ECB Pricing Little Changed As 'Quiet Period' Gets Underway

With the ECB’s pre-meeting ‘quiet period’ now underway we note that the market continues to provide less than even odds when it comes to the likelihood of a 25bp hike at the end of next week’s meeting.

• The ECB-dated OIS strip has seen some modest twist flattening on the day.
• ~9.5bp of tightening is now showing for next week’s decision (off the recent dovish extremes), while terminal deposit rate pricing sits a little above the 3.90% mark, with participants effectively tilted more towards the prospect of 1 further hike than no further tightening.
• Debate within the ECB is seemingly between the need for one further hike or none at all.
• Non-committal tones from the usually hawkish Executive Board member Schnabel were deemed a definitive factor in recent sessions.
• The ECB will ultimately have to assess the trade off between the recent run of softening economic data (which various speakers have acknowledged) alongside inflation that is still comfortably above target, albeit slowing (indications from various ECB Governing Council members point to limited movement in the Bank’s updated inflation projections).
• We remain on the lookout for any pre-meeting source reports.