A Touch Cheaper & Steeper As UK CPI Feeds In

UK CPI helps Bund futures move lower, in turn applying pressure to Euribor futures.

• That leaves contracts running flat to -3bp through the blues, with a light steepening bias on the strip.
• ECB hawk Holzmann has alluded to the risk of higher oil prices owing to the tension in the Middle East, warning of the feedthrough impact for inflation. Late on Tuesday he stressed that the Bank is not out of the woods re: inflation, while once again stressing that further shocks may result in additional rate hikes.
• Elsewhere, Greek central bank chief Stournaras told the FT that the Bank is “in the dark” as the Israel-Hamas war is creating new challenges from energy markets. He also underscored the importance of PEPP as the first line of defence for the bond market “given everything going on in the world.” Asked when he thought the ECB could start cutting rates, Stournaras suggested: “If inflation in the middle of next year . . . falls close to 3%, that is perhaps the time to start thinking about a rate cut.” These comments leave him on the dovish side of the ECB spectrum.
• Although there is nothing on the formal schedule we remain on the lookout for potential pre-ECB blackout communique ahead of next week’s monetary policy meeting.