Standard Chartered Money Insights Sep 18, 2026
With Yap Fook Hien, Senior Investment Strategist in the CIO Office at Standard Chartered
The market has three more Federal Reserve hikes priced by June 2027. Standard Chartered's house view is two, and the second one does not arrive until the first half of that year.
The usual reason to be below market pricing on rates is a weaker growth forecast. Yap Fook Hien's reason is the opposite: he expects robust growth and a tight labor market, and still thinks the hiking stops early, because he expects the oil and tariff effects that are holding inflation up to fade by the second quarter of next year.
"Now the Fed's move has helped to restore its credibility as an inflation fighter."
Yap sets the bond and currency forecasts that Standard Chartered's private-bank clients are positioned against, and in the week the Fed, the ECB and the Bank of Japan all raised rates he revised the 10-year Treasury yield target up twice, for three months and for twelve.
The full episode is covered here so you can skip it.
Here are the 6 predictions that matter.
Key Takeaways
Standard Chartered has two more Fed hikes, against three priced by the market by June 2027
A 25bps rise in rates costs the S&P 500 and global equities 3-4%, which he says earnings growth more than covers
The three-month target for the US 10-year yield is now 5.25%, with 4.75-5% at twelve months
He is constructive on the yen even after the 7-2 split vote that weakened it
The Bank of England will deliver fewer than the 100bps of hikes priced, leaving the pound range-bound
US high yield has returned 1.8% year to date and beaten government and investment-grade bonds by over 3% each
The AI slowdown calls are about responsible development, not spending cuts, so he is staying invested in big tech and semiconductors
1. Two More Hikes, Not Three
The host opened on the question the week had raised: three major central banks hiked inside a month, and investors wanted to know whether that is the start of a bigger cycle or an environment risk assets can absorb. Yap answered with a path rather than a direction.
He has the Fed stopping at 4.25-4.5%
We expect the Fed to hike once more by the year end to 4.25% and follow up with another hike in the first half of 2027 to 4.25 to 4 and 1/2% as we expect robust growth amid strong AI investments and a tight labor market keeping inflation elevated and well above its 2% target.
Yap Fook Hien
He credited this week's decision with repairing something. The hike followed a hawkish Jackson Hole speech from the Fed chair, a pick-up in job creation, firmer inflation data and a sharp rebound in oil prices on renewed conflict in the Middle East.
The move restored the Fed's standing as an inflation fighter
Now the Fed's move has helped to restore its credibility as an inflation fighter.
Yap Fook Hien
His path is below what the market prices
However, our policy outlook is less aggressive than what the market is pricing which is three more rate hikes by June 2027.
Yap Fook Hien
The reason is a forecast that inflation pressure comes off next spring, as the effects of oil prices and tariffs drop out of the numbers.
Cuts are possible in the second half of 2027
We believe policy rates can return to 4.25% range by the end of 2027 with the possibility of cuts in the second half of 2027 as inflation pressures ease.
Yap Fook Hien
2. Buy the Dip in Equities
Higher policy rates lower the present value of future earnings, which is the mechanical case against equities here. Yap put a number on how much it costs.
A 25bps hike is worth 3-4% of the index
We estimate that a 25 basis points rise in Fed rates or the discount rate would impact the S&P 500 index and global equities by around 3 to 4%.
Yap Fook Hien
That is the size of the headwind, and his argument is that earnings growth is larger than it. He said Fed hikes do not usually hurt equities over the medium term when they come with strong earnings growth.
He would use a dip to add exposure
And with the Fed policy uncertainty easing now, we see an opportunity to use equity market dip to add exposure amid a strong corporate earnings.
Yap Fook Hien
The hawkish Fed is already in the price
Furthermore, the hawkish Fed is largely priced in and we expect the Fed to actually deliver fewer rate hikes than currently priced by markets.
Yap Fook Hien
3. The Yen and the Pound
The host asked what happened at the Bank of Japan and the Bank of England, and what it means for currencies. The two central banks went in opposite directions, and Yap's currency views did not follow the immediate market reaction in either case.
The BoJ hit a three-decade high and the yen still fell
Yeah, the Bank of Japan or BOJ, they hiked rates by 25 basis points to a three-decade high of 1.25% as expected, but the 7-2 split vote led to renewed weakness in the yen on concerns that it may slow the pace of further hikes.
Yap Fook Hien
He is keeping the constructive yen call through that, on the grounds that the rate gap with other developed markets keeps narrowing.
A hike a quarter until the middle of 2027
We remain constructive on the Japanese yen amid narrowing rate differential versus the peers as the BOJ potentially hikes rates by 25 basis points once per quarter until Q2 of 2027 to curb the rising inflation pressures driven by domestic wages.
Yap Fook Hien
He named the loop that makes the call self-reinforcing rather than a simple rate trade: a slower Bank of Japan weakens the yen, and a weaker yen imports the inflation that would force the Bank to keep going.
The risk to the yen call is the Bank slowing down
Now, any sign of the BOJ slowing the pace of hikes could lead to renewed weakness in the yen, fueling inflationary pressures.
