EURIBOR OPTIONS: Large Call Condor

April's BOC interest rate policy statement tweaks the final guidance paragraph vs March by noting that Governing Council will "look through" the Middle East war's inflationary impact, while tempering this with a more cautious "but will not let higher energy prices become persistent inflation".

• That's largely in line with what we heard at the March press conference and, latterly, from Gov Macklem earlier this month - but it suggests little additional urgency to shift policy in the near-term, maintaining the very non-committal guidance "as the outlook evolves, we stand ready to respond as needed."
• Overall it's a relatively neutral message that is wary about the war's medium-term impact on overall price pressures, though no more than might have been expected going into the meeting. OIS pricing is relatively little changed through end-year, still seeing between 1 and 2 overnight rate hikes of 25bp.
• But this guidance and Macklem's opening statement makes clear that the baseline depends on the new Monetary Policy projections (more on which shortly) playing out. "There are many possible outcomes. Monetary policy may need to be nimble."
• The main point to note is that geopolitics continue to present the biggest risk: "Our baseline forecast assumes oil prices will come down and US tariffs will remain at the current levels. If this holds true, a policy rate close to current settings looks appropriate to support adjustment in the economy and return inflation to target."
• He initially cautions, "There may still be a need to adjust the policy rate depending on how the risks evolve. But if the economy evolves broadly in line with the base case, changes in the policy rate can be expected to be small."
• And keeps open the door to cuts, with a clear nod to upcoming US-Canada-Mexico trade pact negotiations... "If the United States imposes significant new trade restrictions on Canada, we may need to cut the policy rate further to support economic growth"
• ...while also cautioning that there may be multiple hikes coming:  "Alternatively, if oil prices continue to increase, and particularly if they remain elevated, the risk that higher energy prices become ongoing generalized inflation increases. If this starts to happen, monetary policy will have more work to do—there may be a need for consecutive increases in the policy rate."
• It's suggestive of Governing Council seeing rates as already near the lower end of the neutral range and monetary policy being unable to address the negative impact of structural shocks such as trade policy disruption, and relatively more room on the upside for rates in the event that inflation begins to look increasingly problematic.
• On that note, Gov Macklem's opening statement makes clear "Near-term inflation expectations have moved up ...but longer-term inflation expectations remain anchored." Having previously emphasized the importance of such expectations, it would be unsurprising if he made note of this again in the press conference. 

• The Senate Banking Committee has cleared Kevin Warsh's Fed Chair nomination to head to a full Senate vote, passing 13-11 along party lines as expected.
• For more color, see our 0955ET post on "FED: Warsh Committee Nomination Vote From 1000ET, Expected To Pass". 

The previously mentioned uptick in UK risk premia, linked to comments from Mayor of Manchester Burnham, adds to pressure linked to the latest bid in crude oil, with gilt futures comfortably through yesterday’s low, basing at the March 27 base (86.12).  Fresh extension lower would expose key support the March 23 low (85.91).

• In yields, 10s still haven’t tested next upside levels (5.099% & 5.121%) but make further headway above 5.00%. 30s register fresh year-to-date highs above 5.70% and now target the ’25 top (5.734%).
• The move has eased from bearish extremes, likely as Burnham failed to signal an imminent return to parliament. Still, the headlines were enough to remind markets of a potential move to the left for Labour if a leadership challenge is forthcoming and successful (most likely at some point after early May local elections).