Global markets are suddenly pricing in a rate hike in April, with hawkish signals emerging from the EU, the U.S., and Japan—how will this shift reshape current financial market pricing logic?

This is an issue demanding close attention. The blockade of the Strait of Hormuz and the mutual missile strikes between the U.S. and Iran targeting Middle Eastern energy infrastructure have inflicted unprecedented damage on global energy supply. Brent crude has surged past USD 110 per barrel; European natural gas prices have doubled; global energy costs are nearing critical levels. U.S. Producer Price Index (PPI) for February rose 0.7% month-on-month and 3.4% year-on-year—clear signs that inflation is re-emerging. This week is a 'super central bank week,' with major central banks holding policy meetings—all concentrated within this single week. Previously, global central banks maintained highly accommodative stances and were preparing for gradual rate cuts. Now, however, they have collectively turned hawkish—prioritizing inflation control and standing ready to raise rates at any moment. The steering wheel has been fully turned. Right now, it’s essentially a contest to see who can be *more* hawkish! • The Bank of England has taken a resolute stance, unanimously voting to hold its benchmark interest rate steady. Markets have fully priced in two 25-basis-point hikes by the BoE this year. • Europe, as a net energy importer, is especially sensitive to energy price shocks. Markets now anticipate at least one rate hike this year. • The Reserve Bank of Australia has already raised rates, and markets expect another 65 basis points of hikes this year. • South Korea and India are each expected to raise rates four times over the next two years. • The Federal Reserve remains the *least* hawkish among these central banks. At its March 19 meeting, the Fed stated it would not cut rates unless inflation improves—and even discussed the possibility of hiking. I just checked CME’s FedWatch data: traders have abandoned expectations of rate cuts entirely. The probability of holding rates steady in April stands at 93.8%, while the chance of a hike remains extremely low—just 6.2%. So while a pause appears highly likely, an actual hike still seems premature. Markets have reacted directly and sharply to the global tightening pivot. Bond markets worldwide are selling off, pushing government bond yields sharply higher. Gold and silver prices have plunged, as rising-rate expectations diminish the appeal of non-yielding assets. Although yesterday’s sharp decline was painful, I maintain that gold’s fundamentals remain intact—this is largely a liquidity-driven, emotionally charged sell-off. This piece was written when gold broke below USD 4,700 (the headline was later changed to USD 4,600—a media adjustment to keep pace with market momentum; please understand…)

The Bank of England and the European Central Bank may each raise rates three times—what does this 'bear flattening of the yield curve' signify?

It signifies that rising oil prices have strengthened expectations of broad-based price increases—inflation—and thus prompted several central banks to revise their pre-set monetary policy paths: shifting from accommodative to cautious, or even outright tightening via rate hikes. At end-2023, markets had already begun anticipating possible ECB rate hikes starting in Q3, primarily because Europe anticipated that trade tensions would not truly subside, that imported inflationary pressures would continue accumulating, that new export market opportunities—such as India—would take time to bear fruit, and that internally driven initiatives like the EU’s ‘REsourceEU’ plan—aimed at enhancing energy and trade independence—would amplify the economic impact of imported inflation. Now, with renewed conflict erupting in Iran, this trend has intensified further—hence the stronger rate-hike expectations. The UK’s situation is similarly affected. Let’s examine potential rate adjustments for the UK and the EU: 1) The UK’s current policy rate stands at 3.75%; three hikes would lift it by 75 basis points. The ECB’s current rate is identical—3.75%—and the probability of a rate hike in April has now reached 50%. 2) The U.S. federal funds rate currently stands at 3.5–3.75%. Markets had earlier forecast one or two cuts this year—but now, even a single cut looks optimistic. The probability of a cut in April has dwindled to just 10%. Here’s a summary I previously wrote outlining the transmission channels through which rate hikes affect the economy: 1) Financial asset depreciation + declining corporate profits → suppressed household consumption; in extreme cases, weaker balance-sheet small and medium-sized banks may even face insolvency. Both the wage-price spiral and the profit-investment feedback loop are abruptly severed. 2) Arbitrage opportunities emerge, prompting capital outflows. To counteract this, central banks must hike rates—inevitably leading to reduced domestic investment, fewer jobs, and lower consumption.

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Market traders expect higher ECB and BOE rate hikes than policymakers, driven by surging energy prices. Oil futures rose above $108 per barrel and natural gas spiked due to supply disruptions, fueling inflation fears in Europe and the UK.

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Traders Are at Odds With ECB and BOE on Scale of Rate Hikes

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