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ECB Pricing Hinging on Lagarde Comms, Outlook for PEPP

STIR
  • OIS pricing holds within familiar ranges, with markets awaiting cues from the ECB tomorrow, ahead of the BoE and Fed decisions due next week. Needless to say, markets are priced for no change in rates at all three central banks, with yield moves off last week’s highs working against near-term hike pricing.
  • ECB pricing shows markets firmly expect a pause on policy tomorrow, with the first full 25bps rate cut tabled for the contract covering the early June meeting, while the April decision is close to 50/50. A further 7bps of cuts was priced into the April meeting over the past 4 sessions, cemented by yesterday’s ECB Bank Lending Survey and Lagarde’s apparent confidence to the European Commission that the inflation fight is “going well”. Focus will now shift to the outlook for PEPP, reserve remuneration and the first rate cut at tomorrow's press conference.
  • Meanwhile, markets price an approximate 1/3 chance of another 25bps BoE hike this cycle (peak rates priced for the Feb’24 meeting) but, in contrast with the ECB and Fed, a rate cut is not yet fully priced in the coming year. Last week’s higher Services CPI release has proven supportive for the higher-for-longer narrative.
  • With no change seen next week, the FOMC's deliberation is shaping up to revolve over the lagged impact of previous tightening and the impact of higher Treasury yields in recent weeks. See our Key Inter-Meeting FedSpeak document here, including the latest MNI hawk-dove spectrum: https://roar-assets-auto.rbl.ms/files/56354/FedCom...

MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
EM BulletHomepagemarkets-real-timeEmerging Market NewsBulletMarketsFixed Income BulletsForeign Exchange BulletsBank Of England (BOE) Market NewsEuropean Central Bank (ECB) Market News
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
EM BulletHomepagemarkets-real-timeEmerging Market NewsBulletMarketsFixed Income BulletsForeign Exchange BulletsBank Of England (BOE) Market NewsEuropean Central Bank (ECB) Market News

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