STIR: Effective Fed Funds Rate

Euribor futures have twist steepened on the day, running +2.0 to -2.0 through the blues.

• Very modest dovish moves are seen in ’24 ECB-dated OIS, with contracts little changed to 1.5bp softer on the day. ~21.5bp of cuts are priced through June, with the GC already heavily guiding towards such a move. ~76bp of cumulative cuts are showing through year end.
• There hasn’t been much in the way of meaningful macro headlines to go off, leaving core global FI markets to weigh up the recent run of data, hawkish repricing of central bank policy paths, geopolitics and this week’s incoming supply.
• Comments from the new Governor of the Cypriot central bank were perhaps a little more neutral than you would expect, as he underscored the data-dependent nature of the central bank’s policy settings.
• ECB President Lagarde will provide a lecture at Yale University later today, but don’t expect that to be a market mover. Elsewhere, GC member Villeroy will speak on climate finance. Once again, don’t expect that to be a market mover given the topic and as Villeroy already spoke over the weekend (pointing to the need for “pragmatic” policy steps after a cut in June).
• Tomorrow’s flash PMIs present the next regional focal point.

Polish President Andrzej Duda said in an interview today that Poland is “ready” to host nuclear weapons on its territory - A move which, although unlikely, would dramatically shrink the nuclear buffer zone between Russia and NATO. The remarks, taken with other recent comments from Moscow and Beijing suggests that nuclear risk may be increasing.

• Duda told Fakt: “Recently [Russia] has been relocating its nuclear weapons to Belarus… If our allies decide to deploy nuclear weapons as part of nuclear sharing also on our territory to strengthen the security of NATO's eastern flank, we are ready for it.”
• Russian Foreign Minister Sergei Lavrov, likely responding to Duda’s comments ratcheted-up nuclear rhetoric this morning.
• MNI's Political Risk team noted on April 16 that, according to DW, China may have “weakened” it’s stance regarding Russia’s nuclear force posture – leading to concerns that Beijing may refrain from pressing Moscow to dial down nuclear rhetoric during a period of heightened tensions.
• Bonn International Centre for Conflict Studies notes: “NATO has deployed nuclear weapons at six air bases," in Belgium, Germany, Italy x2, The Netherlands and Turkey... "In theory, up to 392 bombs can be stored on these sites."
• If NATO were to station nuclear weapons in Poland, it would become the eastern-most nuclear outpost of the alliance. The Carnegie Endowment for International Peace notes: “Since summer 2023, Russian tactical nuclear weapons—or at the very least, their components—have been deployed in Belarus.”

Figure 1: Nuclear Weapons in Europe

Source: FT, Council on Foreign Relations