HIGHLIGHTS
- Treasuries initially gapped lower after what appeared to be a hawkish hold was presented by the FOMC Wednesday.
- The Fed kept the federal funds target range at 4.25-4.5, while removing "progress" on combating inflation while leaving "remains somewhat elevated".
- The hawkish shift in the statement saw the US$ rebound near early session highs, while stocks extended lows as the prospect of lower rates moved further out the curve.
- Chairman Powell dispelled the initial hawkish take as he explained we "were just cleaning up the language: We took out a reference to since earlier in the year as it related to the labor market, and we just chose to to shorten that sentence."
- Treasuries gapped lower after the FOMC left the target rate steady at 4.25-4.5 but removed reference to making progress towards inflation reaching goal. Guidance unchanged. The apparent hawkish shift in the statement saw the US$ climb to near early session highs, while stocks extended lows as the prospect of lower rates moved further out the curve.
- Chairman Powell dispelled the initial hawkish take as he explained we "were just cleaning up the language: We took out a reference to since earlier in the year as it related to the labor market, and we just chose to to shorten that sentence."
- Stocks bounced off lows after Chairman Powell said "the Labor Market is not a source of significant inflationary pressures. Inflation is eased significantly over the past two years, but remains somewhat elevated relative to our 2% longer-run goal."
- Treasuries recovered to steady/mildly mixed as Powell stated "inter meeting data was good, and there was another inflation reading just before the December meeting. So we've got two good readings in a row that are consistent with 2% inflation. Again, we're not going to overinterpret, two good or too bad, readings, but this was not meant to send a signal."
- Cross asset update: BBG US$ index reversed initial gain to currently 1301.58 (+.39) vs. 1303.92 post FOMC; Gold well off lows (2757.14 -6.34); stocks pare losses with SPX Eminis at 6069.0 vs. 6042.25 low.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00127 to 4.31159 (-0.00382/wk)
- 3M +0.00386 to 4.29075 (-0.00909/wk)
- 6M +0.00719 to 4.23682 (-0.02224/wk)
- 12M +0.01158 to 4.15062 (-0.04828/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.35% (+0.01), volume: $2.283T
- Broad General Collateral Rate (BGCR): 4.34% (+0.02), volume: $888B
- Tri-Party General Collateral Rate (TGCR): 4.34% (+0.02), volume: $865B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $95B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $255B
FED Reverse Repo Operation
RRP usage inches up to $121.842B this afternoon from $112.760B yesterday. Compares to Monday's usage of $92.863B - the lowest level since mid-April 2021. The number of counterparties rises to 35 from 28 prior.
US SOFR/TREASURY OPTION SUMMARY
Treasury options dominated volumes leading up to today's FOMC policy announcement, turning mixed after the Fed held rates steady. Underlying futures trading modestly weaker, off FOMC lows, curves flatter (2s10s -1.263 at 32.067). Projected rate cuts through mid-2025 have receded vs. early Wednesday (*) levels as follows: Mar'25 at -5.1bp vs. -7.8bp, May'25 at -12.1bp vs. -15.4bp, Jun'25 at -23.5 vs. -26.5bp, Jul'25 at -29.0bp vs. -32.6bp.
