BONDS: ING Maintain Steepening Bias In Europe
ING write “the ECB still holds a slight easing bias, and expectations of a gradual recovery are still surrounded by risks and uncertainties, such as around trade or the implementation of government stimulus and investment plans. Our economists also highlight the potential downward impact on inflation projections of the EU’s plans to delay the next phase of the emissions trading system.
- They “also think that short-end rates should move back to incorporate higher chances of more ECB easing in their pricing. For now, the market is looking at around a one-in-three chance of one more ECB cut over the course of next year. For the broader curve, that means a bias to re-steepen in our view. That also remains our longer-run view, if the picture of a gradual recovery is confirmed and longer rates gradually move higher to test above the top of current ranges”.
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BOC: BOC Set To Cut Despite Mixed Data, Opinions Split On Next Move (1/2)
The Bank of Canada is set at 0945ET (1345UK) to announce a cut in its policy rate by 25bp for a second consecutive meeting, to an overnight policy rate of 2.25%. MNI's full preview is here
- Such a move is ~85% priced at this point, though another cut in the cycle isn't fully expected (~40bp through early next year).
- All Canadian bank analysts expect a 25bp cut today - the final holdout for a hold, BMO, changed its mind in a note on Friday. Summary table below. Meanwhile, we're aware of at least two non-Canadian bank analysts looking for the BOC to hold rates: BofA and Morgan Stanley. Overall the median expectation is for a terminal rate of either 2.00% (two cuts from today's level) or 2.25%, though opinion on timing of reaching those levels varies.
- The new 2.25% overnight rate would represent the bottom of the BOC's "neutral" estimate range (2.25%-3.25%), reflecting an environment in which economic slack has built amid the fallout from the US-Canada trade conflict but with trim/median inflation continuing to run at the high end of the BOC's target band.
- Overwhelming market and analyst conviction on a cut appears to understate risks of a rate hold, especially given the mixed inter-meeting data, with stronger-than-expected CPI and labour market data for September not enough to derail another cut amid increasingly muted private sector inflation expectations and a limited rebound in economic activity after Q2's sharp contraction.
- But Gov Macklem appeared to give the green light to a cut in recent comments, and a cut should be considered much more likely than a pause. As our Policy Team reported, Macklem sounded pessimistic about September's unexpectedly strong job gain, the major bright spot in economic data in recent weeks, saying it only reduced the net loss over the past three months, and mentioning auto sector layoffs. Macklem told reporters soft growth will add to slack and weigh on confidence. He said “The latest developments highlight that uncertainty remains elevated,” in response to MNI's question. Overall this Macklem appearance was considered a clear steer toward expecting an October cut.
EQUITY OPTIONS: Large Nokia Option following the NVIDIA news
Following Yesterday's news that NVIDIA was to invest $1bn into Nokia.
Today large upside call:
- Nokia (16th Jan) 8c, bought for 0.33 in 13.5k.
BoFA has also raised its price target to $8.07 from $4.64.
US TSY OPTIONS: Large Outright Tnotes Call buyer
TYZ5 114.50c, bought for 11 in 50k.
