Priing Residual Chance Of 50bp Move At This Week’s ECB, Although OIS Back From Session Highs

Catch up to price action in U.S. Tsys/U.S. short end moves as European participants reacted to developments over their elongated weekend (centred on the “resolution” of the First Republic saga and a stronger than expected prices paid component in the latest U.S. ISM manufacturing survey) allowed €STR OIS to firm initially this morning, while a hawkish RBA outcome overnight will have done no harm to that move.

• That allowed OIS pricing for this week’s ECB meeting to move to a session high of ~3.20% in €STR terms (~3.30% in deposit rate terms), representing ~31bp of tightening priced, while terminal rate OIS pricing showed at ~3.70% in €STR terms (~3.80% in deposit rate terms).
• Details released within the latest ECB Bank lending survey (which pointed to Eurozone credit standards seeing “further substantial net tightening,” driven by rising interest rates, lower fixed investment, weakening housing markets, TLTRO repayments and end of full APP reinvestments), as well as inflation and headline dynamics in the peripheral Eurozone manufacturing PMIs, took the edge off the push higher.
• That leaves €STR pricing for this week’s ECB meeting at 3.18% i.e. ~29bp of tightening priced, while terminal €STR pricing moved back in to ~3.65% (representing a terminal ECB deposit rate of ~3.75%).
• Preliminary Eurozone CPI data for April crosses at the top of the hour, with the BBG survey looking for a steady headline Y/Y reading (survey median sits at +6.9%), a modest downtick in the core Y/Y print (+5.6% from +5.7%) and a slight moderation in the M/M CPI reading (+0.7% from +0.9%)