ECB Pricing Little Changed As Core Global FI Stabilises

Early Friday comments from ECB’s Holzmann generated some misleading headlines on the wires (that read more dovishly than what he actually said). Looking at the details, he noted that for him, “the probability that interest rates will rise again is no less likely than the odds of a cut.” The hawk stressed that inflation levels remain high, also alluding to “other dangers.” The details, coupled with the previously covered, wider cheapening in core global FI markets, dripped into OIS pricing.

• That was before an uptick from session cheaps in core global FI halted, and then reversed, most of the limited hawkish move in OIS.
• Contracts covering ECB decisions through ’24 are flat to 1bp firmer on the day as a result, with no further rate hikes priced into the strip.
• Further out, the first full 25bp cut is still priced come the end of the June ’24 meeting, with a cumulative ~82bp of cuts then showing through ’24 on the whole.
• ’24 cumulative cut pricing is a little over 20bp off last week’s dovish extremes, but that is more to do with repricing re: global central banks over that horizon, as opposed to ECB-specific matters.
• Late Thursday, Holzmann’s fellow Governing Council member Villeroy once again pointed to no further rate hikes unless surprises materialise.
• More recently, President Lagarde reiterated the degree of caution that the ECB holds re: further immediate progress on inflation, alongside a re-flagging of the distance already travelled on that front.
• Scheduled ECB speak de Guindos & de Cos present the regional highlights ahead of the weekend.