EUROPEAN INFLATION: Lower Services Inflation Pressures In February

In the following publication, we provide a summary of ECB-speak between February 10 and February 17: 250217 - Weekly ECB Speak Wrap.pdf

The ECB’s March decision is just over 2 weeks away, and policymakers have not shown any appetite to push back on market pricing for another 25bp cut. The March decision will include a new set of macroeconomic projections, while any tweaks to the policy statement guidance following the recent report on neutral rates will also be in focus. 

• On the topic of neutral, Vujcic joined Governing Council colleagues in playing down its role in calibrating near-term policy. Meanwhile Nagel provided a slightly more nuanced view, noting that neutral “indicates when we need to be more cautious with policy-rate moves so that we don’t take a wrong step”.
• Holzmann pushed back on the idea of 50bp rate cuts, though this probably already aligns with the median Governing Council view.
• Bank of Italy Governor Panetta spoke for the first time since November, striking a characteristically dovish tone. He warned that “a less decisive easing of monetary policy could lead to excessively low inflation in the medium term”.
• ECB-dated OIS price 77bps of easing through year-end, around 12bps more hawkish than a week ago. EUR STIR implied yields were dragged higher by the long-end at the start of the week, while reduced near-term growth risks on the back of vague US reciprocal tariff plans drove hawkish repricing into Friday’s close.
• The week ahead is headlined by the February flash PMIs on Friday, while ECB Executive Board Member Cipollone will speak on the ECB’s balance sheet at an MNI Event on Tuesday (sign up here). See here for a recent note on the impact of declining Eurozone excess liquidity.

• Reoffer: 99.063 to yield 2.859%
• Size: E2bln WNG
• Books closed in excess of E8.5bln (ex JLM interest)
• Spread set earlier at MS+42bps (guidance was MS+45 area)
• HR 98% vs 2.50% Feb-35 Bund (ref 100.16 + 37.8bps)
• Maturity: 26 February 2035
• Coupon: 2.75%, Long first
• Settlement: 24 February, 2025 (T+5)
• ISIN: EU000A1Z99W5
• Bookrunners: BofA (DM/B&D), DB, Santander
• Timing: TOE 12:22GMT / 13:22CET. FTT immediately.

From market source

USD/JPY fade picking here slightly into (what would be) the US open - USD/JPY edges to a new pullback low at 151.42, marking a break through 151.65 and the overnight lows. Weakness here looks contained until any test or break through more notable support at 150.93 - the YTD low posted just over a week ago.

• Perhaps unsurprisingly volumes are lighter than average so far Monday with the US holidays, however activity is holding up pretty well: CME JPY futures show activity running ~15% below what you'd expect to see at this point in the session.
• As mentioned above, conviction over shorting EUR/JPY is building among the sell-side, and coincides with the failure of the cross to break technical resistance at the 50-day EMA in recent sessions - and should USD/JPY take out the bear trigger at 150.93, that makes two notable technical indicators pointing to JPY strength.