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STIR: ECB Pricing Still More Aggressive Than Once-Per-Quarter Baseline

STIR
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Hawkish adjustments in ECB pricing extend a little further, but near-term market pricing of cuts remains more aggressive than the once-per-quarter preference held by at least several GC members.

  • What’s more, President Lagarde didn’t seem in a particular rush to cut rates again, exhibiting little worry when it came to downside risks to the Bank’s central GDP growth scenario.
  • Elsewhere, some of Lagarde's comments on wages could be read as hawkish.
  • ECB-dated OIS prices around 3.5x 25bp cuts over the next 4 meetings, with ~5bp of cuts priced for the October meeting.
  • That compares to ~8bp cuts for October and ~91bp through March running into today's decision (based on the assumption that today’s cut would be delivered).
  • The Eurozone would probably have to experience a deeper slowdown in growth than the ECB currently envisages to match market pricing over the next few meetings.
  • Over on the Euribor strip, ERZ4/Z5 is 2bp off yesterday’s cycle lows, last -111bp, while ERH5/H6 support (at the July lows) remains intact.

ECB Meeting

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Hawkish adjustments in ECB pricing extend a little further, but near-term market pricing of cuts remains more aggressive than the once-per-quarter preference held by at least several GC members.

  • What’s more, President Lagarde didn’t seem in a particular rush to cut rates again, exhibiting little worry when it came to downside risks to the Bank’s central GDP growth scenario.
  • Elsewhere, some of Lagarde's comments on wages could be read as hawkish.
  • ECB-dated OIS prices around 3.5x 25bp cuts over the next 4 meetings, with ~5bp of cuts priced for the October meeting.
  • That compares to ~8bp cuts for October and ~91bp through March running into today's decision (based on the assumption that today’s cut would be delivered).
  • The Eurozone would probably have to experience a deeper slowdown in growth than the ECB currently envisages to match market pricing over the next few meetings.
  • Over on the Euribor strip, ERZ4/Z5 is 2bp off yesterday’s cycle lows, last -111bp, while ERH5/H6 support (at the July lows) remains intact.

ECB Meeting

Keep reading...Show less