EURIBOR OPTIONS: ERM7 Option-Implied Dist Has Shifted Hawkish Since Sep 10
Today's aggressive selloff in global rates leaves Euribor futures up to 16.0 ticks lower through the blues. While ERZ7 underperforms across the strip, elevated volumes in ERM7 (-12.0 ticks to 96.445) are also noted. * The ERM7 implied rate is currently 3.555%, up from 3.440% at the September 10 close. * Since the ECB's decision on Sep 10, our estimate of the ERM7 option-implied risk neutral distribution has shifted in a more hawkish direction (see chart), consistent with movements in futures. * That said, we estimate that the option-implied probability of an M7 rate above 4.00% has fallen over the past two weeks. Despite persistently elevated energy prices and a resilient Eurozone economy, spot inflation developments and the tone of Governing Council commentary still doesn't suggest an aggressive hawkish response is warranted at this stage. Last week, President Lagarde continued to argue that the ECB was taking a "measured response" to the current situation.
0 ticks lower through the blues. 445) are also noted. 440% at the September 10 close. * Since the ECB's decision on Sep 10, our estimate of the ERM7 option-implied risk neutral distribution has shifted in a more hawkish direction (see chart), consistent with movements in futures.
00% has fallen over the past two weeks. Despite persistently elevated energy prices and a resilient Eurozone economy, spot inflation developments and the tone of Governing Council commentary still doesn't suggest an aggressive hawkish response is warranted at this stage. Last week, President Lagarde continued to argue that the ECB was taking a "measured response" to the current situation.