ECB: A Content Lagarde Heavily Hints At A Pause
Jun-05 14:28
Lagarde’s press conference had a congratulatory tone to it, hinting at a pause ahead even if she wasn’t confirming that “here now”. There were still references to deciding on a meeting-by-meeting basis and being data dependent but the bar for near-term cuts appears to have increased notably.
- “With today's cut at the current level of interest rates, we believe we are in a good position to navigate the uncertain conditions that will be coming up.”
- “I think we are getting to the end of a monetary policy cycle that was responding to compounded shocks, including COVID including the illegitimate war in Ukraine and the energy crisis"
- “I think we have done that decently well. We are currently around 2% inflation, expectations are well anchored around 2% and those elements that I told you repeatedly over the few last conferences was of concern to us (inflation on services, evolution of wages, evolution of profit), those three elements are coming really in line with what projections were in order to deliver on our 2% medium term target."
- “We are in a good place. I think we are well positioned, as you know, after that 25bp cut and with the right path as it is. We are in a good place. We will face uncertainty. We do not know what the outcome of the negotiations will be between the various partners. We don't know the level of retaliation that might be decided. Which, incidentally, is not included in our baseline as you will see published later on.”
- “I used the direction of travel concept when we were really at a distance from our medium term 2% target. Underlying inflation, core inflation, this is hardly moving, and it's at around our target. So there's no point talking about the direction of travel. There's no point talking about sideways.”
- [Discussion over a hawkish scenario not included in published scenarios] “I would mention one [scenario] that we discussed quite extensively during the Governing Council, which is the disruption of the supply chain that is not included in any of our scenarios."
- Lagarde finished the press conference by reflecting on the work done in the last six years, including a very solid labour market, and last year's recession fears not materialising.
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NORGES BANK: MNI Norges Bank Preview - May 2025: Still Holding Steady
May-06 14:21
FOR THE FULL PUBLICATION PLEASE USE THE FOLLOWING LINK
EXECUTIVE SUMMARY:
- Norges Bank is widely expected to keep policy rates on hold at 4.50% on May 8. Rates have been at this level since December 2023, after the Board opted to go against prior guidance for a cut in March due to an acceleration in inflationary pressures at the start of this year.
- The May meeting is an interim decision, so does not include an updated MPR or rate path projection. Norges Bank generally avoid sending fresh monetary policy signals at these decisions, so the base case is that current guidance stating “the policy rate will most likely be reduced in the course of 2025” will remain in the policy statement. We do not think there is enough evidence to support a dovish Norges Bank guidance tilt yet. CPI-ATE inflation remains above 3% and there are not yet signs of deteriorating labour market conditions. These dynamics should offset the dovish developments since the March 27 decision, namely higher economic uncertainty, weaker oil prices and increased foreign rate cut expectations.
- Analysts are unanimous in projecting rates to be held at 4.50% in May, with limited expectations for any guidance changes in the policy statement. Most analysts expect 2x25bp cuts in 2025, with September the most likely start date.
STIR: Dec'25 SOFR Midcurve Put Spread
May-06 14:20
- 8,250 0QZ5 96.25/96.37 put spds ref 96.85 to -.855
- prior +2,500 SFRZ5 call spds, 4.0 ref 96.46
OIL: Middle East Developments Add To Crude Recovery
May-06 14:15
Our commodities team notes that crude front month futures and prompt time spreads rally back to levels seen late last week on risks of rising Middle East tension amid reports of Israeli military strike on Yemen's main airport in the capital.
- The IDF claimed the attack on May 6 destroyed Houthi infrastructure including a strike on the Sanaa International Airport and targets in the Hudaydah Port, BBC said.
- Crude prices were already recovering ground following a decline at the start of the week as the markets weighed the latest OPEC+ decision to raise output in June.
