ECB preview: the Ides of March now back a first rate cut in June. i) The timing of the first rate cut has almost “definitely” been set for June, ii) but the debate remains wide open as to what to expect thereafter.
Regarding the forward guidance, among the instruments to “contain” the doves, the main candidates are the “usual suspects” so far used by the ECB: i) stressing the idea that the ECB’s rate strategy is unequivocally and definitely data dependent; ii) maintaining the warning that the task of bringing inflation back to target “it is not over”; iii) other senior GC members may take the opportunity in their public discourse agenda to flag any eventual excessive dovishness in the forward yield curves.
Market reaction: with one eye on the ECB… and the other on the FED. We are not expecting this week’s meeting to be a gamechanger for the market; on the other hand, the open debate as to how much room for cuts the Fed counts on represents an almost similarly relevant driver for euro curves. The combination of i) the ECB keeping the same “neutral” approach to mid-term rate strategy; and ii) the evidence-supported view that the US is even less “ripe for big cuts” could finally have an impact on the degree of dovishness in the euro curves themselves. In our view, over a medium-term perspective the risk is more tilted towards a dovishness appeasement rather than a refuelling.
Weekly supply. On the bills market total issuance will be c.EUR26.4bn in gross terms and c.EUR10.5bn in net terms. In bonds the EC, Germany, Austria, Portugal and Italy will be active this week. Total issuance is expected to be c.EUR22.5bn in gross terms and c.EUR14.2bn in net terms (redemptions from Italy).