MNI (NEW YORK) - HIGHLIGHTS:
- US Equities, Treasuries Tick Up With Trump Admin Policy Uncertainty Remaining In Focus
- USD Steadily Erodes Early Gains, EURUSD Back Above 1.0400
- Crude Loses Ground, Henry Hub Falls, Gold Rises Amid Tariff Fears
US TSYS: Cash Curve Returns On A Bull Flattening Note With Short End Static
The Treasury curve bull flattened Tuesday in the return to cash trade after Monday's holiday, with Trump administration policy remaining the focus after the presidential inauguration.
- TY futures had rallied Monday (amid the cash close), with gains peaking in overnight trade Tuesday, as markets caught up to varying Trump tariff headlines (President Trump clarified Monday his administration may impost 25% tariffs on Mexico and Canada at the beginning of Feb).
- Data was limited: the January Philly Fed non-manufacturing survey was soft, and coming out alongside a below-expected Canadian CPI figure, it helped a nascent morning bid for Treasuries, but ultimately pulled back thereafter with futures closing fairly flat to Monday's early close.
- With 2025 Fed rate cut expectations fairly static (and the FOMC is in its pre-January meeting blackout period), the Treasury short end remained anchored.
- A lack of movement in the 2Y segment means the Treasury curve is as flat as it's been this year across key segments: 2s10s are -5.2bp at 28.6bp (entered 2025 at 32.5bp, January high of 42.9bp); 2s5s -3.2bp at 11.2bp (opened 2025 at 13.5bp).
- Wednesday's data calendar remains light, with MBA mortgage data and the December Leading Index - more focus will be on $13B 20Y Bond reopening auction, as well as a Fox interview with Pres Trump airing after Wednesday's cash close.
- Latest cash levels: The 2-Yr yield is down 0.9bps at 4.2741%, 5-Yr is down 4.1bps at 4.3904%, 10-Yr is down 6.3bps at 4.5642%, and 30-Yr is down 6.4bps at 4.7927%. The Mar 25 T-Note future is up 7.5/32 at 108-25, having traded in a range of 108-085. to 109-04.
MACRO ANALYSIS: Eurozone Macro Signal – Jan 2025: Is The Worst Yet To Come?
Eurozone economic activity continues to be mixed at best across sectors and countries. Despite an uptick on an aggregate basis in Q3, mid-term growth momentum is subdued, with low investment and net exports, while household consumption is seen to exhibit some relative strength. The economic outlook for the bloc became more clouded in recent months amid subdued sentiment and expectations for a less favourable global environment going forward.
- Economic Activity: Final GDP growth printed 0.4% Q/Q in Q3, but Q4 is only estimated around the 0.1% handle. Annual growth is seen a little higher in 2025 (1.0%) vs 2024 (0.7%) and 2023 (0.4%), but momentum is uneven across sectors and the main countries.
- Labour Market: The Eurozone labour market continues to show some signs of cooling in recent months but remains overall resilient. Wage pressures continued to moderate recently.
- Monetary Policy: The ECB appears confident on being able to gradually cut its interest rates down to neutral territory with markets expecting 100bps of cuts in 2025.
PDF ANALYSIS HERE:
2025_Jan21_Eurozone_Macro_Signal.pdf
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
US TSYS/OVERNIGHT REPO: ON RRP Dips Below $100B For Just 3rd Time Since 2021
Takeup of the Fed's overnight reverse repo facility fell for the 4th session in 5 Tuesday, dropping $22B to the 2nd lowest level of the year so far and only the 3rd below $100B since April 2021.
- There may yet be another fresh low set this week amid large bill settlements, though levels aren't expected to dip too far below $100B.
US TSYS/OVERNIGHT REPO: Secured Rates, Effective Funds Flat Friday
Latest data shows no change to key secured rates (including SOFR) nor, unsurprisingly, effective Fed funds at the end of last week.
- As such, SOFR continues to print about 4bp below EFFR since the FOMC's 5bp downward adjustment to ON RRP in December, with BGCR and TGCR even closer to the bottom of the Fed funds target range of 4.25%.
- A pickup in bill settlements could see rates tick up on a couple of occasions this week including Tuesday and Thursday, but generally rates are expected to remain fairly tamed until the usual end-month rise.
| REPO REFERENCE RATES (rate, change from prev. day, volume): |
| * Secured Overnight Financing Rate (SOFR): 4.29%, no change, $2326B |
| * Broad General Collateral Rate (BGCR): 4.27%, no change, $884B |
| * Tri-Party General Collateral Rate (TGCR): 4.27%, no change, $869B |
| New York Fed EFFR for prior session (rate, chg from prev day): |
| * Daily Effective Fed Funds Rate: 4.33%, no change, volume: $102B |
| * Daily Overnight Bank Funding Rate: 4.33%, no change, volume: $299B |
SOFR FIX - Source BBG/CME
- 1M 4.30213 0.00173
- 3M 4.29034 0.00025
- 6M 4.25210 -0.00171
- 12M 4.19466 0.00041
EUROPE BONDS: EGBs-GILTS CASH CLOSE: Bull Flatter
Gilts outperformed Bunds in a bull flattening move across European curves Tuesday.
