OUTLOOK: Price Signal Summary - Oil Futures Hold On To Their Gains

"We said in our minutes that some of us were a bit on the fence and thought trade was a factor. Some didn't, actually, and they voted for different things and and so, you know, if you're just looking at the domestic factors, I guess that would that would change it for the those members who were considering trade as something that pushed them a bit over a line. But, you know, ultimately we're setting interest rates to try to achieve 2% inflation in the UK, and have to consider those factors, though, that affect the UK economy, but also the ones that we can do something about. And so it's the domestic inflationary factors that we focused on more than the trade factors."

Greene asked if she would have voted for a cut without the trade news.

• "Came into this round quite torn about whether to hold or cut by 25 basis points, in part over the concerns around constrained supply that I mentioned, and also concerns around inflation expectations and whether those might feed through into second round effects, decided to cut in part because of trade. Would I change it all now, given this morning's news on a trade deal? No I wouldn't. I think in terms of kind of the risks around our assumptions on trade, I guess I'm worried that trade diversion might be more disinflationary than we have in our central forecast, and I think that's still the case, even if Chinese and US tariffs are lower for 90 days, and then who knows what? I also think it's worth pointing out that China is a big piece of the picture, obviously, in the global economy, but the EU is the UK's biggest trade partner, And so what happens with tariffs, between the US and the EU also matters and we don't have much clarity on that."

Japanese investors continued to shun OATs as of March 2025, with balance of payments data (released overnight) pointing to a net JPY377bln of French sovereign bond selling. Japanese investors have sold a cumulative net JPY4trln of OATs since the start of 2024, spurred by the political and fiscal uncertainty stemming from President Macron’s snap general election announcement in June. 

• The April BoP data will reveal whether Japanese investors re-allocated into French sovereign debt following the US “Liberation Day” announcement and associated market fallout, given the good liquidity the OAT market offers.
• However, political and risk risks remain present in France. Although a gradual consolidation of public finances is intact, officials have still highlighted the need to find E40bln of savings to meet the 4.6% 2026 budget deficit target. Meanwhile, our Political Risk team wrote last month that PM Bayrou is under significant political pressure amid an ongoing domestic scandal (see here).
• These risks are important to monitor, because President Macron is legally able to call another general election in July 2025 if desired (new elections cannot be held within 12-months of the last round). Such an announcement would see French political uncertainty ratchet higher once again, and drag on OAT performance versus peers.
• In March, Japanese investors were net buyers of JPY217bln of German sovereign debt and JPY109bln of Italian debt. The German figure may represent investor dip-buying, after yields rose notably in reaction to Merz’s defence/infrastructure spending announcement at the start of the month.