Yap Fook Hien
The Bank of England was the exception among its peers, holding rates while a weakening jobs market and a weakening housing market offset energy-driven inflation.
The pound stays range-bound on fewer hikes
We expect the BOE to deliver fewer rate hikes than the 100 basis points of increase currently priced by markets as the job markets slows further.
Yap Fook Hien
4. Where the 10-Year Settles
The host pressed on the bond yield revision and on the tactical dollar view. Yap raised the near-term Treasury target and then argued against extrapolating from it to the currency.
The three-month 10-year target goes to 5.25%
Yeah, we raised our three-month target for the US 10-year government bond yield forecast to 5.25% range.
Yap Fook Hien
The twelve-month target moved up as well, to a range he gave as "4.75 to 5%". Further tightening and continuing US fiscal concerns keep yields high, in his account, while the Fed's visible response to inflation stops them going higher still.
The 10-year holds in a 5% to 5.25% band
But the Fed's visible response to inflation should limit additional upward pressure leaving the 10-year yield holding around the 5% to 5.25% range.
Yap Fook Hien
The dollar bias is up, but not for long
And meanwhile, we see a near-term upward bias in the US dollar index or DXY after its recent downtrend supported by recent Fed tightening and higher short-term US bond yields.
Yap Fook Hien
This week's move to a 3.75% to 4% target range validated the upside policy risk the firm had flagged, he said. What caps the dollar from here is that the market had already priced substantial further hikes before the meeting, which leaves little for rate repricing to add, while the ECB and the Bank of Japan are still tightening and the RBA is still biased that way.
The US rate advantage narrows from here
As a result, this should narrow gradually the US rate advantage and limit the extent of a sustained DXY rebound.
Yap Fook Hien
5. Why High Yield Still Works
Asked why he stays positive on US high-yield bonds in an environment of rising yields, Yap gave three reasons and one number.
Three reasons to stay in high yield
Yeah, we remain opportunistically bullish on the US high-yield bonds. They have lower sensitivity to interest rate volatility, a below-trend default rate, and a maturity wall pushed out to 2028 to 2029.
Yap Fook Hien
The rate-sensitivity point is about coupon and tenor. High-yield bonds pay a higher coupon and mature sooner than developed-market government bonds or US investment-grade corporates, so a given rise in yields moves their prices less. That showed up in the returns during the recent backup in yields.
High yield has beaten governments and IG by over 3%
Year-to-date, the US high yield have delivered 1.8% in total returns, outperforming the developed market government bonds and US investment grade corporate bonds by over 3% each.
Yap Fook Hien
He was clear that this is relative rather than absolute: high yield cushioned the move while the broader fixed-income market fell in price terms.
Defaults are below trend and refinancing is years out
Default rates continue to track below long-run trend levels and the maturity wall has been pushed out to 2028 to 2029, reducing near-term refinancing risk.
Yap Fook Hien
The condition on all of it is that the economy does not turn down. Against a non-recessionary backdrop he expects the credit fundamentals to hold.
6. The AI Slowdown Calls
The last question was about the AI lab chief executives calling for a slowdown in frontier model development, and what an investor should do about it.
He thinks the concern is overdone
Yeah, we believe concerns over pacing the frontier overdone.
Yap Fook Hien
His reading of what the labs actually asked for is narrower than the market's.
The calls are about responsible development, not spending
We believe it is prudent for investors to avoid overreacting to the recent calls for a slowdown in frontier AI model development as they focus on responsible AI development rather than halting AI model development or reducing spending.
Yap Fook Hien
Two governments make a coordinated pause unlikely
The global AI leadership race it is reinforced by the US and China's strategic ambitions, which also makes a coordinated slowdown unlikely.
Yap Fook Hien
He allowed that the narrative could rotate from the companies that benefit from model training toward the ones that benefit from running models in production. That rotation does not reduce the spending, on his reading, because the hyperscalers keep signaling their infrastructure commitments and improving what they earn from them.
Inference demand picks up what training gives back
Rising adoption and agentic use cases should sustain inference demand even if training activity moderates, and this would benefit your custom AI chips, your NAND flash memory, and hyperscalers.
Yap Fook Hien
The valuation fall already covers the capex risk
We believe the decline in valuations this year more than compensates for any downside risk to AI capex
Yap Fook Hien
The position he draws from that is a diversified one rather than a single name: large-cap technology and semiconductor industry leaders, with an opportunistic idea on global semiconductors and room to add selectively when prices fall.
Bonus Insights
The host's own three takeaways
My top three takeaways, number one, consider buying the dip in equities given that rate hikes from the Fed now seem priced, and some of the AI pacing concerns seem overdone.
A host
The other two were the constructive view on the Japanese yen as rate differentials narrow, and staying opportunistically bullish on developed-market high-yield bonds for their reduced interest-rate risk. All three match what Yap said rather than adding anything to it, which is what the closing segment of the show is for.
Yap's bottom line is that a Fed which has re-established its inflation credibility does less than the market expects, and that the trade off the back of that is buying equity dips, owning the yen and holding short-dated high-yield credit rather than long government bonds.
If this was worth your time, send it to someone who has to have a view on this.
Get the latest market chatter as it happens: