CZECHIA: CNB Minutes Under Scrutiny, Unemployment Data On Tap

• This morning’s ECB speakers have offered some pushback against growing expectations for a hike as soon as December 2026, but their comments haven’t impacted market pricing for now.  Villeroy noted that “as seen today, there is really no reason to envisage a rate increase in the near future, contrary to certain rumors and speculation that may have been heard”. Meanwhile Simkus said that there is “no evidence” of inflation overshooting the target. Villeroy and Simkus have moderated their previously dovish stances in recent weeks. As such, their views probably align broadly with the median Governing Council member.
• ECB-dated OIS price ~8.5bps of hikes through the end of next year, while the ESTR 1y1y forward rate is currently 2.15%, 22bps above the overnight rate.
• Recent hawkish repricing in EUR rates was helped by Executive Board member Schnabel saying she was “comfortable” with expectations for the next ECB move to be a hike. We stress that these comments weren't surprising given Schnabel's usual stance, and note that in the same interview she said that “Interest rates are in a good place, and in the absence of larger shocks, I expect them to stay in this place for some time.”
• At next week’s ECB press conference, President Lagarde is unlikely to explicitly push back on market pricing. In September, her response to a question on markets was: “I don’t have to be happy or unhappy. I think that markets do what they have to do, and we do, as the central bank, what we have to do. Now, of course, as I said, we monitor markets always and, as you know, also as part of our projections, we account for market positions at a certain point in time”.
• We instead think that Lagarde will stress that ECB policy remains in a “good place”, implicitly suggesting the 2% level is appropriate for the foreseeable future (but of course conditional on incoming data).

Euribor Option Flow is to the upside in early trade, taking advantage of the sell off in futures or potentially used as Hedges.

• ERM6 98.37/98.50/98.75/98.87c condor, bought for half in 5k.
• ERM6 98.00/98.12cs, bought for 2 in 5k.
• ERM6 98.12/98.18/98.25c fly, bought for half in 4k.

SFRH6/U6 2K given at -33.0. Spread traded at the highest level seen since July (-31.5) yesterday. Consensus looks for a “hawkish cut” at today’s FOMC decision.