SECURITY: BBG-Putin 'Ready To Agree Ukraine Truce w/Conditions"

BoE-dated OIS still hasn’t managed to price in greater than 50/50 odds of 4x 25bp cuts through year-end (on a binary 3 or 4 cut basis), with the bid in core global FI markets resulting in a fresh dovish cycle extreme of ~86.5bp of cuts being priced at one stage today.

• A reminder that the market priced ~36bp of cuts over the same horizon as recently as January 15.
• The market continues to price just under 24bp of easing for tomorrow’s decision and ~48bp of cuts through the May MPC.
• We look for cuts at both tomorrow’s decision and the May meeting.
• SONIA futures flat to +9.0.
• Dec highs in SFIZ5 remain unchallenged.

• Yen outperformance remains the key feature of the day in G10 currency markets, as core yields extends their slide lower in the aftermath of the US ISM Services data. This has bolstered the overnight theme, underpinned by the stronger-than-expected Japanese wage data, fostering a more hawkish BOJ narrative.
• Following the US data, EURUSD managed to match the 50-day EMA resistance to the pip, which has helped EURJPY to extend session lows in recent trade, currently down 1.00% on the session, comfortably back below the pivotal 160.00 mark.
• Price action sees the cross narrow the gap to Monday’s lows of 157.97, and in the process, markets will be paying more attention to more significant supports below. First of all, the trendline drawn from the August low intersects around 157.70, which if broken, would signal scope for a move towards 156.18, the Dec 3 low and a key support.
• Below here, greater attention will be on the medium-term cluster of support between 153.27 and 154.46, shown below. As we noted earlier, SocGen continue to favour EURJPY shorts, describing the deterioration in Eurozone growth expectations relative to Japan as “striking".

Swedish January flash inflation is due tomorrow at 0700GMT/0800CET. The Riksbank projected CPIF ex-energy at 2.4% Y/Y in the December MPR, but this is likely to be mechanically too high, given December inflation surprised two tenths to the downside at 2.0% Y/Y. As such, Bloomberg consensus sees CPIF ex-energy at 2.1% Y/Y.

• Consumption data for 2023 will once again be used to calculate 2025 basket weights (as in 2024), so analysts do not expect a large basket effect in January.
• Analysts generally expect start of year price resets in services (excluding rent) to be smaller than in 2024, while goods components are likely to see seasonal falls in prices.
• The Riksbank’s January meeting minutes continued to signal broad-based confidence in the inflation outlook. Deputy Governor Jansson and Governor Thedeen highlighted recent increases in producer prices as a risk to monitor, but that these developments do not yet change the assessment of monetary policy.
• As a result, we currently consider activity/labour market data and any US tariff developments to be a more important to the near-term Riksbank policy outlook.
• No details will be available in the flash release, with final CPI not due until Feb 18th. See below for a selection of analyst comments: