MNI: FED'S CIE INFLATION EXPECTATIONS INDEX EASED IN Q3

The UK curve bull steepened Wednesday with yields dropping sharply after August's CPI reading came out much softer than expected. UK and core EGB yields closed near session lows.

• The downside miss in CPI, with core up 6.2% Y/Y (vs 6.9% expected) and the key Services category up just 6.8% Y/Y (vs 7.2%+ expected) saw BoE's tightening prospects altogether thrown into question.
• Pricing for Thursday's BoE decision duly dropped, now around 45% probability implied of a 25bp hike, vs 80% at Tuesday's close, helping the UK short end rally.
• Bunds had a strong day, pulled higher by the UK developments, with the 5-10Y segment outperforming.
• With little Euro-specific newsflow or macro data (German PPI was broadly in line), the biggest headlines were Germany's Buch gaining EU lawmakers' endorsement to become the top ECB bank supervisor, while Ireland's Makhlouf said the ECB was near the top for rates, with March 2024 probably to early for the first rate cut.
• Periphery spreads had a constructive day, with decent spread narrowing led by BTPs.
• The Federal Reserve decision is the focus late Wednesday, while Thursday's key event is of course the BoE decision (MNI's preview here).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2.5bps at 3.26%, 5-Yr is down 3.6bps at 2.734%, 10-Yr is down 3.6bps at 2.702%, and 30-Yr is down 2.5bps at 2.842%.
• UK: The 2-Yr yield is down 14.6bps at 4.848%, 5-Yr is down 14.2bps at 4.393%, 10-Yr is down 12.5bps at 4.215%, and 30-Yr is down 8.2bps at 4.632%.
• Italian BTP spread down 3bps at 174.9bps / Greek down 1.6bps at 137.4bps

UK Prime Minister Rishi Sunak has substantially watered down his Conservative government's green agenda, announcing a "new approach to net zero," in a series of posts on social media site, X.

• Sunak writes: "I care about reaching Net Zero by 2050 but on the current path, we risk losing the consent of British people. No one has yet had the courage to look people in the eye and explain what’s really involved. That’s wrong, and it changes today with a new approach to meeting Net Zero."
• Sunak's announcement includes an extension on the ban of petrol and diesel cars, an extended deadline for the installation of heat pumps, and a scrapping of taxes designed to disincentivise meat products, flying, and car sharing.
• Sunak's announcement comes after several high-profile members of the Conservative Party publicly criticised the move. Former Prime Minister Boris Johnson said: “We cannot afford to falter now or in any way lose our ambition for this country,” adding that, “business must have certainty about our net zero commitments.”