IRAN: Axios-Foreign Min Proposed Interim Deal To US Envoy

GBP STIRs hold onto the bulk of their modest hawkish adjustment, with gilts reluctant to rally too far from session lows.

• BoE-dated OIS shows ~41bp of cuts through year-end, with 14.5bp priced for May, 17bp through June and 26.5bp through August. ’25 MPC meeting contracts are little changed to 2bp more hawkish on the day.
• December pricing is currently the most hawkish seen since Jan 22.
• We, along with the sell-side consensus, look for the next BoE cut to come in May.
• SONIA futures little changed to -3.0.
• CPI data is due ahead of tomorrow’s Spring Statement (the former is scheduled for 07:00 GMT on Wednesday).
• This is a bit later in the month than usual (possibly due to the 2025B weights update).
• BBG surveys point to core and services CPI ticking down by a tenth (to +3.6% & +4.9%, respectively), while the headline CPI reading is seen steady (+3.0%).
• Last week’s MPC meeting minutes picked up on the move higher in both core goods and food prices in January.
• If upside pressures to goods prices are maintained, services inflation needs to be lower than pre-pandemic levels to meet the 2% headline target. That could require more restrictive policy than was seen in pre-pandemic times.
• Ultimately, this means that non-energy goods inflation will be much more important during 2025, almost on a par with services inflation.
• A reminder that the PPI release has been postponed indefinitely due to issues with the data.

SX5E (20th Jun) 3300/2700ps, bought for 1.4 and 1.5 in 20k.

The Richmond Fed's manufacturing survey for March fully reversed February's improvement, with forward-looking survey components pulling back sharply, but inflation expectations soaring.

• March's composite index registered -4 (positive 1 was expected), down from positive 6 in February and as such back to the same -4 level seen in January. These figures remain well above the double-digit negative levels seen in 2H 2024, though the latter may have been influenced by various idiosyncratic factors including hurricanes and a work stoppage/order cancellations at Virginia-headquartered Boeing.
• As with the headline figure, New Orders reverted back in March, to -4 (0 prior, -4 in January), while 6-month expectations dropped to a 29-month low -22.0 (positive 2.0 prior). Employment fell to -1 from 9, while shipments dropped to -7 from 12.
• Regional manufacturers saw a huge increase in the level of inflation over the next 12 months - expected price changes jumped to 7.2% from 4.6% prior, with expected prices received up to 4.0% from 3.2% (actual prices paid/received also jumped, respectively by 1.5pp to 3.75% / 0.7pp to 2.3%).
• Expected price pressures are as high as they've been in the 20+ year survey, equalling the pandemic jump.
• That's unsurprising given tariff concerns but offers a further suggestion that manufacturers are bracing for both softer demand and higher input prices (which may not be fully passed on to consumers, as suggested by the gap between expected prices paid/received).