MIDEAST: Hezbollah Ldr.'s Sec Killed, Not Hezbollah Leader Himself

GBP STIRs revert to favouring cuts with Brent crude oil ~$30 off yesterday’s highs. Elevated correlation with oil prices remains evident, with ongoing focus on the situation in the Middle East.

• Yesterday’s pullback from highs in oil extended after U.S. President Trump signalled that the war could be over “very soon”, albeit not this week. He is also pointed to a potential easing of sanctions as part of a support package to combat surging energy prices.
• BoE-dated OIS prices ~15bp of easing through year-end. A reminder that BoE-dated OIS briefly priced ~90% odds of a hike being delivered by year-end at one stage yesterday.
• SONIA futures flat to +18.0. SFIZ6 ~40.0 off yesterday’s lows. Next support at the April ’25 lows went untested during yesterday’s sell off in the contract.
• Little of note on the UK macro calendar today, which will leave focus on geopolitical matters and wider cross-market inputs.

• Morgan Stanley (this morning): "We shift our base case to BoE cuts in April, November and February (vs March, July and November previously). We see the Bank's 2025 reaction function as instructive: economic weakness can be tolerated if headline inflation is rising. Still, we struggle to model hikes... For these [cuts] to be delivered, however, we reiterate that ongoing Strait of Hormuz disruptions need to be relatively short-lived. Should the current rise in natural gas prices be sustained and amplified in the summer, for example due to the re-filling of the European gas storages, we would likely see no further cuts in 2026."
• UBS (yesterday): "We expect a large majority of MPC members to vote for staying on hold and defer the decision to April, when the Bank will present updated macro projections. Even then, we think that two members - Alan Taylor and Swati Dhingra - could still vote for a cut... for now we maintain our call of two more rate cuts this year, but push them out to April and July, instead of March and June. That said, we see significant risks to our baseline depending on the developments in the Middle East and implications for energy prices. In a scenario where energy prices remain elevated for a prolonged period of time, pushing inflation above the target over the coming quarters, we would not exclude further delays to interest rate cuts."
• This comes after other sellside analysts changed calls last week (for more details see here and here).
  • Rabobank: Remove cuts from 2026 forecast (instead of cuts in March and June).
  • Goldman Sachs: Cuts in April, July and November (instead of March, June, September)
  • JP Morgan and Nomura: Cuts in April and July (instead of March and June)
  • Barclays reiterated its call for a March cut as its base case.

• Details of the February inflation report highlight sticky services pressures. Pullbacks in airfares, food (an anticipated base effect) and some other goods categories played a sizeable role in the CPI-ATE deceleration to 3.03% Y/Y (vs 3.37% prior). Norges Bank won’t be under pressure to deliver any further monetary easing in the near-term.
• On a seasonally adjusted basis using Statistics Norway data, CPI-ATE prices rose 0.29% M/M, down from 0.49% in January. That pulled 3M/3M momentum up to 3.76% (vs 3.22% prior), largely a function of the solid January print.
• Services ex-rent inflation was 3.96% Y/Y. The sequential increase of 0.79% M/M was firm, but below the 1.23% seen the year prior. Details look sticky, with no change in  insurance and financial services inflation (8.45% Y/Y) and only small pullbacks in cultural services and information and communication. Restaurants and accommodation services pulled back to 5.09% Y/Y (vs 5.85% prior), driven by the restaurant component (accommodation accelerated versus January).
• Rent inflation accelerated again to 3.95% Y/Y (vs 3.86% prior), the highest rate in 12 months.
• Domestic consumer goods ex-energy ticked up to 3.74% Y/Y (vs 3.67% in Jan, 3.94% in Dec).  Imported goods pulled back to 1.41% Y/Y (vs 1.73% prior). The stronger exchange rate is likely factoring into weaker imported inflation. Food inflation pulled back notably to 2.83% Y/Y (vs 4.02% prior), driven by a base effect as expected. Elsewhere, there was another rise in clothing and footwear inflation (1.75% Y/Y vs 0.73% prior), offset by a pullback in furnishings and household equipment and vehicle inflation.