SOFR Options:
-5,000 SFRN5 95.62/96.37 strangle 12.0 ref 96.015
Block, 5,000 SFRM5 95.87/96.00 call spds, 1.5 vs. 95.765/0.08%
-15,000 0QH5 96.62/97.12 1x2 call spds, 0.75 vs. 96.145/0.05%
+40,000 0QK5 96.31/96.50/96.62/96.93 broken call condors, 1.5 ref 96.125
+15,000 SFRZ5 97.00/0QZ5 97.50 call spds, 3.5
1,800 SFRH5 95.75/95.81/95.88 call flys ref 95.785
+5,000 2QH5 95.75/96.50 put over risk reversals, 1.0 vs. 96.08/0.36%
3,500 SFRM5/SFRU5 95.75/96.06 call spd spd
5,750 SFRN5 95.87/96.00/96.12 call flys ref 96.06
Treasury Options:
+10,000 TYH5 108.5 puts, 36
Block, 7,500 TYK5 112 calls, 23 vs. 108-31.5/0.13%
7,300 USH5 108 puts, 3 ref 114-01, total volume over 22,800
2,500 FVH5 108/108.75 1x2 call spds ref 106-15.25
1,500 USH5 107/109/111 put flys ref 114-04
-7,500 TYH5 109/109.25 strangles, 1-18 ref 109-04.5
+5,000 TYH5 106/107 put spds, 3 ref 109-07
-15,000 USH5 110 puts, 8, total volume over 16,700
+20,000 TUH4 102.5 puts, 3 appr 1.76 vo for 25bp OTM put that expires on Feb 21
+15,000 TYH5 110.5 calls, 16-17 ref 109-05 to -06
Block, 12,500 wk5 TY 109.5 calls, 10 ref 109-08.5
+70,000 wk5 10Y 109.5/110 call spds, 7 ref 109-07 (40k Block soon after -unwind)
Adds to Block: 36,000 FVH5 106/107.5 put over risk reversals
Block, +45,000 FVH5 106/107.5 put over risk reversals, 4.5 vs. 106-19.25//0.51%
1,000 TYH5 107/107.5/108.5 1x3x2 broken put flys
+2,500 TYH5 103/104.5/107 broken put flys, 5 ref 109-06.5
3,000 TYH5 106/107 put spds ref 109-07.5
-1,500 FVH5 107.75 calls, 7 vs. 106-19.25/0.17%
+3,500 TYH5 108 puts, 16 ref 109-07
-3,500 TYJ5 106 puts, 10 ref 109-05
MNI BONDS: EGBs-GILTS CASH CLOSE: Early Yield Drop Reverses On Higher Energy Prices
European core yields saw an early drop reverse late in the session, leaving them a little higher Wednesday.
- Bunds and Gilts strengthened after an overnight trade, in line with a US Treasury rally that kicked off late Tuesday after a solid 7Y bond auction.
- However, a rise in European natural gas prices to 15-month highs amid supply issues and lower temperature forecasts in the region, applied pressure on the space toward the cash close.
- Spanish Q4 GDP came in firmer-than-expected; UK Chancellor Reeves' policy speech was longer-term focused, with little in the way of short-term implications or market movement.
- The German curve bear steepened modestly, with the UK's bear flattening.
- Periphery EGB spreads tightened. OATs underperformed the rest of the space, with spreads widening rift amid discord between the French government and Socialists.
- Focus after hours is on the Federal Reserve decision and communications, and of course Thursday sees the ECB decision (a 25bp cut remains nearly 100% priced - MNI's preview is here). We also get Spanish January flash inflation data (MNI's Eurozone inflation preview went out today, PDF here).
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 0.6bps at 2.278%, 5-Yr is up 1.6bps at 2.381%, 10-Yr is up 1.8bps at 2.583%, and 30-Yr is up 2.4bps at 2.804%.
- UK: The 2-Yr yield is up 2.1bps at 4.331%, 5-Yr is up 1.5bps at 4.325%, 10-Yr is up 0.8bps at 4.622%, and 30-Yr is up 0.3bps at 5.177%.
- Italian BTP spread down 1.6bps at 107.9bps / French OAT up 2.5bps at 74.6bps
MNI EGB OPTIONS: Heavy Euribor Upside Ahead Of ECB Decision
Wednesday's Europe rates/bond options flow included:
- ERM5 98.12/98.25cs, bought for half in 79.5k total. (Said to be some positioning.)
- ERM5 98.00/98.12/98.25c fly, bought for 1.25 in 20k
- ERM5 98.25/98.37 call spread paper paid 0.25 on 10K.
- ERM5 97.75/97.875/98.00c fly vs 98.00/98.125/98.25/98.375c condor, bought the condor for 0.25 in 8k.
- ERM5 97.875/98.00/98.125/98.25c condor vs 97.5625/97.4375ps, bought the condor for 0.75 in 2k.
