HIGHLIGHTS
- Treasuries look to finish mixed Friday, curves twisting flatter with 2s-10s lagging bonds since midmorning.
- Partially flow driven than headline or data driven, massive -46k Mar'25 2Y futures sale triggered a broad based reversal by midmorning.
- On data, Industrial production bounced in December with solid underlying drivers although it only helps reverse some weakness in late Q3/early Q4.
- Building permits were a little higher than expected in December at 1483k (cons 1460k) for little change from 1493k in November.
MNI US TSYS: Tsy Curves Twist Flatter, Heavy Short End Sales Ahead Inauguration
- Treasuries look to finish mixed Friday, well off early session highs with heavy short end selling weighing across the strip while curves twisted flatter (2s10s -4.357 at 33.679, 5s30s -2.657 at 43.037).
- Massive -46k Mar'25 2Y futures sale triggered a broad based reversal by midmorning, while morning headlines that incoming President Trump held a call with China President Xi elevated volatility. Descriptions of a positive tone for China/US relations provided a boost for the Chinese Yuan.
- A surprise $10B 5-tranche debt issuance from Bank of America contributed to selling in rates.
- Generally positive data: Industrial production surprisingly jumped 0.9% M/M (cons 0.3) in Dec after an upward revised 0.2% M/M (initial -0.1%). Utilities may have helped with their 2.1% M/M increase (strongest since May) but manufacturing production was also stronger than expected with 0.6% M/M (cons 0.2%) after an upward revised 0.4% M/M (initial 0.2%).
- Building permits were a little higher than expected in December at 1483k (cons 1460k) for little change from 1493k in Nov. Housing starts meanwhile, which are more prone to weather disruption, surprisingly jumped to 1499k (cons 1327k) after 1294k in Nov.
- Reminder, the Federal Reserve enters their policy Blackout at midnight tonight through January 30.
- Corporate earnings pick up in earnest next week, headliners expected to announce next Tuesday include KeyCorp, DR Horton Inc, Charles Schwab, Prologis Inc and 3M Co before the market opens, Fifth Third Bancorp, Netflix Inc, Interactive Brokers, United Airlines, Seagate Technology and Capital One Financial after the market closes.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00168 to 4.30400 (-0.00214/wk)
- 3M -0.00308 to 4.29009 (+0.00308/wk)
- 6M -0.00832 to 4.25381 (+0.00923/wk)
- 12M -0.01376 to 4.19425 (+0.01592/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.29% (+0.01), volume: $2.318T
- Broad General Collateral Rate (BGCR): 4.27% (+0.01), volume: $884B
- Tri-Party General Collateral Rate (TGCR): 4.27% (+0.01), volume: $864B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $109B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $309B
FED Reverse Repo Operation
RRP usage rebounds from yesterday's $94.489B, the lowest level since mid-April 2021, to $118.327B this afternoon. The number of counterparties slips to 32 from 34.
US SOFR/TREASURY OPTION SUMMARY
Large SOFR & Treasury put flow reported Friday after leaning toward upside calls overnight (note late Thursday evening buy of 20k Feb 10Y 108.75 calls - expire next Friday). Over 60,000 TYG5 108.5 puts bought on the day, Mar'25 30Y put spread buying. Underlying futures reversed early highs, partially data driven. Projected rate cuts through mid-2025 cooling again, current lvls vs. Friday morning* as follows: Jan'25 at -0.1bp, Mar'25 at -7.5bp (-8bp), May'25 -12.9bp (-14.6bp), Jun'25 -22.3bp (-24.6bp), Jul'25 at -26.1bp (-29.1bp).
SOFR Options:
+10,000 SFRZ5 96.00/96.50/97.00 call trees 3.5 ref 96.05
+3,000 SFRM5 95.68/95.81 put spds vs 0QM5 95.81/95.93 put spds, 0.0
+8,000 SFRH5 95.62/95.68 3x2 put spds 0.5 ref 95.785
+4,000 SFRG5 95.62/95.68/95.75 put trees 1.5 ref 95.785
+4,000 SFRK5 95.62/95.75 2x1 put spds, 1.0 ref 95.925
+10,000 SFRZ5 96.00/96.50/97.00 call trees, 3.5 ref 96.05
2,000 3QH5 95.37/95.50/95.62/95.75 put condors ref 95.92
2,000 SFRZ5 95.12/95.75 put spds ref 96.05
2,000 SFRZ5 95.43/95.68 put spds ref 96.05
5,500 SFRH5/SFRU5 95.75/96.00 call spd spds
4,500 SFRJ5 95.75 puts ref 95.92
Block, 6,000 2QH5 96.00/96.12 call spds 5.5 ref 95.995
3,000 SFRM55 96.00/96.12 call spds
2,600 SFRH5 95.75/95.87 call spds vs. SFRM5 95.87/96.00 call spds
Treasury Options:
3,000 TYG5 110.25/111.5 1x2 call spds, ref 108-18
2,475 USH5 120 calls, 9 ref 113-00
+12,000 TYH5 105/113 2x1 strangles, 15
11,900 TYG5 106/107 put spds
30,000 TYG5 108.5 puts, 21 vs. 108-18.5/0.47% (total volume over 60,000)
1,300 TYG5 107.5/108/108.5 put flys, ref 108-18
4,000 USH5 119/121/123/127 broken call condors ref 113-10
11,500 TYG5 108.5 puts, 14
15,000 USH5 106/108 put spds (open interest 30,19 and 19,346 respectively)
4,000 FVH5 106 puts, ref 106-08.25
7,000 TYH5 109.5/110.5 call spds
Block, 4,500 FVG5 105.5/107.5 strangles 3.5 vs. FVH5 106.25 straddles 104.5
1,800 TYH5 106.5/108 put spds
2,600 TYG5 110 calls ref 108-20
2,500 wk3 TY 108.5/109 call spds ref 108-20.5 (expire today)
2,000 TYG5 108 puts, 9 ref 108-18.5
20,000 TYG 108.75 calls 18 (late Thursday evening) total volume near 23k
MNI FOREX: USD Index Ending on Front Foot Amid Trump/Xi Headline Induced Volatility
- Volatility in FX markets on Friday was stoked by headlines surrounding a meeting between President-Elect Trump and China President Xi. Descriptions of a positive tone for China/US relations provided a boost for the Chinese Yuan. USDCNH fell from around 7.3580 to 7.3330 very quickly, before then stabilising ~7.3450 ahead of the close.
- EURJPY had the most impressive move following the news and the more optimistic risk sentiment. After oscillating around the psychological pivot of 160.00, the pair rose a little over 100 pips to a 161.01 high, which coincided with EURUSD having a sharp move higher from 1.0265 to 1.0330 in short order.
- Since then, the US dollar has traded on the front foot, and the USD index is tracking close to session highs around 109.30, and only down a moderate 30 pips on the week. The bullish trend for the greenback remains broadly intact as President-Elect Trump’s inauguration swiftly approaches.
- This dynamic led USDJPY back above 156.00 into the close, up 0.65% on the day. The 50-day EMA had been touted as an important technical level for the pair, and this average managed to support USDJPY well overnight. The pair briefly tested the post US data highs from Thursday at 156.35, having recovered ~135 pips from the Friday APAC lows.
- GBPUSD underperformance stands out on Friday, registering a daily low of 1.2161 on the back of weaker-than-expected UK retail sales. These followed yesterday's disappointing activity data and should, on the margin, underpin ongoing UK growth / fiscal concerns.
- On Monday, US President-elect Donald Trump will be sworn in as the 47th President of the United States. The market could experience significant turbulence if Trump follows through with plans to sign up to 100 executive orders on Day 1. Focus will also be on next week’s BOJ meeting.
MNI US STOCKS: Late Equities Roundup: Eminis Hold Near Jan 6 Highs
- Stocks are near session highs late Friday, SPX eminis back at January 6 levels after starting the week near early November lows. Currently, the DJIA trades up 403.21 points (0.93%) at 43556.84, S&P E-Minis Future up 65.5 points (1.1%) at 6041.5, Nasdaq up 315.4 points (1.6%) at 19654.72.
- Consumer Discretionary and Information Technology sectors continued to lead gainers in late trade, autos and cruise lines supporting the former: Tesla +5.86%, Royal Caribbean Cruises +3.52%, Carnival Corp +3.67%, Norwegian Cruise Line Holdings +3.48%.
- Meanwhile, IT gained as semiconductor makers rebounded from midweek selling as Intel led gainers there: +8.62% on differing headlines: several noted that Intel Corp is spinning off a $5B venture capital arm Intel Capital, while others revived chatter the firm is an acquisition target with Apple, Samsung, and Qualcomm all rumored to be interested buyers for months.
