OI Points To Net Short Cover In SONIA White & Red Packs Post-BoE

The combination of yesterday’s rally in most SONIA futures and OI data points to fairly meaningful short cover in SFIU4 & Z4 after BoE Governor Bailey flagged the potential for a swifter round of rate cuts than the market currently prices. Long cover was seemingly seen in SFIH4, with modest long setting in SFIM4.

• Short cover also provided the most meaningful positioning movement in the reds, although pockets of net long setting were also seen here.
• Net pack OI movement was a little more balanced in the greens and blues, with the positioning movement in the former tilted towards net short cover and the latter tilted towards net long setting.
• BoE-dated OIS now shows around 60bp of cuts through year end, which compares to closer to 50bp of easing at the end of last week.
• The first 25bp cut is fully discounted come the end of the August MPC and near 50/50 odds of a June cut are currently priced.
• The two CPI reports released between now and the June meeting will provide the key inputs for the Bank, with the labour market data being de-emphasised.
• Elsewhere, the pricing components of the PMI data will also be eyed given the Bank’s reference to the significance of the survey evidence that firms were passing less of their increased costs through to output prices.