SONIA Markets See Hawkish Repricing On CPI, ~38bp Of ’24 Cuts Priced

UK STIRs see a notable hawkish repricing on the back of the firmer-than-expected domestic CPI data.

• SONIA futures are 0.25 to 17.5 lower a little off early session lows.
• ’24 BoE-dated OIS contracts are 9-16bp firmer on the day, showing ~10% odds of a June cut and ~10bp of easing through the August MPC.
• The first 25bp cut is not fully discounted until the end of the November meeting vs. nearly fully pricing a cut come the end of the August MPC at yesterday’s close.
• Further out, ~38bp of cuts are priced through year end vs. ~53bp late yesterday.
• Looking deeper into the data, there are some potential one-off factors in this surprise - possibly from air fares, restaurants and hotels - part of that could be down to Easter effects. But even accounting for those, this provided a decent upside surprise to the both consensus and the BoE's services CPI forecasts.
• Late Tuesday saw BoE Governor Bailey suggest that reserves are likely to settle at GBP345-490bn, while he expects a significant uptick in repo operation usage.
• The April Brightmine survey revealed an uptick in in the 3-month Y/Y wage deal reading vs. March (+4.9% from +4.6%)
• Comments from BoE’s Breeden are due later today, although she will appear on a panel focused on macroprudential matters, which will likely limit the scope for broader monetary policy discussions.