ECB Pricing Back From Early Session Hawkish Extremes

ECB-dated OIS is back from early session hawkish extremes (which saw terminal rate pricing show just above 4.00%) that came in lieu of the regional NRW CPI print out of Germany, even as subsequent German regional inflation figures point to upside surprises in the national print (due at the turn of the hour) and ECB Governing Council member de Cos sounded a little more hawkish than usual as he failed to rule out the idea of a September hike (an outcome that is deemed slightly more likely than not by markets at present).

• Spanish inflation was firmer than expected, although the headline and HICP Y/Y prints fell below the ECB’s 2% target, while the country’s core inflation measure remains elevated relative to target (just below 6% Y/Y). The sub-2% headline reading seemed to help take the hawkish edge off the early morning repricing, even though underlying inflation remains sticky.
• A 25bp hike at next month’s ECB meeting remains ~90% priced, while ~48bp of cumulative tightening is priced through year-end, representing familiar levels for market participants. Early ’24 pricing has seen a bit more of an uptick (2-5bp firmer on the day) as the strip steepens.