- Other gainers in the IT sector included Monolithic Power +4.68%, Broadcom +3.22%, Nvidia +3.14% and Micron +2.71%.
- On the flipside, Health Care and Utility sectors underperformed in the second half, pharmaceuticals weighing on the former with Eli Lilly -2.59%, Merck -1.87% and Regeneron -1.19%. Vistra -1.43% and NRG Energy -1.22% weighed on the Utility sector.
- Corporate earnings pick up in earnest next week, headliners expected to announce next Tuesday include KeyCorp, DR Horton Inc, Charles Schwab, Prologis Inc and 3M Co before the market opens, Fifth Third Bancorp, Netflix Inc, Interactive Brokers, United Airlines, Seagate Technology and Capital One Financial after the market closes.
MNI EQUITY TECHS: E-MINI S&P: (H5) Is Through The 50-Day EMA
- RES 4: 6178.75 High Dec 6 and key resistance
- RES 3: 6163.75 High Dec 16
- RES 2: 6068.25/6107.50 High Jan 6 / High Dec 26
- RES 1: 6051.50 Intraday high
- PRICE: 6042.25 @ 18:59 GMT Jan 17
- SUP 1: 5879.50/5809.00 Low Jan 15 / 13
- SUP 2: 5784.00 Low Nov 4
- SUP 3: 5698.25 50.0% retracement of the Aug 5 - Dec 6 bull leg
- SUP 4: 5658.00 Low Sep 12 ‘24
A bear threat in the S&P E-Minis contract remains present. However, this week’s gains have resulted in a break above resistance at 5987.04, the 50-day EMA. The average marks an important pivot level and a clear break of it signals a possible reversal. This opens 6107.50, the Dec 26 high. Clearance of this level would strengthen a bullish theme. Key short-term support has been defined at 5809.00, the Jan 13 low.
MNI COMMODITIES: Crude up 2% on Week, Gold Edges Lower Amid Central Bank Sales
- WTI is easing back today but remains set for a weekly gain of around 2%. Support comes as US sanctions impact global supply, redirecting flows and increasing shipping rates.
- WTI Feb 25 is down by 1.1% at $77.9/bbl.
- Drawing inventories, strong distillate demand and the latest sanctions impacting Russian oil are supporting energy at present according to Goldman Sachs.
- The trend structure in WTI futures remains bullish and this week’s rally reinforces current conditions. After piercing $80.14, the Apr 12 ‘24 high, sights are on $81.69, a Fibonacci projection.
- Spot gold has edged down by 0.3% on Friday to $2,706/oz, although the yellow metal remains 0.6% higher on the week.
- Prices slipped today as Kazakhstan's central bank said it will sell gold on international markets to support the national currency, with estimated annual sales of $6bn.
- This week’s recovery in gold exposes $2,726.2, the Dec 12 high and an important resistance. Clearance of this level would be a bullish development. Initial support is at $2,651.2, the 50-day EMA.
- Meanwhile, silver is underperforming, with price down by 1.7% today at $30.3/oz, leaving the precious metal marginally lower on the week.
- A bear cycle in silver that started Oct 23 remains in play for now, with support to watch at $29.509, the Jan 13 low, and $28.748, the Dec 19 low and the bear trigger.
MONDAY/TUESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 20/01/2025 | 0700/0800 | ** |  DE | PPI |
| 20/01/2025 | 1000/1100 | ** |  EU | Construction Production |
| 20/01/2025 | - | EU | ECB's Lagarde and Cipollone in Eurogroup meeting | |
| 20/01/2025 | 1530/1030 | ** |  CA | BOC Business Outlook Survey |
| 21/01/2025 | 0700/0700 | *** |  GB | Labour Market Survey |
| 21/01/2025 | 1000/1100 | *** | DE | ZEW Current Expectations Index |
| 21/01/2025 | - | EU | ECB's De Guindos in ECOFIN Meeting | |
| 21/01/2025 | 1330/0830 | *** | CA | CPI |
| 21/01/2025 | 1330/0830 | ** |  US | Philadelphia Fed Nonmanufacturing Index |
| 21/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 21/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 21/01/2025 | 1800/1300 | * | US | US Treasury Auction Result for Cash Management Bill |
| 21/01/2025 | 1800/1300 | ** | US | US Treasury Auction Result for 52 Week Bill |
| 22/01/2025 | 2145/1045 | *** |  NZ | CPI inflation quarterly |
| 22/01/2025 | 0001/0001 | * | GB | Brightmine pay deals for whole economy |