AMERICAS OIL: MONROE TRAINER TRIES TO RESTART FCC AFTER THURSDAY VALVE ISSUE

• Appr -50,000 SFRM5 96.12/96.62 call spreads sold between 4.0-4.25 between the pit, screen and Block screen (38k on latter to be exact) vs. 95.895 on a 0.18% delta.
• Open interest at 120,563 and 147,361 in the 96.12 and 96.62 call strikes respectively.

Spread tightening seems to have been halted by a pullback from best levels in benchmark European equity indices and an uptick in core global FI yields.

• Major EGB spreads to Bunds remain tighter on the day but are mostly off session lows.
• BTP/Bunds couldn’t break meaningfully below 106bp, with the spread back to ~107.5bp in recent trade. A close here would leave cycle closing lows at 106.4bp intact, despite the intraday breach.
• Interesting to note that OAT/Bunds hasn’t retraced much/any of its own tightening, holding 2.5bp tighter on the day at 73.5bp. We provided greater colour on OATs in an earlier bullet.

Dovish option structures in ERM5 have dominated again today, with markets positioning for the ECB to continue cutting rates through Q2. ERM5 call volumes have outnumbered puts by more than 4 times the past two sessions.

• OIS markets currently price 48bps of cuts through March (i.e. 25bp cuts in January and March) and 80bps of easing through June.
• With 31bps of cumulative cuts priced between March and June, there is plenty of room for further dovish repricing for those expecting four consecutive 25bp cuts in the first half of this year.
• The median ECB terminal rate forecast based on sell-side analysts we track is 1.75% (i.e. 5x more 25bp cuts). A number of analysts look for sequential cuts through to the middle of this year, though some more hawkish views look for a temporary pause following the April decision.
• Earlier today, President Lagarde’s interview with CNBC did not come across as particularly dovish compared to recent GC commentary or her prior interview with the FT on December 23. Meanwhile, the usually hawkish Knot endorsed market pricing of 25bp cuts in January and March.
• Tomorrow’s regional calendar is relatively light, with French business sentiment data due and only Bank of Spain’s Escriva currently scheduled to speak (his comments today were consensual and not market moving).