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STIR FUTURES: SONIA futures underperforming - what next for global CB pricing?

STIR FUTURES
  • SONIA futures have underperformed both Euribor futures and Fed Fund futures so far this week - both yesterday and in this morning's European session. There haven't been any real data triggers for this, but the moves do make sense in our view.
  • Markets currently price in just under a 25% probability of a September BOE cut, fully price (26bp) a November cut with around a 50% probability of a further cut by December (38bp cumulatively priced). Markets are pricing in broadly quarterly cuts - with a risk of some of those cuts being a bit more front-loaded.
  • To us market pricing seems broadly appropriate for the BOE now.
  • Market pricing for Euribor futures also looks broadly sensible now - with a September cut fully priced, around a 50% probability of another cut in October (38bp cumulatively priced) with 66bp priced by year-end. Although on the high side and with services inflation remaining sticky, the growth outlook still looks to be soft across the Eurozone - which should help moderate inflation further.
  • For the US, markets now price around 32bp for the September meeting and 94bp by year-end. Although this is on the high side (and we don't think the latest inflation report was consistent with a larger than 25bp cut in September), concerns around the US outlook continue to linger. Pricing may remain sticky in the near-term. Wednesday's preliminary payrolls benchmark revision offers event risk, with sensitivity to a hawkish outturn, although surprises would likely need to be large coming ahead of the FOMC Minutes (Wed) and Powell's speech at Jackson Hole (Fri).
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