Warsh Expected to Have Support to Hike if He Wants — Market Talk

1246 ET - The Fed will likely hold today, with potential dissent for a hike and indications that rates will go up in September, Mackenzie Investments' Dustin Reid tells WSJ. "I think the overall communication from the Fed will lean hawkish and lean into a September hike," he says. Reid believes FOMC members will follow Chairman Warsh's call. "I think if Warsh wants a hike, if that's his central tendency that he brought to the committee yesterday, he has the votes." Reid says it is "a close call." A hawkish outcome would likely send short-term Treasury yields higher and long-term ones would outperform, he says. ([email protected]; @ptrevisani)1138 ET - Yields on long-dated U.K. government bonds, or gilts, climb, after a resumption of hostilities between the U.S. and Iran causes oil prices to rise. Thirty-year gilt yields rise to a 5-day high after Iran launched a surprise attack on American forces in Jordan on Tuesday while the U.S. attacked Iran-backed groups based in Iraq. The attacks raise concerns about prolonged conflict and the risk of high inflation, with the price of Brent crude last up more than 7% at $90.17 a barrel. U.K. 30-year gilt yields climb more than six basis points to a high of 5.733%, LSEG data show. ([email protected])1058 ET - The WSJ Dollar Index is flat ahead of a Fed decision that remains unusually uncertain. Goldman Sachs economists expect a hold with at least one dissent for a hike. War-driven energy price volatility clouds the outlook, they say in a note. Markets are pricing about one-in-three odds of a hike today. Goldman says the key question for FX if the Fed holds is how much of the hike pricing is redistributed to upcoming meetings. CME data shows investors already pricing a hike in September. The dollar weakens slightly against the euro and the yen. ([email protected]; @ptrevisani)1029 ET - The stronger correlation between oil prices and inflation expectations for the eurozone compared to the U.S. casts doubts on whether the euro would benefit from lasting U.S.-Iran peace deal, Commerzbank's Michael Pfister says. "While Federal Reserve [interest-rate] expectations have recently decoupled from the oil price, ECB expectations remain tied to inflation risks." Earlier this month when oil prices rose again, one-year euro-area inflation expectations climbed but U.S. expectations dropped. Fed rate rise expectations look ambitious and it's unclear whether this will change in the event oil prices fall, he says. Until that changes, the euro could struggle to rise versus the dollar, he says. The euro rises 0.1% to $1.1393. ([email protected])1026 ET - Bitcoin is higher is cautious trading ahead of the Federal Reserve's interest rate decision. There is the growing sentiment that calls for bitcoin to retest recent lows may be overstated. "Short positions have repeatedly tried, and failed, to break the $63K-$62K zone, leaving the bearish tilt shallow rather than decisive," says analysts with CryptoQuant in a note. Other analysts have called for bitcoin to sink back under the $60K mark and back to recent lows around $57K. Bitcoin is up 0.6% to $64,237 in morning trade, according to LSEG data. ([email protected])1022 ET - Cryptocurrencies are mixed, with traders opting to move cautiously ahead of this afternoon's Fed rate decision. "Bitcoin and other crypto assets are in a holding pattern," says Nic Puckrin of Coin Bureau. "There's a lot in the pipeline in the next few hours that could move prices, so traders are hedging their bets." The CME Group's FedWatch tool is currently assessing a 64% chance of a hold on rates, with a 36% chance of a hike. Bitcoin rises 1.1% to $64,532, while ethereum drops 0.6% to $1,906. XRP is up 1.2% to $1.07, solana falls 0.4% to $73.67, and HYPE is up 0.4% to $55.37. ([email protected])0958 ET - The Bank of Japan will need to provide clear signals about future interest rate rises on Friday to prevent the yen from losing further ground, Rabobank's Jane Foley says in a note. Many G-10 central banks outside of Japan have raised rates with others expected to follow suit, putting pressure on the BOJ for further tightening, she says. "If the BOJ does signal that an October rather than a December rate hike is on the cards, the yen can find support this week." The yen's recovery also depends on whether Federal Reserve Chair Kevin Warsh endorses or pushes back against U.S. rate-rise expectations in a decision at 1800 GMT, she says. The dollar falls 0.1% to 163.73 yen. ([email protected])0957 ET - Zillow says the U.S. housing market is splitting in two. Luxury homes are selling at a faster pace than a year ago, with shrinking supply and growing bidding wars. Starter homes are piling up on the market, sitting longer and drawing price cuts as buyers fail to show up. The pattern mirrors a broader economic divide, with stock market gains supporting demand at the high end while rising everyday costs weigh on potential starter home buyers. Zillow says the typical luxury home is worth about $1.9 million, up 3.1% from a year ago. Inventory for starter homes rose 4.5% year over year in June, while luxury home inventory fell 5.2%. Price cuts were more common on starter homes, with 25% of starter homes cutting their price in June, compared to 20.6% of luxury home listings. ([email protected])0937 ET - Markets are pricing in about a 64% chance the Fed will hold rates steady later today, but investors will be watching closely for any signals from Chairman Kevin Warsh on the path of monetary policy ahead. After cooler-than-expected June inflation data, volatile energy prices tied to tensions in the Middle East have re-escalated concerns about resurgent inflation. Warsh has indicated that the Fed will restore price stability and the central bank has no tolerance for inflation above its target. The question is whether the committee will act soon on these inflationary pressures or wait for more evidence that inflation is cooling. ([email protected])0852 ET - Renewed hostilities in the Middle East are pushing up Treasury yields as oil prices rally. The Iranian surprise attacks add uncertainty to U.S. monetary policy. Futures markets price in 64% odds of a hold by the Fed today, but bets on a hike rise to 36% from 31% yesterday, according to CME data. A hold would likely come with hawkish dissent, some analysts forecast. The 10-year yield is at 4.635%, up from 4.604% yesterday. The two-year rises to 4.318% from 4.275%. ([email protected]; @ptrevisani)0833 ET - The dollar could weaken if the Federal Reserve keeps interest rates unchanged in a decision at 1800 GMT given markets price some chance of a rate rise, HSBC's Daragh Maher says in a note. Three or more Fed members would need to vote in favor of raising rates to limit any initial dollar weakness, he says. If the Fed raises rates, the dollar's initial gains are likely to be far greater than any initial falls in the case of policy action, he says. "A swifter-than-expected hike will force the market to consider whether it is the first hike in a sequence of hikes," Maher says. In contrast, inaction shouldn't massively impact expectations for a September rate rise, he says. ([email protected])0832 ET - Upcoming eurozone second-quarter economic growth and inflation data could support the case for further interest-rate rises, although the euro's reaction might be limited, Union Bancaire Privee's Peter Kinsella says in a note. Data Thursday could show a return to growth of 0.2% quarter-on-quarter while data Friday could show inflation rose to 2.9% in July. Markets are likely to continue betting on one final 25 basis-point rate rise at the European Central Bank's September meeting. With a September move largely priced in, there is little room for the euro to benefit in the near term and the currency should continue to trade at the lower end of recent ranges, he says. The euro falls 0.1% to $1.1375.([email protected])