A look at the day ahead in U.S. and global markets from Mike Dolan.
As markets run the gauntlet of four major central bank policy decisions this week, and Italy's election at the end of it, the trajectory for interest rates keeps rising all the time.
Bracing for what's most likely a third 75 basis point rate hike in a row from the Federal Reserve on Wednesday, futures markets now see policy rates as high as 4.25% by the end of this year, peaking 2 full percentage points above current levels at 4.5% in March and not returning back below 4% until 2024.
With two-year U.S. Treasury yields homing in on 4% too - hitting a near 15-year high of 3.973% on Tuesday - it's clear markets are shaping up for at least two years of a squeeze. The last time Fed policy rates spent two years above 4% was 2005-2007, in the lead up to the banking crash of 2008.
In what bond markets call "bear flattening", yields right out the maturity curve also rose, but by less than the 2-year. That's led 10-year government borrowing rates to 11-year highs but also the deepest inversion of the 2-10 year yield curve in over a month, a signal for many observers of recession ahead.
And it's not just the Fed in overdrive. Even though markets only see a one in five chance of a 100bp U.S. rate rise this week, some will have been unnerved to see Sweden's Riksbank surprise with a full percentage point hike on Tuesday - a jumbo rate rise that even failed to lift the crown.
The Swiss National Bank and the Bank of England - holding a meeting postponed from last week due the death of Queen Elizabeth II - are also expected to deliver outsize interest rate hikes this week.
All will have Monday's advice from their umbrella grouping the Bank for International Settlements ringing in their ears.
"It is important to act in a timely and forceful way," the head of the BIS' Monetary and Economic Department, Claudio Borio, said. "Front-loading (of rate hikes) tends to reduce the likelihood of a hard landing."
The Bank of Japan will likely hold the line on its easy policy again this week. But with core Japanese consumer price inflation hitting its highest in almost 8 years last month, there will be more debate about that stance in Tokyo going forward - not least with the weak yen aggravating import inflation.
With German producer price inflation unexpectedly soaring to 45.8% last month, that debate about the degree to which dollar priced fuel and food imports are benign exaggerated by the surging U.S. currency will add to the headache facing the European Central Bank.
Italy's election this weekend adds to that complexity, with markets now focused on whether the right-wing coalition leading the polls can secure a "super majority" of two-thirds of parliamentary seats.
The dollar's index was firmer on Tuesday going into the Fed meeting - less than 1% from this month's 20-year high.
All of which sets a pretty gloomy backdrop for stock markets, whose dire year to date relapsed over the past month after a brief summer lull.
Tuesday's pricing held up as the big Fed decision loomed. Monday's late rally helped steady the ship, while the easing of COVID-related lockdowns in China add some optimism in Asia. U.S. futures were flat going into the open.
In corporate news, shares in Ford Motor (NYSE:F) dropped more than 4% after the bell on Monday after it said inflation-related supplier costs will run about $1 billion higher than expected in the current quarter and estimates it will have 40,000 to 45,000 vehicles in inventory lacking parts.
Key developments that should provide more direction to U.S. markets later on Tuesday:
* U.S. Federal Reserve starts two-day meeting - decision Weds
* U.S. August housing starts/permits; Philadelphia Fed's Sept Non-manufacturing Business Outlook
* Canada August consumer price inflation
* U.S. Treasury auctions 20-year bond
* United Nations General Assembly in NYC
GRAPHIC: Japan's overall inflation https://graphics.reuters.com/JAPAN-ECONOMY/INFLATION/zdvxomebzpx/chart.png
GRAPHIC: Who owns Italian government debt? https://graphics.reuters.com/ITALY-ELECTIONS/gkplgnzogvb/Screenshot%202022-09-16%20at%2015.16.27.png
GRAPHIC: Fed funds target rate and the 10 year Treasury yield https://graphics.reuters.com/USA-STOCKS/egvbkrgwqpq/fftr.png
(By Mike Dolan, mike.dolan@thomsonreuters.com. Twitter (NYSE:TWTR): @reutersMikeD, editing by David Evans)