STIR: April ECB Cut In The Balance, Key Speeches Due Wednesday
ECB-dated OIS are slightly more dovish from Friday’s close, with core FI markets drifting higher amid a soft opening for risk assets. There are ~11.5bps of easing priced through the April decision (i.e. essentially a toss-up between a 25bp cut and a hold). A hawkish wording tweak at the March decision statement (with policy now “meaningfully less restrictive”), alongside considerably uncertainty from US trade policy and EU fiscal expansion, has made some analysts sympathetic to the idea of a temporary pause.
- Of the 30 reviews seen by MNI following the decision, 18 look for a next cut in April vs 7 for June and 5 undecided or otherwise. The full review is here.
- OIS price 43.5bps of easing through year-end (vs 41bps at Friday’s close).
- Euribor futures are -0.5 to +2.0 ticks through the blues.
- German industrial production was stronger than expected at 2.0% M/M (vs 1.5% cons, -1.5% prior), but had little net impact on the space.
- ECB Executive Board member Schnabel provided characteristically hawkish comments over the weekend: “The risk that inflation will remain above 2% longer than expected is higher than the risk that it falls sustainably below 2%”.
- More important ECB speeches will come on Wednesday, with President Lagarde and Chief Economist Lane speaking at the “ECB and its Watchers” conference.
- The March Sentix survey is due today at 0930GMT, with ECB’s Nagel scheduled at 1300GMT.
| Meeting Date | ESTR ECB-Dated OIS (%) | Difference Vs. Current Cut-adjusted Effective ESTR Rate (bp) |
| Apr-25 | 2.299 | -11.7 |
| Jun-25 | 2.139 | -27.6 |
| Jul-25 | 2.092 | -32.3 |
| Sep-25 | 2.024 | -39.1 |
| Oct-25 | 2.008 | -40.7 |
| Dec-25 | 1.981 | -43.4 |
| Feb-26 | 1.983 | -43.2 |
| Mar-26 | 1.994 | -42.1 |
| Source: MNI/Bloomberg. | ||
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
AUSSIE 10-YEAR TECHS: (H5) Resistance Remains Intact
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.665/851 - High Feb 5 / High Dec 11
- PRICE: 95.575 @ 16:37 GMT Feb 7
- SUP 1: 95.275 - Low Nov 14 (cont) and a key support
- SUP 2: 94.477 - 1.000 proj of the Dec 11 - 23 - 31 price swing
- SUP 3: 94.495 - 1.0% 10-dma envelope
The Aussie 10-yr futures contract continues to trade below the Dec 11 high of 95.851. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish theme. For bulls, a confirmed reversal and a breach of 95.851, the Dec 11 high, would instead reinstate a bull cycle and refocus attention on resistance at 96.207, a Fibonacci retracement point.
FED: Gov Kugler: "Prudent" To Hold Rates "For Some Time"
Gov Kugler (permanent voter, leans dovish) said Friday that rates were likely to be held for "some time" - making her the latest FOMC participant to express little impetus for a cut in the near-term.
- "The cautious and the prudent step is to hold the federal funds rate where it is for some time, given that combination of factors, given that the economy is solid, given the fact that we haven't achieved our 2% target, and given the fact that we may have uncertainties and other factors that may be pushing up inflation or maybe reducing output and growth into the future."
- "We reduced our policy rate 100 basis points through December, but the recent progress on inflation has been slow and uneven, and inflation remains elevated. There is also considerable uncertainty about the economic effects of proposals of new policies." She noted in a Q&A that inflation has recently "firmed a little bit."
- She noted that the January jobs report is "consistent with a healthy labor market that is neither weakening nor showing signs of overheating,"
FED: Federal Reserve "Earnings" Briefly Go Positive, But Hole Is Still Large
The Federal Reserve posted positive net earnings in the week to Feb 5, the first time it has done so since September 2022. The $0.4B uptick compares with an average of negative $1.3B over the preceding 6 months.
- Technically, this was a less negative "deferred asset". When the Fed "earns" money on its asset holdings after netting out expenses, it remits this money to the Treasury. With the Fed posting negative earnings for the past 2+ years, it is falling in to deeper and deeper cumulative negative earnings, a "deferred asset" which means that until the figure goes back into a positive balance, no remittances are made to Treasury.
- The "deferred asset" is currently $220.8B.
- The variability of earnings is due to the relationship between rates paid on Fed liabilities versus those paid on its assets.
- The post-GFC rise in the balance sheet saw ZIRP policy and a large set of Treasury and MBS holdings, meaning Fed remittances to the Treasury rose from 0.2% of GDP and 1.3% of government receipts in 2007 to 0.6% and 3.4%, respectively, in 2015, per St Louis Fed calculations. The 2015-18 tightening cycle saw a pullback in remittances, with about $900B remitted to the Treasury over the course of the 2011-20 period.
- The pandemic balance sheet expansion and return to ZIRP saw remittances pick up strongly again, but they have since pulled back. The 52-week average of weekly remittances has shifted, from showing about $10B in monthly "losses" in late 2023/early 2024, to around $6B on a monthly basis now.
- This reflects first the inversion of the yield curve amid the Fed's tightening cycle, and the slow normalizing of the curve since then.
- Unless the Fed easing goes much further, the Fed is unlikely to transmit cash to Treasury for some time.
