STIR: Just Under 120bp Of '25 ECB Cuts Priced

ECB-dated OIS shows ~118bp of cuts through ’25 vs. ~119bp late on Friday, while Euribor futures are 0.5-3.5 lower.

• Some are attributing the modest hawkish repricing to comments made by ECB President Lagarde.
• Lagarde told the FT that “we’re getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2%. I’m saying that with a little reservation because I still believe that we should be very vigilant about services.”
• While the caution surrounding services inflation is worth noting, it isn’t a new source of information and has factored heavily into discussions at various stages of the ECB’s current easing cycle. She also stressed the progress towards the Bank’s inflation goal.
• As such, we don’t think this should be a major driver for STIR repricing, with weakness on EGB curves seemingly more of a driver when it comes to this morning’s moves.
• Elsewhere, ECB GC member Makhlouf reiterated his preference for 25bp cuts (pointing to heightened uncertainty in ’25).
• Meanwhile fellow GC member Vujcic stressed that the direction of policy rates is clear (signalling further cuts), noting that the evolution of data and degree of policy transmission will determine the longevity of the Bank’s cutting cycle.
• Little of note on the European calendar for the remainder of the week, which will leave focus on macro headline flow.
• A reminder that the Christmas holiday period will result in adjusted hours and closures as well as reduced liquidity and volume.