ECB: Morgan Stanley See ECB Cutting Quarterly After July Pause
Jul-23 18:41
- Morgan Stanley expect the ECB to keep rates on hold tomorrow, a long held view. “The rate normalization phase is over and any cut from here would need to clear a higher bar than before.”
- “The most immediate consequence is likely a shift around the timing of future changes to the monetary policy stance. Barring major shocks or data surprises, we see the ECB only changing rates at quarterly projections meetings." They see two more cuts this year, in September and December.
- “The ECB's June projections see solid growth in 2026-27. Headline inflation is moving back to target in 2027 after a temporary undershoot in 2026. Recent data prints show core inflation a touch lower in 2Q25 than the ECB forecast. And the appreciation of the euro is a downside risk for headline up to 2027.”
- “We still think the probability of further easing is underpriced by the market and we hold bullish duration structures. The uncertainty around the September meeting is the highest we have seen in a very long time: we construct an ECB uncertainty index and analyse the relationship that market uncertainty has with surprises at the next but one meeting.”
- They do however caution that they suspect Sintra comments have seen investors "overestimate the amount of ECB pushback to EUR strength we'll see". They note that "EUR/USD is in a tactical correction lower to 1.15 but we expect it to rebound further, aided by investor disappointment at the lack of pushback at this meeting – and perhaps even the September one.”
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US TSYS: Late SOFR/Treasury Option Roundup: Rate Cut Pricing Gains Traction
Jun-23 18:35
Surge in two-way SOFR puts and upside Aug 10Y Tsy calls reported Monday as underlying futures rallied initially muted response by Iran to US bombing over the weekend and after dovish comments on potential rate cuts from Fed VC Bowman and Chicago Fed Goolsbee if inflation remains muted. Projected rate cut pricing gains traction vs. this morning's levels (*), Dec at the highest since May 12: Jul'25 at -5.9bp (-3.6bp), Sep'25 at -25.2bp (-19.5bp), Oct'25 at -32.6bp (-40.7bp), Dec'25 at -58.8bp (-49.9bp).
- SOFR Options:
- -10,000 SFRU5 97.50/98.00 call spds, 9.0
- Block, 5,000 SFRQ5 96.00/96.12/96.25/96.37 call condors ref 95.955
- -10,000 SFRU5 95.75/0QU5 96.25 put spds, 0.0 0QU sold over
- -20,000 0QZ5 95.87/96.12/96.25/96.50 put condors, 4.0 vs. 96.865/0.05%
- +16,000 SFRU5 95.62/95.75 put spds, 2.5 ref 95.96/0.14%
- +7,000 0QN5 96.62/96.75 2x1 put spds 1.5 ref 96.795
- -4,000 SFRQ5 95.62/95.75 put spds, 1.125 ref 96.23
- -6,000 SFRV5 95.75/95.87/96.00 put flys, 1.75 ref 96.225
- -7,000 SFRN5 95.75/95.81/95.87 put flys, 1.0 ref 95.95
- -7,000 SFRZ5 put fly strip: 95.56/95.68/95.81, 95.75/95.87/96.00, 96.00/96.12/96.25, collects 4.5
- -10,000 SFRH6 94.62/95.62 put spds, 2.25 ref 96.39
- -5,000 SFRU5 95.81/96.00 call spds 2.75 over 95.62/95.75 put spds
- +6,000 SFRZ5 96.25/96.37/96.50/96.62 call condors, 1.25 ref 96.155
- 2,250 SFRZ5 96.50/96.75/97.00/97.25 call condors ref 96.155
- Block, 2,500 SFRQ5 95.87/96.12/96.37 call trees, 2.5 ref 95.885
- 1,750 0QQ5 96.87/97.37 call spds
- 2,000 SFRU5 96.00/96.25/96.50 call flys ref 95.88
- 2,400 0QQ5 96.37 puts ref 96.69
- Block, 2,500 0QZ5 97.00/97.31 call spds, 8.5 vs. 96.765/0.10%
- Treasury Options:
- Update - over +77,300 TYQ5 112 calls, 28-27 vs 110-29.5/0.26%, appr vol 6.59%
- over 62,900 TYQ5 112.5 calls, 28 last
- over 76,200 TYQ5 113 calls, 21 last
- 4,000 TYQ5 110.5/111.5 put spds,
- 3,300 FVQ5 109/109.75 2x3 call spds ref 108-20.5
- 4,950 FVQ5 109.75 calls, 11.5
- 6,000 TYU5 111 puts, ref 111-17.5
- +32,000 TYQ5 113 calls, 21 ref 111-15.5/0.20, appr 6.68% vol (exp 7/25)
- 17,000 TYQ5 109.5/112.5 strangles
- 1,750 wk4 TY 110.25/111.5 call spds, ref 110-29.5, exp 6/27
- +20,000 TYQ5 112.5 calls, 20 vs. 110-29.5/0.19%, appr 6.71% vol
- -2,000 TYQ5 111 calls, 48 vs. 110-28/0.47%
ELECTRICITY: EU Commission Enables Targeted Industrial Electricity Subsidies
Jun-23 18:32
- The EU wants to allow member states to provide targeted subsidies to their energy-intensive industries under certain conditions, Handelsblatt reports.
- An industrial electricity price is currently being planned by the German government - the measure has previously raised questions around compliance with EU law.
- EU Competition Commissioner Teresa Ribera plans to present the CISAF on Wednesday, according to HB.
- Full article here: https://www.handelsblatt.com/politik/international/energie-eu-kommission-ermoeglicht-den-industriestrompreis/100136772.html
BONDS: Europe Pi: OAT And BTP Longs Pick Up, Gilts Pull Back (2/2)
Jun-23 18:30
Elsewhere in European bond futures positioning:
- OAT: OAT has edged to long positioning from flat previously, compared to a brief period in short territory in March/April. The most recent week's trade was indicative of short setting.
- GILT: Gilt structural positioning is in its typical "flat" territory where it has been for most of the year, versus a brief jump to "very long" pre-roll. Some longs were reduced last week.
- BTP: BTP has edged back into "very long" territory vs merely "long" pre-roll (it's typically long/very long). Trade indicative of short setting was seen last week.
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