Today's focus is on the major data that has reshaped expectations for central bank interest rates. Generally, we're observing two things: the activity data is holding up better than expected, and inflation is proving more persistent than hoped. As a consequence, markets are bracing for higher rates for a longer period.

Let's start with the US. We have seen a string of positive surprises in recent macroeconomic data. The latest reports on GDP, retail sales, non-farm payrolls, and inflation have all exceeded expectations in the past month. Even the latest services PMI from the Institute for Supply Management beat consensus and was comfortably above 50. Initial jobless claims and new claims for unemployment benefits have fallen again, with no significant uptick in layoffs, despite ongoing recession concerns.

What does this mean for the markets? Investors have gone from pricing in one to two additional Fed hikes to now expecting three to four. Even FOMC Chair Powell has opened up the possibility of a 50bp return in March.

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