HIGHLIGHTS
- Treasuries look to finish modestly higher Friday, well off early session lows after the S&P Global US composite PMI surprisingly fell in the January flash release.
- Trump headline risk regarding tariffs spurred a volatile session for the Greenback with the USD index declining approximately 0.7% on the day, extending the weekly decline to around 2%.
- Gold traded close to its all-time high of $2,790/oz, buoyed by the pullback in the US dollar after President Trump’s comments that he would rather not put tariffs on China.
MNI US TSYS: Treasuries Well Off Early Lows After S&P Flash PMIs Decline
- Treasury futures look to finish mildly firmer Friday, well off early session lows after this morning's S&P Global US composite PMI surprisingly fell in the January flash release to its lowest since April after the 55.4 in December marked a 32-month high.
- However, firms' expectations of output over the coming year remain strong looking at policies under the second Trump administration and inflationary pressures saw a four-month high which helped limit the dovish reaction from the headline services miss.
- Meanwhile, U.Mich long-run inflation expectations were trimmed in the final January release from what had been a particularly sharp increase to the highest since 2008. 3.2% is still elevated though, having twice in the past three months exceeded what had been a typical 2.9-3.1% range since mid-2021.
- The Greenback declined during the APAC session as headlines crossed from US President Trump around not wanting to use tariffs on China,. The theme has prevailed throughout the session (later bolstered by weaker than expected US PMI), cementing USD index losses in the region of 0.7%, and extending the weekly decline to around 2%.
- After the bell, the Tsy Mar'25 10Y futures contract trades +3 at 108-15 vs. 108-07.5 low, well within technicals: resistance above at 109-04/109-06 (High Jan 21 / High Dec 31) vs. support at 108-00/107-06 (Low Jan 16 / 13 and the bear trigger). Curves well off early highs, 2s10s +0.110 at 35.143 vs. 38.045 high, 5s30 +0.270 at 41.706 vs. 44.753 high.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00477 to 4.31541 (+0.01501/wk)
- 3M -0.00023 to 4.29984 (+0.00975/wk)
- 6M -0.00417 to 4.25906 (+0.00525/wk)
- 12M -0.00726 to 4.19880 (+0.00455/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.35% (+0.05), volume: $2.269T
- Broad General Collateral Rate (BGCR): 4.34% (+0.06), volume: $906B
- Tri-Party General Collateral Rate (TGCR): 4.34% (+0.06), volume: $877B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $93B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $260B
FED Reverse Repo Operation
RRP usage falls back to $104.877B this afternoon from yesterday's $132.031B. Compares to Thursday Jan 16 low of $94.489B, the lowest level since mid-April 2021. The number of counterparties falls to 23 from 34 prior.
US SOFR/TREASURY OPTION SUMMARY
SOFR & Treasury option flow shifted towards upside calls by midmorning as underlying futures bounced off lows/climbing to session highs after this morning's flash services & composite PMIs dipped along with slightly lower UofM 5-10 inflation exp. Curves pared back from early steepening w/ 2s10s +.110 at 35.143 vs. 38.045 high. Projected rate cuts through mid-2025 running steady to this morning's levels as follows: Jan'25 at -0.1bp, Mar'25 at -6.9bp, May'25 at -13.6bp, Jun'25 at -24.7bp, Jul'25 at -28.6bp.
SOFR Options
-5,000 0QM5 95.37/96.62 call over risk reversal, 1.5 covered
11,750 0QK5 96.62/96.81 call spds
-3,000 SFRH6 95.37/95.62/96.25/96.50 iron condor, 14.0 ref 96.06
+10,000 SFRM5 96.00 call spds 11.0 ref 95.92
5,000 SFRM5/SFRU5 95.75/95.87 call spd spds, cab net/Sep over
-10,000 SFRN5 95.62/96.37 strangle, 13.75-13.5
+10,000 0QN5/0QU5 94.87/95.25 put spd spd, 1.5
5,750 SFRM5 95.25/95.50 put spds
4,000 SFRM5 95.75/96.00/96.25 call flys ref 95.915
1,600 0QH5 95.81 puts ref 96.04
1,750 SFRG5 95.68/95.75/95.81 put flys
1,200 SFRJ5/SFRM5 96.00 put spds ref 95.915
1,100 SFRZ5 96.25/96.75 call spds vs. 3QZ5 96.75/97.25 call spds
Treasury Options:
+50,000 TYH5 108.5 calls, 41 ref 108-14.5, total volume over 75k by the clos (adds to +100k+ from 27-29 on Jan 14, just prior to CPI-tied bounce in underlying).
