BOE: VIEW CHANGE: MS remove September cut; still look for 2.75% terminal

Gilts fade the opening downtick, with the BoE likely to view this morning’s CPI data as in line with expectations that prevailed ahead of the release, albeit with some worry surrounding still-elevated food inflation.

• Gilt futures stick within yesterday’s range, trading as low as 92.48 before a bounce to ~92.65.
• The bullish technical conditions in the contract remain intact, initial support and resistance located at 92.23 and 93.13, respectively.
• Yields 0.5-2bp lower, curve bull steepens.
• 10s last 4.545%, with bulls unable to extend on/maintain last week’s break below 4.50%.
• GBP STIRs still trade around pre-gilt open levels.
• SONIA futures flat to +2.0, BoE-dated OIS showing 48bp of cuts through year-end.
• Our full preview of tomorrow’s BoE decision is available here.
• Expectations point towards a 7-2 vote split with both Dhingra and Taylor likely to follow up their votes for a 50bp cut in May with a vote for a sequential cut (the magnitude of which is unlikely to elicit a market reaction).
• The main focus is on whether the dataflow has been enough to convince any other members of the MPC to vote for a cut.

• RES 4: $39.026 - 1.382 proj of the Apr 7 - 25 - May 15 price swing 
• RES 3: $38.246 - 1.236 proj of the Apr 7 - 25 - May 15 price swing
• RES 2: $38.000 - Round number resistance 
• RES 1: $37.317 - Intraday high  
• PRICE: $37.220 @ 08:13 BST Jun 18 
• SUP 1: $34.184 - 20-day EMA
• SUP 2: $33.970/31.651 - 50-day EMA / Low May 15
• SUP 3: $30.915/28.351 - Low Apr 11 / 7 and the bear trigger  
• SUP 4: $27.686 - Low Sep 6 ‘24  

A bull wave in Silver remains in play and Tuesday’s fresh cycle high, reinforces this condition. The metal has recently traded through a resistance at $34.903, the Oct 23 ‘24 high and a key bull trigger. The clear break of it marks an important medium-term bullish development. Sights are on the $38.00 handle next. On the downside, initial support to watch lies at $34.184, the 20-day EMA.

The Riksbank decision is due at 0830BST/0930CET. With consensus leaning heavily towards a 25bp rate cut to 2.00%, focus will be on the policy statement guidance and June MPR rate path projection.

• MNI’s full Riksbank preview is here.
• Developments since March support a downward revision to the rate path from its current flat 2.25% level, but we don’t expect the path to move much below 2.00%. It’s still too early for the Executive Board to signal a material chance of a cut to 1.75% in the baseline projection – the June MPR alternative scenarios are best placed to incorporate a dovish pivot of that nature.
• If the rate path troughs at 2.00% and the policy statement is ambiguous on the chances of further easing, there may be modest hawkish risks to the SEK intraday.
• Initial support in EURSEK is last Thursday’s low 10.9033, which may be at risk if the hawkish conditions noted above are realised. Firm support is then seen at 10.7941, the April 4 low.
• A dovish outcome would see the baseline rate path incorporate a meaningful risk of a cut to 1.75% in Q3.