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GDP Data Has Light Hawkish Impact On GBP STIRs

STIR
HomepageBank Of England (BOE) Market NewsBulletMarketsFixed Income BulletsForeign Exchange Bullets

Firmer-than-expected UK economic activity data counters any spill over from the rally in EUR & U.S. FI since yesterday’s SONIA settlement.

  • That leaves SONIA futures -1.0 to +0.5.
  • ’24 BoE-dated OIS contracts are little changed to 2.5bp firmer, showing ~57bp of cuts through year end, with near 50/50 odds of a cut priced for the June MPC and a full 25bp cut priced through August.
  • Going forwards, GBP STIRs could show heightened sensitivity to UK data after BoE Governor Bailey flagged the potential for deeper cuts than the market currently prices, albeit with data dependence stressed.
  • We don’t think today’s GDP data is a needle mover for BoE policy.
  • Late Thursday saw BoE chief economist Pill highlight growing confidence that the Bank will ne able to cut interest rates, although he stressed that we are not quite at that point as he stressed data dependence.
  • Pill will speak again today (12:15 London), with comments from dovish MPC dissenter Dhingra also due (12:45 London).
BoE MeetingSONIA BoE-Dated OIS (%)Difference Vs. Current Effective SONIA Rate (bp)
Jun-245.078-12.2
Aug-244.950-25.0
Sep-244.853-34.7
Nov-244.722-47.8
Dec-244.628-57.2
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Firmer-than-expected UK economic activity data counters any spill over from the rally in EUR & U.S. FI since yesterday’s SONIA settlement.

  • That leaves SONIA futures -1.0 to +0.5.
  • ’24 BoE-dated OIS contracts are little changed to 2.5bp firmer, showing ~57bp of cuts through year end, with near 50/50 odds of a cut priced for the June MPC and a full 25bp cut priced through August.
  • Going forwards, GBP STIRs could show heightened sensitivity to UK data after BoE Governor Bailey flagged the potential for deeper cuts than the market currently prices, albeit with data dependence stressed.
  • We don’t think today’s GDP data is a needle mover for BoE policy.
  • Late Thursday saw BoE chief economist Pill highlight growing confidence that the Bank will ne able to cut interest rates, although he stressed that we are not quite at that point as he stressed data dependence.
  • Pill will speak again today (12:15 London), with comments from dovish MPC dissenter Dhingra also due (12:45 London).
BoE MeetingSONIA BoE-Dated OIS (%)Difference Vs. Current Effective SONIA Rate (bp)
Jun-245.078-12.2
Aug-244.950-25.0
Sep-244.853-34.7
Nov-244.722-47.8
Dec-244.628-57.2