Citadel Securities Sees Markets Mispricing Fed, ECB Rate Paths

Investors are wrong to bet the European Central Bank will raise interest rates this year while the Federal Reserve cuts, Citadel Securities said, arguing that the oil-price surge makes such policy divergence unlikely.

With the conflict in the Middle East lifting crude oil prices above $100 a barrel on Monday, interest-rate swaps show traders have fully priced in at least one quarter-point hike by the ECB by December, and are leaning toward a second one. Meanwhile, they expect the Fed to lower borrowing costs by a similar amount in that period.