BOJ: Ueda To Make Appearance At Jackson Hole

TYU5 112.50 calls vs 111-03, paper paid 0-17 on 30K.

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The volume of ECB speak has reduced notably since our last update two weeks ago. The main development since then has been US President Trump’s threat of 30% tariffs on EU exports from August 1. However, Reuters sources suggested that while this threat has “complicated” decision making for the ECB, it is not likely to “derail plans for a pause in rate cuts” at this Thursday’s decision. 

• Market pricing remains consistent with one more 25bp cut this cycle, which is in line with the implied rate curve embedded within the ECB's June macroeconomic projections.
• However, the Governing Council is appearing increasingly divided as to whether more easing is justified at this stage, and even if another cut is warranted, whether it should be delivered in September or later in the year.

Societe Generale recommended ERH6/H7 flatteners boxed vs. SOFR late last week.

• They noted that “given the uncertainty surrounding tariffs, it is still too early to factor their impact into the ECB’s reaction function. However, being one of the largest net exporters in the world, the EU will most likely see higher deflationary risk than the U.S. will”.
• They go on to flag that “in the ECB’s June macroeconomic projections, a severe scenario with around a 15% tariff on EU exports and 8% counter-tariffs on U.S. exports was expected to increase U.S. inflation mostly in 2026 and decrease euro area inflation mostly in 2027. This doesn’t fit into the market pricing where the Fed continues to cut in 2026 while the ECB starts hiking”.