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EUR Implied Rates Soften Incrementally As Morgan Stanley Call Time On ECB Hiking Cycle

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BBG airing Morgan Stanley’s latest tweak to their ECB call lends incremental support to the front end of the Euribor strip, with the bank now of the view that the ECB has already reached its terminal rate in the current hiking cycle.

  • Morgan Stanley note that the combination of a downside surprise in services inflation and a picture of a rapidly weakening economy is likely to be enough to tilt the ECB in favour of a pause when policymakers convene later this month.
  • ECB-dated OIS also sees an incremental tick lower, with ~7.5bp of tightening now showing for this month, while terminal deposit rate pricing sits a little above 3.90%.
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BBG airing Morgan Stanley’s latest tweak to their ECB call lends incremental support to the front end of the Euribor strip, with the bank now of the view that the ECB has already reached its terminal rate in the current hiking cycle.

  • Morgan Stanley note that the combination of a downside surprise in services inflation and a picture of a rapidly weakening economy is likely to be enough to tilt the ECB in favour of a pause when policymakers convene later this month.
  • ECB-dated OIS also sees an incremental tick lower, with ~7.5bp of tightening now showing for this month, while terminal deposit rate pricing sits a little above 3.90%.