ECB Pricing Starts The Week In Familiar Territory, Lagarde Underscores Post-Meeting Tones

ECB-dated OIS operates in familiar waters as the new week gets underway, leaving ~9bp of tightening showing for the September meeting, while terminal rate pricing hovers a little above 3.90%.

• The weekend saw President Lagarde underscore the Bank’s data-dependent stance, while she also stressed that any future decision to pause the hiking cycle does not mean that it can't be restarted again if needed, alongside underscoring the higher for longer mantra.
• Eurozone CPI & GDP data headline the regional docket today.
• Goldman Sachs continue to expect “a hike at the Bank’s September meeting. Full data dependence might suggest further downside risk for near-term ECB pricing given the weakness of the latest PMIs, although President Lagarde indicated that inflation data remains the key focus for the ECB. Following the regional inflation data, we think that our expectation for a 5.5% core (Eurozone) HICP print in the flash reading will be sufficient to establish a September hike as a firm base case. Taken together with the ongoing weakness in the data, we continue to think this suggests that 1y1y EUR OIS is a relative long in Europe, both on the curve (e.g., vs 1y), but also against the U.S.”