CROSS ASSET: Lack of FX Reaction Suggests Lagarde Not A Key Driver Of EQ/FI Bid
President Lagarde’s interview with CNBC did not come across as particularly dovish compared to recent GC commentary or her prior interview with the FT on December 23. Although EUR STIRs have rallied alongside core FI over the past hour, the lack of reaction in EUR FX suggests Lagarde’s views (and ECB monetary policy more generally) have not been a key driver - as noted in earlier commentary.
- Asked about how appropriate the prospect of four 25bp cuts by the June meeting is, Lagarde did not provide a view: “I leave it to them [other GC colleagues] to sort of anticipate and play that game of, you know, so many, at which pace etc”.
- Global equity futures have rallied alongside core FI over the past hour, likely factoring into earlier peripheral/semi-core outperformance versus Bunds.
- Price action here not driven by specific newsflow or headlines, but provides another example of the jumpy short-term nature of markets this week - with the eventful first few days of the Trump administration helping to underpin intraday vol here.
- Major EGB futures have continued to move away from earlier session highs, with Bunds now +8 ticks at 132.02 (vs an intraday high of 132.22).
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STIR: Just Under 120bp Of '25 ECB Cuts Priced
ECB-dated OIS shows ~118bp of cuts through ’25 vs. ~119bp late on Friday, while Euribor futures are 0.5-3.5 lower.
- Some are attributing the modest hawkish repricing to comments made by ECB President Lagarde.
- Lagarde told the FT that “we’re getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2%. I’m saying that with a little reservation because I still believe that we should be very vigilant about services.”
- While the caution surrounding services inflation is worth noting, it isn’t a new source of information and has factored heavily into discussions at various stages of the ECB’s current easing cycle. She also stressed the progress towards the Bank’s inflation goal.
- As such, we don’t think this should be a major driver for STIR repricing, with weakness on EGB curves seemingly more of a driver when it comes to this morning’s moves.
- Elsewhere, ECB GC member Makhlouf reiterated his preference for 25bp cuts (pointing to heightened uncertainty in ’25).
- Meanwhile fellow GC member Vujcic stressed that the direction of policy rates is clear (signalling further cuts), noting that the evolution of data and degree of policy transmission will determine the longevity of the Bank’s cutting cycle.
- Little of note on the European calendar for the remainder of the week, which will leave focus on macro headline flow.
- A reminder that the Christmas holiday period will result in adjusted hours and closures as well as reduced liquidity and volume.
ECB Meeting | €STR ECB-Dated OIS (%) | Difference Vs. Current Effective €STR Rate (bp) |
Jan-25 | 2.637 | -27.9 |
Mar-25 | 2.325 | -59.1 |
Apr-25 | 2.079 | -83.8 |
Jun-25 | 1.915 | -100.1 |
Jul-25 | 1.849 | -106.8 |
Sep-25 | 1.796 | -112.0 |
Oct-25 | 1.769 | -114.8 |
Dec-25 | 1.733 | -118.3 |
EURIBOR OPTIONS: Upside ERG5/ERF5 Structure Lifted
2x ERG5 98.25 calls lifted vs. 1x ERF5 97.87 calls, with paper paying 1.0 on 6.25K for the G5. ERH5 last 97.705.
FOREX: EUR Edges Lower, But FX Ranges Largely Contained
Moving inline with the weakness for European bonds, the single currency has edged lower to be the session's poorest performer, although price action remains muted and ranges well contained.
- Having traded 0.8315 overnight, EUR/GBP is back to negative on the day - having reversed ahead of any test on the 50-dma at 0.8319 - a level markets have failed to break on three occasions in the past week or so.
- EUR/NOK is lower for a second session, extending the reversal off the post-Norges Bank high to just over 1%. Rate is now meeting support at the confluence of the 50-, 100-dmas of 11.7666/65.
- The greenback is more mixed. The USD Index is very mildly higher, but is holding the majority of Friday's slippage - leaving 108.541 the key level ahead.
- As a gauge of lighter volumes and limited liquidity today: EUR futures have traded volumes ~20% below average for this time of day, GBP ~50% lower and JPY ~40% lower.
