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Pull Back In ECB Rate Cut Expectations Post UK CPI and Lagarde

STIR

ECB-dated OIS contracts have continued to pare rate cut expectations following this morning's UK CPI data and comments from ECB's Lagarde in Davos. Euribor futures run -3.5 to -6.5 ticks.

  • There are now around 139bps of cuts priced through 2024 (vs ~147bps yesterday morning), and the first 25bp cut is no longer fully priced through the April meeting (with ~22bps priced at typing).
  • Lagarde stated that it is likely that the ECB will cut rates by the summer, although she warned that "too optimistic" markets (re: cuts) hinder the return of inflation to its 2% goal.
  • The usually hawkish Knot pushed back on market expectations and stressed the importance of wage data, after Simkus and Muller provided similar messages yesterday afternoon.
  • The ECB's pre-meeting blackout period begins tomorrow, with a wide range of policymakers across the hawk/dove spectrum having pushed back on current pricing already this week.
  • As detailed elsewhere, UK CPI was firmer-than-expected but still below the BoE's Nov MPR forecast.
  • Today's docket includes the final December Eurozone CPI readings (flash 2.9% Y/Y headline, 3.4% Y/Y core), alongside a raft of additional ECB-speak.

Meeting Date ESTR ECB-Dated OIS (%)Difference Vs. Current Effective ESTR Rate (bp)
Jan-243.903-0.10
Mar-243.858-4.6
Apr-243.686-21.8
Jun-243.401-50.3
Jul-243.144-76.0
Sep-242.894-101.0
Oct-242.696-120.8
Dec-242.511-139.3
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