STIR: ECB-Dated OIS Only Sees Marginal Uptick On Hot UK Labour Market Data
ECB-dated OIS sees only a modest uptick in lieu of the firmer than expected UK labour market data, with participants remaining unwilling to push too far beyond pricing 2x 25bp hikes before the terminal rate of the current tightening cycle is reached (in line with the general train of thought outlined in our latest ECB sources piece.
- That leaves ~55bp of tightening priced into the strip come the end of the ECB’s October meeting, ~1bp above yesterday’s closing levels, with a 25bp hike at this week’s meeting seen as a done deal.
- U.S. CPI data (due today) and tomorrow’s FOMC decision present the key macro risk events ahead of Thursday’s ECB decision, when the Bank’s guidance on future policy steps will come under scrutiny.
- Final inflation data out of Germany was in line with the preliminary readings, while the Spanish equivalent saw little in the way of deviation from the initial releases.
- Note that Bank of Spain Governor de Cos will speak at the 45th anniversary celebrations of the Cinco Días newspaper later today, although the fact that the ECB is in its pre-meeting quiet period should mean that we don’t see any meaningful comments from that event.
| ECB Meeting | €STR ECB-Dated OIS (%) | Difference Vs. Current Effective €STR Rate (bp) |
| Jun-23 | 3.392 | +24.5 |
| Jul-23 | 3.582 | +43.5 |
| Sep-23 | 3.689 | +54.2 |
| Oct-23 | 3.697 | +55.0 |
| Dec-23 | 3.680 | +53.3 |
| Jan-24 | 3.626 | +47.9 |
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US TSYS: Sentiment Sours, Projected Rate Cuts Moderate
- Treasury futures are holding near lows after the bell, curves flatter, extending inversion with the short end underperforming.
- There were no obvious headline or Block-driven trigger as projected rate cuts continue to climb off Thursday's lows given the rise in UofM's long term inflation expectations and cooling sentiment.
- Even Chicago Fed Goolsbee's comment on PBS over decelerating inflation failed to elicit much of a lasting reaction (though equities are rebounding at the moment: SPX Eminis -7.0 at 4137.0 vs. 4112.25 low).
- Yesterday saw three consecutive 25bp cuts projected to start in September.
- At the moment, however, September cumulative -20.9bp at 4.858%, November cumulative -44.1bp at 4.625%, Dec'23 cumulative -68.5bp at 4.381%, while Jan'24 cumulative is at -91.4bp (vs. 110.2bp Thu) at 4.153%. Fed Terminal currently at 5.08% in Jun'23 and Jul'23.
- White House Press Secretary Karine Jean-Pierre has told reporters that President Biden will meet with the four leaders of Congress "early next week" for a second round of talks on the debt limit, but declined to provide a specific date. Jean-Pierre: "When we have a date, certainly we will share that will all of you," adding that "productive talks" have been ongoing between negotiators representing all parties and will continue over the weekend.
USDCAD TECHS: Strong Bounce Sees Prices North of 50-Day EMA
- RES 4: 1.3695 High Mar 28
- RES 3: 1.3668 High Apr 28 and key resistance
- RES 2: 1.3640 High May 3
- RES 1: 1.3532 High May 12
- PRICE: 1.3532 @ 15:55 BST May 12
- SUP 1: 1.3363/15 Intraday low / Low May 8
- SUP 2: 1.3302 Low Apr 14 and a key near-term support
- SUP 3: 1.3275 Low Feb 14
- SUP 4: 1.3262 Low Feb 2
A strong rally in USDCAD extended Friday, tilting the pair to a new weekly high at 1.3532. This has eased recent bearish pressure. The pair has topped the 50-day EMA, at 1.3518. A clear break of this level would be seen as a short-term bullish development and signal scope for a climb towards resistance at 1.3668, the Apr 28 high. Key support lies at 1.3302, the Apr 14 low, where a break is required to reinstate a bearish theme.
AUDUSD TECHS: Corrective Pullback
- RES 4: 0.6921 High Feb 20
- RES 3: 0.6861 50.0% retracement of the Feb 2 - Mar 10 bear leg
- RES 2: 0.6824 High Feb 24
- RES 1: 0.6818 High May 10
- PRICE: 0.6651 @ 15:53 BST May 12
- SUP 1: 0.6651 Low May 12
- SUP 2: 0.6640/6565 Low May 4
- SUP 3: 0.6565 Low Mar 10 and the bear trigger
- SUP 4: 0.6547 61.8% of the Oct - Feb bull cycle
AUDUSD’s previous positive tone faded further Friday. This week’s test of key resistance at 0.6806, Apr 14 high, however, reinforces a bullish theme. A clear break of this level would strengthen the case for bulls and open 0.6861, a Fibonacci retracement. On the downside, a continuation lower would threaten the bullish theme and expose 0.6640, the May 4 low. Key support lies at 0.6565, the Mar 10 low.