- European bonds fluctuated overnight, with competing moves as US President Trump opined on tariff imposition. Supply weighed on EGBs, with France and Lithuania conducting syndications (France's 15Y OAT seeing record order books >E134B). For their part. Gilts saw limited pressure on a Jan-40 Gilt syndication.
- After weakening for most of the European morning session, global FI saw a recovery in the afternoon triggered by a slightly softer than expected Canada CPI report.
- European data was largely shrugged off: UK labour market figures were mixed (soft quantity readings vs. firmer-than-expected private wages). German ZEW expectations fell by more than expected.
- The German and UK curves bull flattened. Periphery EGB spreads to Bunds closed slightly tighter, with semi-core French OATs outperforming on the aforementioned well-received syndication.
- Wednesday's calendar is highlighted by ECB speakers including Lagarde, with data including UK public finances.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 0.7bps at 2.215%, 5-Yr is down 1bps at 2.318%, 10-Yr is down 1.6bps at 2.51%, and 30-Yr is down 2.8bps at 2.731%.
- UK: The 2-Yr yield is down 4.3bps at 4.334%, 5-Yr is down 5.1bps at 4.337%, 10-Yr is down 6.9bps at 4.59%, and 30-Yr is down 5.9bps at 5.151%.
- Italian BTP spread down 1.2bps at 108.1bps / French OAT down 1.2bps at 77bps
OPTIONS: Upside Remains Prevalent In European Rates
Tuesday's Europe rates/bond options flow included:
- OEH5 116.50/117.50^, bought for 54.5 in 3k.
- ERM5 98.00/98.50 1x2 call spread paper paid 2.5 on 2.5K.
- ERM5 97.75/98.50 RR, bought the put for 12 in 10k (ref 97.735, 52%d)
- ERM5 97.75/98.00cs 1x2, bought for 4.5 in 2.5k.
- ERM5 97.75/98.125cs 1x1.5, bought for 9.25 in 6k
- ERM5 97.87/98.00/98.12/98.25c condor, bought for 3.5 in 30k.
- SFIU5 95.90/96.25/96.60c fly, bought for 7 in 10k.
FOREX: USD Index Steadily Erodes Early Gains, EURUSD Back Above 1.0400
- Overnight headlines regarding Trump imposing tariffs on Mexico and Canada as soon as February 01 dented major equity indices and boosted the greenback through APAC hours on Tuesday. However, the steady recovery for these equity benchmarks throughout the session weighed on the broad dollar indices, with the DXY tracking back towards the Monday lows in late US trade.
- USDCAD volatility has understandably been in the spotlight, registering an impressive daily range of 1.4290/1.4516. Broader risk/greenback sentiment has largely been responsible for the Canadian dollar recovery, however, markets did also receive broadly in line with expectation inflation data for December.
- Separately, Canadian officials have maintained a retaliation rhetoric towards the tariff announcement, while Mexico’s president said Mexico must keep a cool head on Trump orders. In both instances, the local currencies have shown sold resilience across Tuesday’s session.
- EURUSD has risen back above 1.0400 in latest dealings with the lack of concrete details on tariffs for Eurozone countries potentially bolstering the single currency relief rally. We have noted the bounce so far appears corrective in nature; however, the latest bullish developments are being monitored closely. In particular, the pair has breached the 20-day EMA, at 1.0346, and pierced trendline resistance at 1.0393, drawn from the Sep 30 ‘24 high.
- Single currency outperformance also stands out in the crosses, with the likes of EURCHF and EURGBP holding close to the most recent cycle highs.
- New Zealand CPI highlights the overnight docket before we await speakers from the World Economic Forum in Davos on Wednesday, which includes ECB President Lagarde.
FX OPTIONS: Expiries for Jan22 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0345-50(E3.1bln), $1.0375(E826mln), $1.0400(E1.0bln), $1.0500(E1.1bln)
- USD/JPY: Y154.50-60($1.1bln), Y155.50($1.3bln), Y156.45($555mln)
- AUD/USD: $0.6210(A$2.1bln)
- USD/CAD: C$1.4500($829mln)
EQUITIES: Holding Near Highs Ahead Of Trump AI Announcement, Netflix Earnings
US equities have sustained gains made through early afternoon, with small cap futures (Russell 2000 +1.7%) outperforming larger-cap counterparts. Dow futures (+1.1%) lead the rest of the pack, with S&P e-mini futures (+0.8%) and Nasdaq (+0.6%) slightly lagging.
