LOOK AHEAD: What to Watch: BOE Program Aftermath, Fed Speak, Wkly Claims, GDP

A few notable sell-side comments on ECB today ahead of tomorrow’s CPI release:

• BofA write that they expect the energy price shock and persistent supply uncertainty to lower the growth trajectory well into 2024, and add three 25bp hikes to their ECB profile (in Mar23, May23 & Jun23), with the terminal deposit rate rising to 2%.
• They add that we have not yet reached peak hawkishness from the ECB, and see a risk that rates could rise further than anticipated if inflation surprises to the upside tomorrow (not our baseline scenario) and the ECB delivers a 75bp hike at the 8th September meeting.
• Meanwhile, JPM write that the debate at the ECB has likely shifted to 75bps (Schnabel’s preference) versus 50bp (Lane’s preference). JPM will review their current forecast of 50bps hike after Wednesday’s inflation data.
• They add that there is very little in the upcoming data that can shift the views of Lane and Schnabel, especially because the next meeting is just over a week away.
• Their forecast anticipates an ECB pause due to the likely GDP contraction in the autumn/winter. But, JPM have already had to push back the pause and currently expect another 125bp of hikes before a pause starts after the December meeting. This may still be appropriate, but with possibly more than 50bp of this delivered next week.

Lead quarterly EDU2 extending session high last few minutes, +0.325 at 96.6225 even after latest 3M LIBOR set' climbs +0.01257 to new 14Y high: 3.08214% (+0.11186 total last wk).

• Slight reprieve in hawkish rhetoric following softer European CPI inflation metrics overnight sees bounce across the strip: Balance of Whites (EDZ2-EDM3) trade +0.045, Reds through Golds (EDU3-EDM7) +0.045-0.070, Greens outperforming.
• Current inversion pricing: Mar'23/Jun'23 -0.045; calendar spds: EDZ2/EDZ3 at -0.385, EDH3/EDH4 at -0.595. Inversion flattens out in Gold Sep'27/Dec'27 trading +0.010.
  
  
• Monday roundup: Limited participation with London out for bank holiday really crimped week opener trade volumes. Replacement to Eurodollar options, SOFR options lead session volumes with mixed put structures and one call fly block fading the carry over short end selling in the short end.
  
  Salient trade:
• Salient trade: SOFR Options: Block, 10,000 SFRZ2 97.00/97.25/97.50 call flys, 0.75 net, +5,000 short Dec SOFR 96.12 puts 9.5 over SFRZ2 96.00 puts, both legs covered, Block, -10,000 short Oct SOFR 96.25/96.75 2x1 put spds, 11.5 ref 96.51.

Chinese state media confirming that the 20th National Congress of the Communist Party of China will take place 16 October. The crucial event takes place once every five years.

• The large set-piece event will likely prove a landmark moment in Chinese political history, with President Xi Jinping likely to begin an unorthodox third five-year term at the end of the 2,000-strong meeting of party officials in Beijing, becoming the first Chinese leader since Mao Zedong to remain in office for a third term.
• SCMP reports: "The announcement [of the Congress' date] usually indicates that most of the closed-door negotiations on key positions are over, though there could be last-minute adjustments. The most important decisions are usually made ahead of the party congress, which largely serves as a formal occasion to legitimise and communicate those decisions to delegates."
• What will also be observed closely is the selection of the Communist Party's next Central Committee, formed by 300 high-ranking CCP members. At the 1st Plenary Session of the 20th Central Committee, its members in turn decide on the make-up of the 25-strong Politburo and at its peak, the seven-member Standing Committee.
• The Standing Committee is viewed as an important staging post for presidential hopefuls, and the identities of those selected for the positions could indicate the longer term plans for President Xi, of whether he installs potential protegees that could gain his support, or older party officials that are unlikely to offer a challenge to the incumbent.