NBP: Chief NBP Analyst Warns ETS2 Could Boost Inflation By 2pp
Nov-07 09:45
NBP Economic Analysis and Research Department Director Jacek Kotłowski discusses the key assumptions behind the latest inflation projection, noting that the key adjustment accounted for changes in the outlook for regulated energy prices.
- The baseline scenario of the NBP projection does not account for the implementation of ETS2, which would generate a supply-side shock, dampening GDP growth over the medium-term and boosting inflation by as much as 2pp (including the direct effect of +1.6pp and further second-round effects).
- The implementation of ETS2 is represented on the fan chart and underpins the asymmetric nature of the projection. Kotłowski admits that it the projection was prepared today, there would be no asymmetry for the inflation forecast for 2027, as it has just been announced that the introduction of the new emissions trading system will be delayed at least until 2028.
- Kotłowski says that the revisions to Poland's rating outlook by Moody's and Fitch were retrospective and didn't cause any turbulence in domestic financial markets. He refuses to speculate on today's review by S&P but plays down its importance.
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GILTS: Off Highs, Curve Flatter
Oct-08 09:35
Gilts are off session highs.
- Early cross-market support came from soft German data and some optimism surrounding the avoidance of fresh elections in France, but that move has stalled.
- The ONS has detected errors in the PSNB data, meaning that the UK’s fiscal situation is marginally less downbeat than was previously envisaged, which has probably driven some gilt curve flattening (although the discrepancies are quite minor in the grander scheme of things).
- 10-Year gilts underperform vs. Bunds, spread 1bp wider on the day at ~202bp.
- Futures +18 at 90.72.
- Bears remain in technical control, initial support and resistance located at 90.26 & 91.08, respectively.
- Yields 1bp higher to 1bp lower, 2s10s ~5bp off September closing lows, while 5s30s is ~2bp off its September closing low.
- The GBP5bln auction of the new 4.00% May-29 gilt passed smoothly enough, with the cover ratio comparable to the recent averages of auctions of surrounding lines and a sub-1bp tail generated.
- GBP STIRs little changed on the day, showing ~5bp of easing through year-end. We continue to believe that markets are underestimating the chances of a Q4 rate cut.
- Comments from BoE chief economist Pill are due this afternoon (16:00 London).
- Pill will speak at the Maxwell Fry Annual Lecture at the University of Birmingham. We do not know the subject of the address.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Nov-25 | 3.959 | -0.8 |
Dec-25 | 3.920 | -4.7 |
Feb-26 | 3.816 | -15.2 |
Mar-26 | 3.785 | -18.2 |
Apr-26 | 3.710 | -25.7 |
Jun-26 | 3.687 | -28.0 |
Jul-26 | 3.639 | -32.8 |
Sep-26 | 3.628 | -33.9 |
GERMAN AUCTION RESULTS: 15-Year Bunds
Oct-08 09:34
| 2.60% May-41 Bund | 3.25% Jul-42 Bund | |
| ISIN | DE000BU2F009 | DE0001135432 |
| Total sold | E1bln | E1bln |
| Allotted | E853mln | E733mln |
| Previous | E1.167bln | E782mln |
| Avg yield | 3.06% | 3.08% |
| Previous | 3.03% | 3.00% |
| Bid-to-offer | 2.36x | 0.91x |
| Previous | 1.75x | 2.28x |
| Bid-to-cover | 2.77x | 1.24x |
| Previous | 2.25x | 2.91x |
| Avg Price | 94.38 | 102.24 |
| Low Price | 94.38 | 102.22 |
| Pre-auction mid | 94.327 | 102.172 |
| Prev avg price | 94.68 | 103.25 |
| Prev low price | 94.65 | 103.25 |
| Prev mid-price | 94.620 | 103.200 |
| Previous date | 10-Sep-25 | 06-Aug-25 |
OPTIONS: Expiries for Oct08 NY cut 1000ET (Source DTCC)
Oct-08 09:33
- EUR/USD: $1.1650(E698mln), $1.1700(E1.1bln), $1.1770-80(E1.2bln), $1.1800(E1.5bln), $1.1850-60(E1.0bln)
- USD/JPY: Y146.50($1.2bln), Y147.00($1.5bln), Y149.00($980mln), Y150.00($562mln), Y151.00($799mln)