- ERM5 97.8125/97.9375cs, sold at 3.75 in 4
- SFIM5 96.00/96.50/97.00c fly sold at 4.5 down to 4.25 in 2.5k
MNI FOREX: USD Index Steady as Fed Keeps Guidance Unchanged
- The USD index has broadly continued to consolidate its short-term recovery from the Monday lows on Wednesday. The greenback had a brief pop on the release of the Fed statement, where the FOMC decided to remove the reference to inflation making progress towards the goal, despite it remaining somewhat elevated.
- However, Chair Powell explained that this was merely “cleaning up the language” and was not intended to send a signal. The US dollar quickly pared gains across the board, and has settled close to unchanged levels from pre-announcement.
- Overall, AUDUSD remains the weakest in G10 following a softer Q4 CPI print overnight, that has firmed up market pricing for a February rate cut from the RBA. A brief spell of equity weakness also weighed on the Aussie, prompting AUDUSD to print a 0.6210 low. The pair looks set to extend its losing streak to three sessions, having held firm resistance at the 50-day EMA late last week. A continuation lower for AUDUSD, would bring the focus back on 0.6131, the Jan 13 low and the bear trigger.
- For the majors, EURUSD has held a relatively contained range post-Fed, unable to breach the early European highs around 1.0430, as markets have one eye on the ECB decision and press conference tomorrow, and initial Eurozone inflation data scheduled across the following two sessions.
- For USDJPY, 155.00 is providing some short-term support, as markets continue to trade in a more stable manner following the DeepSeek induced selloff on Monday. A short-term technical bear threat still remains present.
- Alongside the ECB on Thursday, US Q4 growth data takes focus on the economic calendar, with annual GDP expected to come in at 2.7%.
MNI OPTIONS: Expiries for Jan29 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0400(E918mln), $1.0420-30(E1.2bln), $1.0450(E668mln), $1.0500(E1.3bln)
- USD/JPY: Y154.00($627mln), Y154.75($700mln), Y155.00($1.4bln), Y156.00($544mln)
- USD/CAD: C$1.4500($1.1bln)
- USD/CNY: Cny7.2800($600mln)
MNI US STOCKS: Late Equities Update: Off Lows
- Stocks remain weaker as Fed Chairman Powell continues to read prepared statement.
- Indexes bounced off lows after Chairman Powell said "the Labor Market is not a source of significant inflationary pressures. Inflation is eased significantly over the past two years, but remains somewhat elevated relative to our 2% longer-run goal."
- Tech stocks continue to weigh on major averages while Consumer Staples, Utilities and Financial stocks outperform.
- With this week's DeepSeek-induced equity volatility, we anticipate reports from Meta, Microsoft and Tesla will come under greater scrutiny after-market today, through increased focus on Capex and expectations for AI revenues this year. While a direct comment on DeepSeek is highly unlikely, the boards will be cognizant of the risk of sizeable AI spending announcements being received poorly by an already sensitive investor base.
- These are the messaging points that could change, or come under focus at today's reports:
- Meta Platforms (Facebook): "Meta plans to grow AI teams "significantly", Llama AI has ~600mln monthly active users and the company sees $1-2bln additional revenues via LLM licensing. Reality Labs (incorporating Meta's AI research Lab) still likely to post sizeable annual loss of ~$20bln. Capex for 2024 was running at $24.4bln YTD as of the Oct30 earnings call.
- Microsoft: Street sees ~$6-9bln generative AI revenue for 2024. OpenAI last valued at $157bln, which generates 70% of their $3.7bln annual sales via ChatGPT subscriptions. Capex at $20bln for Q1'25 (as of Oct30) to support cloud and AI offerings.
- Tesla: "we expect our hardware-related profits to be accompanied by an acceleration of AI, software and fleet-based profits". Capex quarterly run rate at $3.5bln for Q3'24.
MNI EQUITY TECHS: E-MINI S&P: (H5) Trend Structure Remains Bullish
- 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: 6162.28 High Jan 24
- PRICE: 6068.00 @ 1515 ET Jan 29
- SUP 1: 6013.75 50-day EMA
- SUP 2: 5961.75/5948.00 Low Jan 16 / 27
- SUP 3: 5943.94 61.8% retracement of the Jan 13 - 24 bull leg
- SUP 4: 5892.37 76.4% retracement of the Aug 5 - Dec 6 bull leg
The S&P E-Minis contract remains above Monday’s low. Key short-term support to watch lies at 5961.75, the Jan 16 low (pierced). For now, the recent sharp pullback appears corrective, however, a clear breach of 5961.75 would strengthen a bearish threat and signal scope for a deeper retracement, towards 5943.94, a Fibonacci retracement. Key resistance is 6178.75, the Dec 6 high.
