Castle Securities predicts market misjudgment of US and European interest rate paths. The European Central Bank is expected to not persist in raising rates.

Castle Securities stated that investors bets on the European Central Bank raising interest rates when the Federal Reserve cuts rates this year are wrong, as the surge in oil prices makes it unlikely for a divergence in monetary policies between the US and Europe. With the escalation of the Middle East conflict pushing oil prices above $100 per barrel on Monday, interest rate swaps show that traders have fully factored in expectations of the European Central Bank raising rates by at least 25 basis points before December and leaning towards further hikes. At the same time, they expect the Fed to cut rates by a similar amount during the same period as Europe raises rates. Nohshad Shah, head of fixed income sales for Castle Securities in Europe, the Middle East, and Africa, wrote in a report to clients that these expectations are incorrect, as the impact of the oil shock on European and UK economic growth may be more severe than on the US. "The drag on US economic growth from the oil shock is milder compared to Europe and the UK," Shah wrote. "If the European Central Bank raises rates, I find it hard to believe that the Fed would cut rates. Vice versa."