5,000 FVH5 107.25/108 call spds ref
2,000 TYJ5 108 puts ref 108-12
over 12,400 TYG5 108.25 puts, 4 last
over 8,400 TYG5 108 puts, 1 last
over 6,000 TYG5 108.5 calls, 4 last
over 9,800 FVG5 106 puts, 1-3
over 6,600 FVG5 106.5 calls, 1 last
3,350 wk1 TY 107/107.5 put spds ref 108-14 (expire Feb 7)
2,000 Monday wkly 10Y 108/108.25 put spds ref 108-13 (expire Monday)
MNI BONDS: EGBs-GILTS CASH CLOSE: Expansionary PMIs Bear Flatten German Curve
The German curve bear flattened Friday, with Bunds underperforming Gilts as regional PMIs came in stronger than expected.
- Yields jumped in early trade as German and Eurozone composite PMIs unexpectedly returned above the 50.0 mark in the January flash reading, with the UK's and France's also exceeding expectations (driven by manufacturing beats).
- Core Fi recovered slightly in mid-afternoon trade as US PMIs missed expectations on the headline measures, but expectations and inflation subindices muted the reaction.
- All in all it was a less volatile week for the space by recent standards, with 10Y Bund yields up 3.4bp and Gilt down 3.1bp; the German curve bear flattened on the week with the UK's bull steepening.
- Periphery EGBs spreads tightened early but widened in the afternoon as the equity rally fades, with Greece outperforming on the day.
- The ECB decision (25bp cut is 97% priced) and January Eurozone flash inflation prints are next week's focus.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 4.5bps at 2.29%, 5-Yr is up 3.1bps at 2.381%, 10-Yr is up 1.9bps at 2.569%, and 30-Yr is up 0.7bps at 2.785%.
- UK: The 2-Yr yield is unchanged at 4.325%, 5-Yr is up 0.1bps at 4.337%, 10-Yr is down 0.7bps at 4.629%, and 30-Yr is down 0.3bps at 5.19%.
- Italian BTP spread down 1bps at 108.7bps / Greek bond spread down 2.1bps at 85.6bps
MNI OPTIONS: Heavy Week For Euro Rate Upside Ends On High Note
Friday's Europe rates/bond options flow included:
- RXH5 124p, bought for 1 in 5k.
- ERM5 97.87/98.00/98.12/98.25c condor, bought for 3 in 16.5k.
- ERZ5 97.875/98.00cs vs 97.75/97.625ps, bought the cs for half in 11k.
- ERJ5 97.75/97.8125cs vs ERM5 97.6875/97.75cs, bought the June for 0.75 in 27k total.
- SFIM5 95.90/96.10/96.30c fly vs 95.60p, bought the fly for flat in 5k.
MNI FOREX: Greenback Extends Weekly Decline, GBPUSD Recovers Back to 1.25
- In a very volatile session for G10 currency markets, it is best to run through it in chronological order. Initial moves were USD negative in APAC as headlines crossed from US President Trump around not wanting to use tariffs on China, providing the sense there is potential for negotiations between the two sides and an imminent tariff hike may not be on the cards.
- This theme has prevailed throughout the session (later bolstered by weaker than expected US PMI), cementing USD index losses in the region of 0.7%, and extending the weekly decline to around 2%.
- Elsewhere in APAC, the Bank of Japan hiked rates as widely expected, prompting some initial Yen optimism. USDJPY traded as low as 154.85 in the aftermath, however, ongoing caution from Governor Ueda over the BOJ’s easy stance eventually filtered through to a strong USDJPY recovery, briefly rising to a session high of 156.57 as the US session began.
- In Europe, stronger-than-expected flash PMI data in Germany and the UK in particular have boosted sentiment for EUR and GBP, with both taking advantage of the softer dollar backdrop to extend recovery highs to 1.0521 and 1.2502 respectively. GBPUSD has narrowed the gap substantially to the 50-day EMA, at 1.2522 and an important resistance, while the medium-term trend does remain bearish.
- Single currency strength helped EURCHF rise above 0.9500 and reach a 5-month high in the process. Importantly, the cross has breached a cluster of highs around this mark, which may signal scope for a stronger recovery towards the August 15 high at 0.9581, before a Fibonacci retracement level at 0.9655.
- While Trump remarks continue to drive short-term sentiment in FX markets, central banks come back into focus next week, with the Riskbank, BOC, Fed and ECB meetings all scheduled. US Q4 growth data is also on the calendar.
