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Short sterling underperforming on CPI data

STIR FUTURES
  • The short sterling curve is the big mover this morning following inflation prints that came in 3 tenths higher than expected with headline CPI now at 5.1%Y/Y and core CPI at 4.0%Y/Y. Note that this is not the peak (which is expected in April when the next Ofgem energy price cap increase comes in).
  • Short sterling Whites and Reds are down 6.0-7.5 ticks with smaller moves further out the curve. Markets now see around a 45% probability of a 15bp hike tomorrow and price in 90bp of hikes by the August MPC meeting - which would put Bank Rate back at 1.00%. As of yesterday, the same was priced in by the November meeting.
  • The Eurodollar and Euribor strips are little changed. 75bp of Fed hikes are fully priced by February 2023 with 25bp hikes fully priced by June and November 2022. There is only a 50% chance of a 10bp ECB hike by October 2022.

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