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Probability of cuts recedes following labour market data

SONIA
  • SONIA futures down up to 6.5 ticks across teh Whites / Reds after the open following this morning's higher-than-expected wage growth data (see earlier comments for more details).
  • Markets have reduced pricing for a June cut by 2.3bp and now price in around a 21% probability of a cut (from 30% on yesterday's end of day trading). June pricing is down to around 53% (from 70%) while looking at the end-year rate as a whole we are now pricing just 59bp (down from 66bp yesterday).
  • Note that Governor Bailey's speech last night did not really touch on monetary policy - instead focusing on the state of the banking sector. He did say that he thought the demand for reserves at the BOE would be higher than thought "even in the recent past". And when questioned on this week's data said that he would "not put too much weight" on whether the UK enters a technical recession or not with Thursday's GDP print. Note that these comments chime with other BOE comments recently that have noted that the difference in big picture terms between 0.1%Q/Q and -0.1%Q/Q growth does not really change the narrative on what to do with monpol going forward.
  • Looking ahead we have CPI data tomorrow, ahead of Bailey testifying ahead of the Lords tomorrow afternoon. Later this week we will also receive activity data Thursday, retail sales Friday as well as hearing from Greene, Mann and Pill.
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