This note is from last week, is it already out-dated?

According to Credit Suisse Fixed Income Research, US credit markets have already priced in both declining oil prices and a Fed rate hike, making them relatively inexpensive compared European credit markets and U.S. and Euro equity markets. CS argues this value largely derives from the growing possibility we might not see a rate hike until the end of the year or beyond.

US Credit

In an August 21st report, CS analyst Sean Shepley and colleagues argue that global credit markets are “exposed to further oil price declines and what would now be a Fed shock, but US credit has done a good job of discounting much of this and sentiment is very negative. So US credit is cheap, relative to equities and European credit in our view.”

US Credit

Credit Suisse says chances of September Fed rate hike slip below 50%

The probability of a September hike in the Fed funds rate is now under 50%, according to Shepley et al. They note that with the growth outlook slipping across the globe and the dollar continuing to move up, a rate hike in September “could exacerbate declining risk appetite.” The CS team also argues that that recent economic developments could have cut the chances that U.S. core inflation will hit 2% any time in the near future.

US Credit

That said, a rate hike in September is definitely still a possibility. Given a major risk rally and a bounce back in commodities in the next month, we could still see a hike hike. Unexpected economic news that wages, inflation or nominal growth are notably higher higher than anticipated could also cause the Fed to pull the trigger. The CS team still feels a rate cycle is coming, with at least one rate hike by year-end. Of interest, the analysts highlight that the chances of a hike at every FOMC meeting in the next 18 months are close to 50% (including the Oct. and Dec. meetings).

Finally, the CS rates strategy team points that the minutes from the recent FOMC Meeting did not give much of a “sense of urgency” to boost interest rates. That said, they also note that the FOMC “wants to get away from zero, and they continue to expect the Fed to do so should the opportunity present itself.’

The Credit Suisse team has officially changed its call for the first Fed rate hike to December 16, 2015.