STIR: Risks Skewed Dovishly Into BoE, Just Over 5bp Of Easing Priced
Small dovish moves in GBP STIRs as core global FI markets recover from session lows as BoE decision day trading gets underway.
- SONIA futures flat to +1.5.
- SFIZ6 is ~10 off October highs, SFIZ5/Z6 is 5.5 off October lows.
- BoE-dated OIS prices ~5.5bp of easing for today (just over 20% odds of a cut), with 16.5bp of cuts showing through December and 30bp priced through February.
- We have characterised our view re: today’s meeting as 50/50 (between a cut and a hold), which is much more dovish than current market pricing and the sell-side consensus (9/47 surveyed by BBG look for a cut).
- We think a 5-4 vote is the most likely outcome but it could deliver a cut or a hold. Governor Bailey's vote will be the deciding factor here, in our view.
- This presents asymmetric risks in market pricing despite the dovish move seen in the wake of the recent CPI data and increased confidence in Chancellor Reeves’ ability to deliver a credible Budget.
- Our full preview of the decision is here.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Nov-25 | 3.914 | -5.6 |
Dec-25 | 3.806 | -16.4 |
Feb-26 | 3.670 | -29.9 |
Mar-26 | 3.622 | -34.7 |
Apr-26 | 3.518 | -45.1 |
Jun-26 | 3.488 | -48.1 |
Jul-26 | 3.416 | -55.3 |
Sep-26 | 3.416 | -55.3 |
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FOREX: FX OPTION EXPIRY
Of note:
EURUSD 2.2bn at 1.1650/1.1665 (could act as magnet).
EURUSD 1.07bn at 1.1700 (wed).
EURUSD 5.76bn between 1.1600/1.1700 (fri).
- EURUSD: 1.1650 (1.83bn), 1.1665 (406mln), 1.1700 (220mln), 1.1705 (382mln), 1.1710 (282mln), 1.1750 (1.27bn).
- USDJPY: 150.00 (79mln), 150.60 (525mln), 151.00 (676mln).
- NZDUSD: 0.5810 (276mln), 0.5820 (305mln).
FRANCE DATA: Export Growth Recovering But Momentum Weak
The French trade deficit was E5.53bln in August, down from E5.74bln in July (revised from E5.56bln initial) and a year-to-date high of E7.42bln in February. Assuming unchanged nominal GDP growth of ~0.5% Q/Q in Q3, this implies a steady goods trade deficit of around 2.7% GDP.
- Imports fell 0.4% M/M for the second consecutive month, a sign of continued weakness in domestic demand against a backdrop of ongoing political/fiscal/economic uncertainty. However, Y/Y import growth continues to slowly recover from the 2023 lows, trending back toward pre-covid growth rates.
- Total exports fell 0.1% M/M in August, after two solid months of 3.5% and 1.7% growth in June and July. Like imports, a recovery in annual export growth from the 2023 lows is intact, though momentum is lacking. This may reflect the direct impact of US tariffs, even with trade policy uncertainty having declined since the EU-US trade agreement was struck in August. Although exports to the US rose 4.9% M/M in August, 3m/3m and Y/Y 3mma growth remains negative.
- September’s PMI round was in fitting with this theme:
- Manufacturing PMI: “Exports were also a drag on overall orders during the latest survey period, with companies mentioning US tariffs and generally sluggish market conditions as reasons for lower overseas demand.”
- Services PMI: “French service providers closed out the third quarter with another decline in new business from abroad. Albeit softer than August's year-to-date record, the contraction remained solid”.
BUNDS: Block trade
Bund Block trade, suggest buyer:
- RXZ5 3k at 128.37.
EGBs are lifted off their lows, Bobl is bought in 5k cumulative Volumes, BTP 1.7k and OAT 1k.
