POLAND: MNI NBP Review - Mar 2025: Hawkish Talk Doesn’t Preclude 2H25 Cuts

Those expecting the ECB to cut rates at projection meetings in H2 2025 may still opt to receive the Jul/Sep/Oct and Oct/Dec/Feb ECB-dated OIS fly’s at current levels (-6bps and -4bps respectively at typing).  

• Current OIS pricing tilts heavily in favour of a front-loaded easing cycle, with ~57bps of cuts priced through June (i.e. 75% implied probability of 3x25bp cuts). If realised, this would bring the deposit rate to the middle of the ECB’s (heavily caveated) neutral range of 1.75 - 2.25%.
• The median terminal rate view of the analysts we track is 2.00%, but a number of forecasts look for cuts to 1.75% and 1.50% (ABN AMRO expect a terminal of 1.00% by 2026).
• It is not possible to rule out a deposit rate below 2%, given sluggish Eurozone domestic demand, tariff risks and ECB confidence in the disinflation outlook. However, the Governing Council will likely need to adopt a more cautious approach to easing below this level, as it assesses the lagged impact of past cuts on economic activity and inflation.
• This should increase focus on projection meetings in H2 2025, with ECB speakers previously highlighting these gatherings as important milestones in assessing the risks to the inflation target.
• For 'projection meeting spreads' (dark blue bars in the below chart), a negative value indicates that more cuts are priced into the projection meeting than the subsequent interim meeting.

• Treasuries broadly consolidate yesterday’s bear steepening, in a move that was driven by spillover from heavy EGB supply but also what became an inflation expectations move as the 5Y breakeven pushed to a fresh high since Mar 2023 in the second half of the session.
• Today's focus is on the US CPI report for January including annual revisions MNI US CPI Preview before Powell's potential reaction to it.
• Cash yields are 0-1bp higher on the day, with 2s leading the increases.  
• 2s10s sits at 24.6bps (-0.6bp) consolidates yesterday’s steepening, within recent ranges.  
• TYH5 trades at 108-29+ (-01) on reasonable cumulative volumes of 315k for a pre-CPI overnight session.
• Its earlier low of 108-26+ saw a step closer to support at 108-20+ (Feb 4 low) after which lies 108-06 (Jan 23 low) although a corrective pull phase remains in play with resistance at 110-00 (Feb 7 high).
• Data: CPI Jan (0830ET), Federal budget bal Jan (1400ET)
• Fedspeak: Powell House testimony (1000ET), Bostic on economic outlook (1200ET, Q&A only) and Waller on stablecoins (1705ET, text + Q&A)
• Coupon issuance: US Tsy $42B 10Y Note auction - 91282CMM0 (1300ET)
• Bill issuance: US Tsy $62B 17W bill auction (1130ET)

• On the commodity front, a bull cycle in Gold remains in play and the yellow metal is trading closer to its recent highs. The continued appreciation once again confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull mode position too, highlighting a dominant uptrend. Sights are on the $2962.2, a 2.00 projection of the Nov 14 - Dec 12 - 19 price swing. The first key support to watch is $2779.3, the 20-day EMA.
• In the oil space, WTI futures have recovered from their recent lows. This highlights the fact that the 50-day EMA - at $72.21, despite being pierced, has provided firm support. Moving average studies remain in a bull mode condition highlighting a dominant uptrend. The latest recovery also signals a stronger reversal of the Jan 15 - Feb 6 bear leg. Sights are on $75.18, the Feb 3 high. Key short-term support and the bear trigger lies at $70.43, the Feb 6 low.