EU CONSUMER STAPLES: B&M: Moody's on Review for Downgrade

This week’s Eurozone calendar is headlined by the September flash PMIs tomorrow morning. The Eurozone-wide composite PMI has been gradually improving in recent months, but this has largely been a function of a recovery in manufacturing. While welcomed after several years of manufacturing malaise following the Russian invasion of Ukraine, the services sector is much more important in terms of total value added.  A deterioration in services sentiment (and by extension actual activity) would be one pre-requisite for another rate cut this cycle. 

• At present, ECB-dated OIS price just 4bps of easing through year-end, with ~10bps of cuts priced through July 2026. Euribor futures are off sessions lows, now little changed versus Friday's settlement levels.
• There doesn’t seem to be much Governing Council appetite for another rate cut this cycle, with most officials deeming rates to be appropriate at current levels for now.
• Kazaks and (the historically dovish) Stournaras noted that more data will be available in December, with the latter requiring a “substantial change” in the outlook to motivate another cut.
• Meanwhile, Simkus provided a more dovish view, similar to Banque de France’s Villeroy last week, stating that “from a risk-management perspective, it’s better to cut than not”…“The inflation target would benefit, the economy would benefit, so we should do it in December and then wait and see.”
• There’s been some early focus from officials on the importance of the 2028 inflation projections, which will be available in December. It’s of course too early to read too much into these views for now, but they will be an important factor influencing the December decision.  

For the full MNI BOE Review, including updated summaries of over 20 sell side analysts click here.

• With guidance unchanged, the 7-2 vote as expected and little new of note in the Minutes we think there should have been little to change the prospect of a Q4-25 cut in the September MPC meeting.
• However 10/21 sell side analysts that we track have pushed back their expectations of the timing of their next cut (albeit analysts still remain more dovish overall than market pricing).
• We think that markets under-price the prospect of both a November and a December cut (corrected from September in initial post).
• We look at the implications of the decision to target a GBP70bln APF reduction over the next year and will be watching ILTR / STR operations closely in coming weeks as supply-led reserve balances move below the top of the Bank's PMRR (preferred minimum range of reserves).

• RES 4: 6787.63 1.382 proj of the Aug 1 - 15 - 20 price swing  
• RES 3: 6750.50 2.000 proj of the Aug 20 - 28 - Sep 2 price swing 
• RES 2: 6748.50 1.236 proj of the Aug 1 - 15 - 20 price swing    
• RES 1: 6731.50 High Sep 19  
• PRICE: 6712.50 @ 07:26 BST Sep 22
• SUP 1: 6602.01 20-day EMA
• SUP 2: 6536.50 Low Sep 8 
• SUP 3: 6487.14 50-day EMA 
• SUP 4: 6417.25 Low Aug 12 

A bull cycle in S&P E-Minis remains intact and the contract traded to a fresh cycle high on Friday. Price has breached the 6700.00 handle and this signals scope for an extension towards 6748.50, a Fibonacci projection point. Moving average studies remain in a bull-mode position, highlighting a dominant uptrend and positive market sentiment. Initial support to watch lies at 6602.01, the 20-day EMA.