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2024 ECB Implied Rates Fall After US UoM and Nagel Comments

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After drifting higher alongside core global FI yields for most of the day, ECB implied rates have retraced following the US UoM survey and comments from the Bundesbank’s Nagel.

  • While Nagel noted that the ECB may need to wait till September before its next interest rate move beyond the June meeting, some participants may be relieved that he did not advocate for a “one and done” path for rates for the remainder of 2024, particularly given his hawkish stance.
  • That leaves ECB-dated OIS pricing 58bps of cuts through the remainder of 2024 (up from an extreme of 55bps before the UoM data).
  • The current sell-side consensus tilts closer to 3 or 4 25bp ECB cuts through the end of the year.
  • Next week’s flash Eurozone inflation reading provides one of the last major inputs before the June 6 ECB decision, where a 25bps cut remains ~90% discounted.
  • The consensus for core HICP is centred around 2.7% Y/Y, with analysts expecting services HICP to tick up to 3.8 or 3.9% (vs 3.7% in April).
  • Current cut pricing may thus provide an attractive entry point for those looking for a below-consensus services HICP print.
  • However, there is plenty of risk surrounding the nature of the ECB’s communication in June, even if May inflation surprises to the downside. Recent wage data and continued hawkish Fed repricing is also set to factor into decisions and deliberations on the post-June path for policy rates.
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After drifting higher alongside core global FI yields for most of the day, ECB implied rates have retraced following the US UoM survey and comments from the Bundesbank’s Nagel.

  • While Nagel noted that the ECB may need to wait till September before its next interest rate move beyond the June meeting, some participants may be relieved that he did not advocate for a “one and done” path for rates for the remainder of 2024, particularly given his hawkish stance.
  • That leaves ECB-dated OIS pricing 58bps of cuts through the remainder of 2024 (up from an extreme of 55bps before the UoM data).
  • The current sell-side consensus tilts closer to 3 or 4 25bp ECB cuts through the end of the year.
  • Next week’s flash Eurozone inflation reading provides one of the last major inputs before the June 6 ECB decision, where a 25bps cut remains ~90% discounted.
  • The consensus for core HICP is centred around 2.7% Y/Y, with analysts expecting services HICP to tick up to 3.8 or 3.9% (vs 3.7% in April).
  • Current cut pricing may thus provide an attractive entry point for those looking for a below-consensus services HICP print.
  • However, there is plenty of risk surrounding the nature of the ECB’s communication in June, even if May inflation surprises to the downside. Recent wage data and continued hawkish Fed repricing is also set to factor into decisions and deliberations on the post-June path for policy rates.