This morning, there was hope that chair Powell’s clarification on the Fed’s normalization path could bring some ST consolidation after recent sharp repositioning. Especially Powell’s remark that 75 bps hikes won’t become the new normal gave investors some comfort. Unfortunately, the hope survived for only a few hours. The trigger? For an important part the Swiss National Bank! The SNB unexpectedly raised its policy rate by a staggering 50 bps to -0.25% (cfr. infra). If even Switzerland with still subdued inflation needs to step in, what should then be the reaction function of other countries running three- or fourfold Swiss inflation? The sell-off in European and US bond markets resumed. Especially German/EMU yields (more than) reversed yesterday’s easing, all touching new cycle peak levels. Yields are currently off intraday top levels, but still rising between 20/16 bps (5-y/2-y) and 13 bps (30-y). Interestingly, Intra-EMU spreads narrow further as the ECB prepares a new instrument to avoid fragmentation (10-y spread Italy vs Germany -14bps). US yields are rising between 16 bps (5/10-y) and 10 bps (2-y) in a very volatile market. US data brought further evidence that taming inflation will come with a cost for growth. US housing starts and permits tumbled sharply (14.4% M/M and 7.0% M/M). The Philly Fed business activity index dropped to the lowest level since May 2020 (-3.3). UK yield rises today even outpace the US and EMU. The BOE raised its policy rate by 25 bps to 1.25% but signals bolder steps ahead if inflation spirals further out of control (2-y + 27bps!!!).The prospect of further CB tightening and a slowdown in demand/growth again pushed equities off a cliff. The EuroStoxx50 (-2.7%) is nearing/testing the 3451/3359 support area (top July 2020/50% retr). US indices are losing op to 2.8% (Nasdaq). Brent oil eases to $117p/b, but European gas prices are rising sharply (+24%) on supply disruptions from Russia.On FX, the dollar doesn’t profit from the risk-off (due to bigger interest rate rise outside to US?). At least part of the intraday US setback occurred after the US data. DXY drops to 104.55 area after touching 105.78 post Fed yesterday. EUR/USD reversed early losses below 1.04 to trade near 1.045. The Swiss franc gained sharply on the SNB decision with EUR/CHF trading below 1.24 from 1.04+ levels this morning. In volatile trading sterling gains against the euro (EUR/GBP 0.8545) and the dollar (1.224) as markets see the BOE being forced to provide additional interest rate support in H2. In Hungary, forint weakness also ‘forced’ the MNB to (unexpectedly) raise the weekly deposit rate by 50 bpn to 7.25%. The forint temporarily strengthened, but EUR/HUF currently again nears the 400 barrier. News Headlines The Swiss National Bank (SNB) unexpectedly raised its policy rate by 50 bps to -0.25%. There are signs that inflation is spreading to goods and services that are not directly affected by external factors. SNB governor Jordan mentions the threat of second-round effects becoming entrenched if inflation remains above 2% longer. Further increases cannot be ruled out if necessary to stabilize inflation. The SNB is also prepared to conduct FX interventions if a weak(er) CHF interferes with the SNB’s tightening aim. The policy statement for the first time in a while doesn’t refer to the franc as being highly valued. Assuming an unchanged policy rate over the next three years, Swiss inflation is forecast to reach 2.8% this year, 1.9% in 2023 and 1.6% in 2024. The near term Swiss economic outlook remains positive (2.5% growth in 2022), but is subject to large risks (energy supply, global supply bottlenecks,…). The Bank of England conducted a fifth consecutive 25 bps rate hike (to 1.25%) in a 6-3 vote, with dissenters arguing in favour of a 50 bps rate increase. The MPC will continue to take actions needed to return inflation to the 2% target. The scale, pace and timing of future increases will reflect economic and especially inflationary developments. If needed, the BoE will react forcefully. CPI inflation if expected to be over 9% during the next few months and to rise to slightly above 11% in October after an additional large increase in the Ofgem price cap (energy prices). The more worrying development is inflation pressures coming from the tight labour market and from pricing strategies of firms. Q2 growth forecasts (-0.3% Q/Q) are a tad softer than in the May Monetary Policy Report after a disappointing April. Labour market indicators continue to point to a tight UK labour market.