platforms
  • Trading tools

Markets & Symbols

  • Forex
  • Shares
  • ETFs
  • Indices
  • Commodities
  • Currency indices
  • Cryptocurrencies
  • CFD Forwards

Analysis

  • Navigating Markets
  • The Daily Fix
  • Meet the analysts

Learn to Trade

  • Trading Guides
  • Videos
  • Webinars
Pepperstone logo
support@pepperstone.com
1300 033 375
Level 16, Tower One, 727 Colins Street
Melbourne, VIC Australia 3008
  • Legal documents
  • Privacy policy
  • Website terms and conditions
  • Cookie policy
  • Whistleblower Policy
  • Sitemap

© 2025 Pepperstone Group Limited

Risk Warning: Trading CFDs and margin FX is risky. It isn't suitable for everyone and if you are a professional client, you could lose substantially more than your initial investment. You don't own or have rights in the underlying assets. Past performance is no indication of future performance and tax laws are subject to change. The information on this website is general in nature and doesn't take into account your personal objectives, financial circumstances, or needs. You should consider whether you’re part of our target market by reviewing our TMD, and read our PDS and other legal documents to ensure you fully understand the risks before you make any trading decisions. We encourage you to seek independent advice if necessary.

Pepperstone Group Limited is located at Level 16, Tower One, 727 Collins Street, Melbourne, VIC 3008, Australia and is licensed and regulated by the Australian Securities and Investments Commission.

The information on this site and the products and services offered are not intended for distribution to any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

© 2024 Pepperstone Group Limited | ACN 147 055 703 | AFSL No.414530