Explain how expectations, and revisions to them, drive the prices markets set on assets
The idea
Prices already embed the market's forecasts of growth, inflation, policy rates and profits, so only the unexpected part of news moves them. If a central bank raises its policy rate by exactly the amount priced into futures and forward rates, bond prices should barely react; a smaller rise than expected can lift bond prices even though rates went up. The same logic applies to company results: record profits can send a share price down if the market expected more. The trap is to judge a price move by the direction of the announcement rather than by the gap between the announcement and what was already priced in.
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