With Greece and China moving in the background, the Fed is likely to return its focus to domestic data. We believe this will prompt a first rate hike in September.
We continue to expect solid US data in coming months, with a faster improvement in labour market slack than the FOMC projects and a pickup in wage inflation.
The current market pricing of the Fed tightening cycle is too depressed in our view. Thus, we see value in positioning for higher US rates but prefer to do this via a wider spread to euro rates.
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