MNI FX OPTIONS: Expiries for Jan27 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0500(E729mln)
- USD/JPY: Y155.95-00($1.6bln)
- EUR/JPY: Y163.00(E565mln)
- AUD/USD: $0.6300(A$778mln)
- USD/CAD: C$1.4275($600mln)
- USD/CNY: Cny7.6000($2.1bln)
MNI US STOCKS: Late Equities Roundup: Semiconductor Makers, Travel Stocks Weighing
- Stocks are extending session lows late Friday, Information Technology sector shares leading the move as semiconductor stocks underperformed. Currently, the DJIA trades down 167.66 points (-0.38%) at 44395.4, S&P E-Minis down 23.75 points (-0.39%) at 6128, Nasdaq down 129.5 points (-0.6%) at 19923.88.
- The tech sector continued to underperform amid increased competition between high-end semiconductor makers for AI applications: Texas Instruments -7.43%, Microchip Technology -6.19%, Analog Devices -4.61%, ON Semiconductor Corp-3.82% and NXP Semiconductors NV-3.32%.
- A mix of travel and leisure stocks weighed on the Consumer Discretionary sector in the second half: Airbnb Inc-4.39%, Expedia Group Inc-3.87%, Norwegian Cruise Line Holdings -2.20%, Royal Caribbean Cruises Ltd-2.06%.
- On the positive side, Utility and Communication Services sectors continued to outperform in late trade, electricity and multi-energy providers supporting the former: NextEra Energy Inc +5.01%, Southern Co+1.87% and PG&E Corp +1.54%.
- Meanwhile, leading gainers in the Communication Services sector: Paramount Global+2.48%, Charter Communications Inc+1.86%, Walt Disney and Verizon Communications both up 1.47%.
- An increasing flood of corporate earnings are expected next week, starting off Monday with AT&T, Veradigm, SoFi Technologies, Nucor and Western Alliance Bank.
MNI EQUITY TECHS: E-MINI S&P: (H5) Approaching Key Resistance
- RES 4: 6200.00 Round number resistance
- RES 3: 6178.75 High Dec 6 and key resistance
- RES 2: 6163.75 High Dec 16
- RES 1: 6156.00 Intraday high
- PRICE: 6130.00 @ 15:15 ET Jan 24
- SUP 1: 6068.25/5961.75 High Jan 6 / 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 remains firm and the contract has traded higher this week. Gains undermine a recent bearish theme. The contract has traded through the 50-day EMA and note that resistance at 6107.50, the Dec 26 high, has been breached. The clear break strengthens a bullish theme and opens 6178.75, the Dec 6 high and a key resistance. Initial firm support to watch is 5961.75, the Jan 16 low.
MNI COMMODITIES: Precious Metals Rally, WTI Down 5% on Week
- Spot gold has risen by 0.7% on Friday to $2,775/oz, taking total gains this week to 2.7%
- Earlier in the session, the yellow metal traded close to its all-time high of $2,790/oz, buoyed by the pullback in the US dollar after President Trump’s comments that he would rather not put tariffs on China.
- The rally in gold this week strengthens a bullish theme and signals scope for an extension near-term, with sights on the Oct 31 all-time high.
- A break of this level would open the $2,800 handle, followed by $2,817.6, the 1.236 projection of the Nov 14 - Dec 12 - 19 price swing.
- Similarly, silver has rallied by 0.8% today to $30.7/oz, taking gains this week to around 1%.
- The metal is holding on to its latest gains, suggesting scope for a continuation near-term. An extension would expose key resistance at $32.338, the Dec 12 high.
- Crude jumped towards rangebound at the US close but is still down around 5% on the week.
- Overall pressure followed Trump’s comments that he wants OPEC to cut the price of oil and that a price cut will ‘stop the tragedy in Ukraine’. OPEC+ has yet to respond.
- WTI Mar 25 is down by 0.1% at $74.6/bbl.
- Support to watch is the 20-day EMA at $74.27, which has been pierced. A clear break would signal scope for a deeper retracement and expose the 50-day EMA, at $72.11.
MONDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 27/01/2025 | 0810/0910 |  EU | ECB's Lagarde Pre-Recorded lecture organised by Hungarian central bank | |
| 27/01/2025 | 1000/1100 | *** |  DE | IFO Business Climate Index |
| 27/01/2025 | 1400/1500 | ** |  BE | BNB Business Confidence |
| 27/01/2025 | 1500/1000 | *** |  US | New Home Sales |
| 27/01/2025 | 1530/1030 | ** | US | Dallas Fed manufacturing survey |
| 27/01/2025 | 1535/1635 | EU | ECB's Lagarde remarks at IHRD occasion | |
| 27/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 27/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 2 Year Note |
| 27/01/2025 | 1800/1300 | * | US | US Treasury Auction Result for 5 Year Note |
| 27/01/2025 | 1800/1300 | * | US | US Treasury Auction Result for 13 Week Bill |