Another Leg Higher, Will The BoE Follow the ECB’s ‘Dovish Hike’?

The second round ECB-related bid more than reverses any downward pressure surrounding U.S. data, with core global FI markets rebounding from U.S. data-driven pullbacks as participants assess the likelihood of any further ECB tightening.

• Gilt futures topped out around 96.50, with next resistance noted at 96.81 (the July 27 high on a continuation chart).
• Contract last +90 or so, just below 96.40.
• Cash benchmarks are 6-10bp richer, with 5s leading the bid as the broader curve bull steepens.
• The bid in crude oil hasn’t generated much in the way of tangible headwinds.
• SONIA futures have generally legged higher alongside gilts, last unch. to 14.5bp firmer, with the blues leading the move through the front 4 packs as the strip flattens further.
• BoE-dated OIS sees a sticky ~19.5bp of tightening showing for this month’s meeting, but beyond there, terminal policy rate pricing slips below 5.60% as participants start to question if the BoE will provide an ECB-esque ‘dovish hike’ next time it issues a monetary policy decision. That leaves pricing of a further 50bp of cumulative tightening in the current cycle below 50%.