Goldman: Room For More BoE Cuts To Be Priced, Eying Cross-Market Exposure

Goldman Sachs write “the sharp rally in US and EU front ends in recent weeks has largely left the UK behind.”

• “This is consistent with an inflation picture that remains high in level terms vs the low levels of realised and annualised inflation in US and Europe, as well as a modest tick up in UK activity.”
• “In addition, UK policymakers have been more willing to lean against cut pricing, and remain concerned about inflation persistence - a message that is likely to continue at this week’s BoE meeting.”
• “However, the market is well-priced for this divergence.”
• “Given the rapid disinflation we have seen in Europe, we think that any similar signal out of UK CPI would directionally see UK vs US and EU 2024 pricing converge.”
• “We think that long SFIZ4 vs SFRZ4 makes sense given our relative monetary policy views, but the event risks (BoE and Fed meetings) may offer a better entry point for the trade.”