STIR: 10bp Of ECB Easing Priced Over The Next Year Policy "In A Good Place"
Modest hawkish adjustments in EUR STIRs as bonds extend the move away from yesterday’s highs and global equity benchmarks move off Asia lows.
- Euribor futures flat to -2.0.
- ECB-dated OIS little changed to 0.5bp less dovish, pricing 10bp of easing over the remainder of the cycle.
- This represents ~40% odds of one further cut being deployed.
- While monetary policy is deemed to be “in a good place” (most recently underscored by ECB GC members Vujcic & Kocher, with the latter speaking to us in an interview), this week’s delay of the ETS2 (along with calls for further pushback) may embolden some of the doves.
- Recent policymaker signalling suggests the ECB will avoid making monetary policy decisions (i.e. delivering another cut) solely on the basis of an ETS2-implied inflation undershoot in 2027/2028.
- However, the delay will mean the ECB is set to significantly undershoot its 2% target in both 2026 and 2027. This may provide doves with an additional argument for one more cut, particularly those who still see risks to growth as skewed to the downside.
- Comments from ECB’s Villeroy, Nagel & Elderson are due today.
ECB Meeting | €STR ECB-Dated OIS (%) | Difference Vs. Current Effective €STR (bp) |
Dec-25 | 1.920 | -1.0 |
Feb-26 | 1.907 | -2.3 |
Mar-26 | 1.870 | -6.0 |
Apr-26 | 1.862 | -6.8 |
Jun-26 | 1.833 | -9.7 |
Jul-26 | 1.831 | -9.9 |
Sep-26 | 1.825 | -10.5 |
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FRANCE: Suspension Of Pension Reform Would Risk Intra-Coalition Rancour
Caretaker Prime Minister Sebastien Lecornu, speaking outside Matignon after the first day of meetings with various political parties in an effort to break through the country's political paralysis, claims that "talks so far are showing a willingness to get this budget through by year-end". Lecornu will present his findings to President Emmanuel Macron later this evening. Adds, "Reducing the deficit is key for France's credibility."
- As noted earlier, there have been some signals that the caretaker administration is considering rolling back Macron's flagship pension reforms in order to gain support from the centre-left Socialist Party (PS).
- Lecornu says that among parties of the centre and centre right, "there is a desire to have a budget for France before December 31 of this year," adding, "This desire creates a movement and a convergence, obviously, which removes the prospects of dissolution."
- The caretaker PM meets with representatives of the PS at 09:00BST/10:00CET, the environmentalist Ecologists at 11:15BST/12:15CET and the left-wing Communists later in the day.
- Education Minister and former PM Elisabeth Borne's raising of the prospect of suspending the 2023 pension reform may draw PS support for a budget, but risks rancour with the right of the governing coalition. Arnaud Pericard, spokesperson for the centre-right Horizons, said to FranceInfo, "I understand that it is being put forward, but it is not a good idea," with the conservative Les Republicans (LR) also likely to object. Should Horizons and LR vote down (rather than abstain) on any repeal, their votes would outweigh those of the PS.
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AML (19th Dec) 68/58ps 1x2, bought for 2 and 3 in 100k (100k x 200k).
