Pre ECB Meeting: What’s Priced In for ECB Rates? Market Hit By Sources

7^th June 2017

Heading into the ECB meeting tomorrow, what’s priced in for ECB action on interest rates?  The quick answer is “nothing any time soon” although the picture did change a little today.  Markets are more focussed on possible rhetoric change around the balance of risks, the new staff forecasts and possible tweaks to forward guidance rather than any imminent chance of an actual rate move.

Looking in detail, markets are pricing in essentially zero chance of rate action at each of the next four ECB meetings (June, July, September, October).  The market is however positioned for more chance of a hike than a cut moving forwards from there.  By year end a very minor chance of a hike is priced in and the market has a 43% chance of a 10bp hike priced in by next June.

The perceived chances of a hike next year actually took a hit earlier today after a Bloomberg sources story suggesting the ECB would cut their inflation forecasts tomorrow.  The odds of a hike by next fell by 10% vs yesterday’s levels.

Analysis of the rates markets can give us an accurate guide on the market’s perception on the outlook for hikes or cuts at future policy meetings.  The above table summarises what’s priced in for European Central Bank (ECB) hikes or cuts at the next meetings: how many basis points, how many individual hikes or cuts this is equivalent to, and how the probabilities have changed.

Reminder: we base our pricing analysis on the OIS markets

Our website also has a full schedule of upcoming ECB meetings

Author: Michael Colman