MNI COMMODITIES: Crude Remains Under Pressure, Spot Gold Pares Losses
- WTI is trading lower today and was largely unmoved by the Fed’s decision to hold rates unchanged. Stronger focus is on the US inventory builds.
- WTI Mar 25 is down by 1.1% at $72.9/bbl.
- The move lower in WTI futures this week has resulted in a breach of the 20-day EMA, turning attention to support around the 50-day EMA, at $72.24. A clear break of this average would open $68.05, the Dec 20 low.
- Meanwhile, spot gold has pared losses as Fed Chairman Powell says in his press conference that the removal of the reference to inflation progress wasn’t meant to send any signal.
- The yellow metal is currently down by 0.3% at $2,756/oz.
- A bull cycle in gold is still in play, with sights on $2,790.1, the Oct 31 all-time high.
- On the downside, the first key support to watch is $2,678.1, the 50-day EMA.
- Silver has outperformed today, with the precious metal rebounding by 1.3% to $30.8/oz, leaving the gold-silver ratio 2.5% below the 12-month high reached earlier this week.
- For silver, a bear cycle remains in play and recent gains are considered corrective. However, the latest move higher does suggest scope for a continuation near-term, with key resistance seen at $32.338, the Dec 12 high.
THURSDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 30/01/2025 | 0630/0730 | ** |  FR | Consumer Spending |
| 30/01/2025 | 0630/0730 | *** | FR | GDP (p) |
| 30/01/2025 | 0700/0800 | ** |  SE | Retail Sales |
| 30/01/2025 | 0700/0800 | ** |  DE | Import/Export Prices |
| 30/01/2025 | 0800/0900 | ** | SE | Economic Tendency Indicator |
| 30/01/2025 | 0800/0900 | *** |  ES | HICP (p) |
| 30/01/2025 | 0800/0900 | ** |  CH | KOF Economic Barometer |
| 30/01/2025 | 0900/1000 | *** |  IT | GDP (p) |
| 30/01/2025 | 0900/1000 | *** | DE | GDP (p) |
| 30/01/2025 | 0930/0930 | ** |  GB | BOE M4 |
| 30/01/2025 | 0930/0930 | ** | GB | BOE Lending to Individuals |
| 30/01/2025 | 1000/1100 | ** |  EU | Unemployment |
| 30/01/2025 | 1000/1100 | * | EU | Consumer Confidence, Industrial Sentiment |
| 30/01/2025 | 1000/1100 | *** | EU | EMU Preliminary Flash GDP Q/Q |
| 30/01/2025 | 1000/1100 | *** | EU | EMU Preliminary Flash GDP Y/Y |
| 30/01/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 30/01/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 30/01/2025 | 1315/1415 | *** | EU | ECB Deposit Rate |
| 30/01/2025 | 1315/1415 | *** | EU | ECB Main Refi Rate |
| 30/01/2025 | 1315/1415 | *** | EU | ECB Marginal Lending Rate |
| 30/01/2025 | 1330/0830 | * |  CA | Payroll employment |
| 30/01/2025 | 1330/0830 | *** |  US | Jobless Claims |
| 30/01/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 30/01/2025 | 1330/0830 | *** | US | GDP |
| 30/01/2025 | 1345/1445 | EU | ECB Governing Council Meeting press conference | |
| 30/01/2025 | 1500/1000 | ** | US | NAR Pending Home Sales |
| 30/01/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 30/01/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 30/01/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 31/01/2025 | 2330/0830 | * |  JP | Labor Force Survey |
| 31/01/2025 | 2330/0830 | ** | JP | Tokyo CPI |
| 31/01/2025 | 2350/0850 | ** | JP | Industrial Production |
| 31/01/2025 | 2350/0850 | * | JP | Retail Sales (p) |
| 31/01/2025 | 0030/1130 | * |  AU | Producer price index q/q |