OIS-Implied Probability Of 3 Cuts In 2024 Trimmed Back

In line with the tentative stabilisation in equities and FI following yesterday's risk-off unwind, OIS-implied expectations for ECB cuts this year have been dialled back.

• Although a September cut is still fully priced, the probability of a second and third cut in October and December, respectively, have been trimmed slightly. There is now a cumulative ~72bp in cuts priced for the remainder of 2024, while yesterday three cuts were fully priced.
• The extent to which a growth deceleration would ease domestic price pressures and feed-through to wages, would determine if the ECB accelerates the pace of policy easing.
• For the time being there is not sufficient data to suggest a material change in the economic outlook. With that in mind, market pricing of three cuts this year, and a off-quarter cut in October, is vulnerable.
• US growth concerns (and the spillover) have underpinned the recent volatility, aligning with the ECB's own downbeat risk assessment at the July policy meeting.
• Up until now growth has been weak, but somewhat stable, while some measures of underlying inflation show persistence. In this situation the ECB has been content with taking a cautious 'data dependent' and 'meeting-by-meeting' approach.