Dovish Villeroy Comments Promote Extension Of ECB Cut Pricing

Dovish comments from the BdF's Villeroy over the weekend have prompted an extension of ECB rate cut expectations, a continuation of the moves seen post-Thursday's meeting.

• When asked r.e. the timing of the first rate cut, Villeroy noted to a local newspaper "everything will be open at our next meetings".
• Elsewhere, focus on Middle East-centric geopolitical tensions will also be factoring in (crude oil futures are back from fresh multi-week highs, sitting little changed, providing little feedthrough into EUR 5y5y).
• ECB-dated OIS contracts now price over 160bps of rate cuts through 2024, up from around 142bps at Friday's close. The first cut is essentially fully priced through the April meeting, with 25bps of easing priced at typing. The Euribor strip is +3.0 to +6.0.
• The usually hawkish Knot pushed back on Villeroy’s assertions, reiterating the importance of the assessment of wage data as a pre-requisite for policy easing.
• This morning, Vice President de Guindos has stressed the ECB's data- (not date-) dependent stance, but notes he is positive on the evolution of inflation and does not yet see the Red Sea situation impacting rate decisions.
• This morning's regional calendar is light, with the week's main focus on the January flash inflation data round (though Q4 '23 flash GDP prints and manufacturing PMI readings will also garner attention). ECB's de Guindos is scheduled to speak again (1310GMT).