- All major sectors of the S&P 500 are in the green for the day, with energy (-0.7%) the only category in the red. Oil majors have performed poorly amid soft crude prices, reflecting promises by Pres Trump to boost US oil production.
- Utilities (Vistra up 9+%), Industrials, and Real Estate are each up 1.8-2.0%. Tech (and the NASDAQ), up 0.4%, is a laggard despite reports that President Trump will announce a major AI investment involving OpenAI, Softbank and Oracle. Attention is on this announcement which is due just after the cash close.
- Note that Netflix is higher (+1%) ahead of earnings anticipated after the close.
- Front S&P e-mini futures have traded in a large range, dropping to just below 6,000 (5994.50) overnight on Trump clarifying that tariffs on Mexico and Canada were still threatened, with the high of 6,086.50 remaining below resistance (6107.50 High Dec 26).
EQUITY TECHS: E-MINI S&P: (H5) Resistance Remains Exposed
- RES 4: 6178.75 High Dec 6 and key resistance
- RES 3: 6163.75 High Dec 16
- RES 2: 6107.50 High Dec 26
- RES 1: 6078.25 Intraday high
- PRICE: 6063.25 @ 14:30 GMT Jan 21
- SUP 1: 5961.75 Low Jan 16
- SUP 2: 5879.50/5809.00 Low Jan 15 / 13 and key S/T support
- SUP 3: 5784.00 Low Nov 4
- SUP 4: 5698.25 50.0% retracement of the Aug 5 - Dec 6 bull leg
S&P E-Minis are trading higher, marking an extension of last week’s bull phase. The move higher undermines the recent bearish theme. The contract has traded through the 50-day EMA and attention is on resistance at 6107.50, the Dec 26 high. Clearance of 6107.50 would strengthen a bullish theme. Key support has been defined at 5809.00, the Jan 13 low. A reversal lower and a breach of this level would reinstate a bear theme.
COMMODITIES: Crude Loses Ground, Henry Hub Falls, Gold Rises Amid Tariff Fears
- Crude futures have lost ground today as the market assesses the potential impact of the new US administration, with Trump promising to boost US production further.
- WTI Feb 25 is down by 2.3% at $76.1/bbl.
- US President Trump declared a “national energy emergency” to be able to increase domestic oil and gas production and reverse Biden’s climate change policies.
- Trump also said that he planned to impose previously threatened tariffs of as much as 25% on Mexico and Canada by Feb 1.
- Platts expects a tentative bullish effect on oil prices from these tariffs, due to increased freight costs amid expected oil trade reshuffling.
- The trend structure in WTI futures remains bullish despite the latest pullback, which has allowed an overbought trend reading to unwind. Attention is on $79.48, the Apr 12 ‘24 high. Support to watch is the 20-day EMA, at $74.75.
- Meanwhile, Henry Hub has fallen as freezing weather over the long weekend failed to significantly curb gas output, while forecasts expect temperatures to rise, and thus cut heating demand, next week.
- US Natgas Feb 25 is down by 4.7% at $3.76/mmbtu.
- Spot gold has risen by a further 1.3% to $2,743/oz today, its highest level since Nov 6, driven by the possibility of tariffs on US gold imports.
- The yellow metal has pierced key short-term resistance at $2,726.2, the Dec 12 high, exposing $2,790.1, the Oct 31 all-time high.
| Date | GMT/Local | Impact | Country | Event |
| 22/01/2025 | 2145/1045 | *** |  NZ | CPI inflation quarterly |
| 22/01/2025 | 0001/0001 | * |  GB | Brightmine pay deals for whole economy |
| 22/01/2025 | 0700/0700 | *** | GB | Public Sector Finances |
| 22/01/2025 | 0700/1500 | ** |  CN | MNI China Money Market Index (MMI) |
| 22/01/2025 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 22/01/2025 | 1330/0830 | * |  CA | Industrial Product and Raw Material Price Index |
| 22/01/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 22/01/2025 | 1515/1615 |  EU | ECB's Lagarde in dialogue on Unlocking Europes potential | |
| 22/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 22/01/2025 | 1800/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |
| 23/01/2025 | 2350/0850 | ** |  JP | Trade |
| 23/01/2025 | - |  NO | NorgesBank Meeting | |
| 23/01/2025 | - | JP | Bank of Japan Meeting |