STIR: BoE Pricing Remains Pinned Between 50-60bp Of Cuts Through Dec
Mar-14 15:59
BoE-dated OIS little changed to a couple of bp more dovish on the day across ’25 contracts as gilts recover from session lows.
- Pricing for next week’s BoE decision is essentially at 0bp, with 18bp showing through May, 23bp through June, 37.5bp through August and 54bp through year-end.
- The latter remains pinned between 50bp and 60bp.
- We still look for the next cut to come in May.
- Looking ahead, the latest BoE decision and labour market data are due on Thursday.
- We are yet to see a sell-side preview expecting anything other than an on-hold BoE decision.
- As a result, focus is set to fall on the vote split and any changes to the guidance.
- On the vote split we see at least five of the nine MPC members voting for Bank Rate on hold.
- Of the possible dissenters, Ramsden has previously dissented in favour of sequential cuts - we are unsure whether he will continue to do so after raising concerns about the Agents’ Pay Survey.
- Taylor sounded a bit less dovish than he has done previously at the TSC testimony (but we still expect him to vote for a 25bp cut next week).
- Mann previously voted for a 50bp cut, so we would expect her to either repeat that or vote for a 25bp cut.
- Dhingra also voted for a 50bp cut - we expect another vote for a cut from her but don’t have a strong conviction surrounding the magnitude.
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US SWAPS: Spds Wider As Powell Flags Potential SLR Tweak & Tsy Liquidity Worry
Feb-12 15:58
Fed Chair Powell says that he believes the central bank will take another look at the SLR rule, alongside concerns surrounding Treasury liquidity.
- Delayed, contained widening in long dated swap spreads following the comments.
- A reminder that Governor Bowman (a favourite to succeed Vice Chair for Supervision Barr) triggered widening in long end swap spreads last week, as she pointed to a preference regulatory tweaks.
- 10-YEar swap spread through last week's high.
- 30-Year swap spread less than 0.5bp off last week's high.
STIR: SOFR Options Update
Feb-12 15:56
Midmorning SOFR options leaning toward downside puts as underlying futures drift at/near session lows. Projected rate cuts through mid-2025 continue to recede vs. this morning's pre-CPI levels (*) as follows: Mar'25 at -0.5bp (-0.7bp), May'25 at -3.9bp (-6.3bp), Jun'25 at -8.9bp (-13.9bp), Jul'25 at -12.6bp (-18.9bp).
- +18,000 SFRU5 95.37/95.62 put spds, 3.5
- +6,000 2QM5 95.25 puts w/ 3QM5 95.25 put strip covered 13.0
- +10,000 SFRZ5 96.12/96.37 call spds, 6.0 ref 95.905/0.10%
FOREX: EURUSD Reverses Towards Session Highs amid Tariff Comments
Feb-12 15:51
- Despite the hotter-than-expected inflation data in the US, EURUSD’s attempt lower remained contained, with spot only printing a 1.0317 low in the direct aftermath.
- Subsequently, the reversal higher for major equity indices and the single currency’s outperformance against the likes of the Yen, AUD and NZD has helped propel EURUSD back above pre-data levels, narrowing the gap to the early European highs at 1.0386.
- EURUSD resilience may have also been fuelled by most recent commentary on tariffs. First of all, the Hasset comments on reciprocal tariffs being a “work in progress”, may have boosted risk sentiment at the margin, while the latest headline from the EU trade chief on finding a tariff solution may also be supportive.
- A short-term bull theme in EURUSD remains intact for now. Attention is on the candle formation on Feb 3 - a hammer - that signals a possible reversal. 1.0427, the 50-day EMA, marks a key resistance. A clear break of it would be a bullish development.
