HIGHLIGHTS
- Treasuries look to finish inside narrow, lower range Thursday, unwinding some of the midweek rally ahead of Friday's headline employment report for January.
- Little reaction in US markets to the Bank of England lowering rates by an expected 25bp but raising forward inflation guidance sharply.
- Equity markets also held to narrow ranges ahead of Friday's data, the DJIA lagging mild gains in S&P Eminis and Nasdaq indexes.
- The Greenback looks to finish near steady after climbing off yesterday's lows, the BBG US$ index at 1297.58 at the bell vs. 1302.43 high. Post-BOE, the GBPUSD fell sharply back below the 1.24 handle.
- Pres Trump/GOP discussion on taxes included TCJA, various tax eliminations, corporate tax cuts for domestic producers.
MNI US TSYS: Markets Cling to Narrow Ranges Ahead Friday January Employment Data
- Treasuries hold to lower, narrow ranges late Thursday, scaling back some of the midweek rally that saw Mar'25 10Y futures climb to the highest level since prior to the December 18 FOMC announcement. Markets held ranges amid moderate two-way position squaring heading into Friday's headline employment data for January that is expected to slow to 170-180k from December’s strong 256k.
- Little react to BOE cutting rates by expected 25bp but raising forward inflation guidance sharply. Initial jobless claims were higher than expected at 219k (sa, cons 213k) in the week to Feb 1 after an upward revised 208k (initial 207k). Unit labor costs rose by less than had been expected in Q4 2024, with the 3.0% Q/Q SA annualized rise (3.4% survey).
- After the bell, Mar'25 10Y futures trade -6 at 109-18 (109-14 low/109-25 high), well inside technicals: resistance above at 109-30 (61.8% retracement of the Dec 6 - Jan 13 bear leg); support below at 108-20.5 (Low Feb 4). 10Y yld at 4.4382% +.0201.
- The Greenback looks to finish near steady after climbing off yesterday's lows earlier, the BBG US$ index at 1297.58 at the bell vs. 1302.43 high. Post-BOE, the GBPUSD fell sharply back below the 1.24 handle.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00228 to 4.31014 (-0.00292/wk)
- 3M -0.00456 to 4.29735 (-0.00490/wk)
- 6M -0.01227 to 4.24683 (-0.00148/wk)
- 12M -0.02820 to 4.16057 (+0.00027/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.33% (+0.00), volume: $2.343T
- Broad General Collateral Rate (BGCR): 4.31% (+0.00), volume: $910B
- Tri-Party General Collateral Rate (TCR): 4.31% (+0.00), volume: $895B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $104B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $281B
FED Reverse Repo Operation
RRP usage inches up to $79.983B this afternoon from yesterday's new low of $78.788B - the lowest level since mid-April 2021. The number of counterparties bounces to 38 from 28 prior.
US SOFR/TREASURY OPTION SUMMARY
More moderate SOFR & Treasury option volumes reported Thursday, SOFR seeing a rise in upside calls in the second half while Treasurys continued to rotate around better downside puts and vol sales ahead of Friday's headline employment data for January. Underlying futures near midrange for the day after scaling back some of the midweek post-data rally (TYH5 neared Dec 18 pre-FOMC lvls). Projected rate cuts through mid-2025 consolidate vs. late Wednesday levels (*) as follows: Mar'25 at -3.9bp (-4.2bp), May'25 at -10.1bp (-11.9bp), Jun'25 at -20.3bp (-22.7bp), Jul'25 at -26.1bp (-29.1bp).
SOFR Options:
-15,000 0QG5 96.12 puts, 8.75 to 8.0
+4,000 SFRN5 96.50/97.00 call spds, 3.75 vs. 95.995/0.10%
Update +40,000 SFRM5 96.12/96.37 call spds, 2.5 vs. 95.88 to -.8855/0.10%
+4,000 SFRH5 95.87 calls, 1.5 vs. 95.725/0.17%
+5,000 0QH5 95.68/95.93 put spds, 4.75 ref 96.12
Post data: +15,000 SFRM5 96.12/96.37 call spds, 2.5 vs. 95.885/0.10%
5,000 SFRN5 95.56/95.75/95.93 put flys, 5.5 ref 96.00 to -.005
Block, 2,500 SFRG595.50/95.62/95.75/95.87 put condors 11.0 ref 95.73
2,600 SFRM5 95.81/94.93/96.00 broken call flys ref 98.89
3,750 0QH5 95.62/95.93 put spds, 5.5 ref 96.13 to -.125
1,750 SFRK5 95.62/95.75/95.81/95.87 broken put condors ref 95.89
8,000 SFRJ5 95.68/95.81 put spd vs. SFRM5 95.75/95.87 put spd spd, 2.75 cr/June over ref 95.895
Treasury Options:
1,300 TYH5 107/107.5/109 5x1x1 broken put trees ref 109-18.5
+10,000 TYH5 109 puts, 24
Block/screen, -15,000 TYH5 109.5 straddles, 113 ref 109-24
5,000 TYH5 110.5/111.5/112.5 1x2x2 call trees
over 10,000 TYH5 106/107 put spds ref 109-22 to -22.5
5,000 TYH5 111/113 call spds ref 109-18
2,500 USH5 111 puts, 5 ref 115-30
4,000 wk2 FV 106/106.25 put spds, ref 106-22.5 (exp Feb 14)
over 4,000 FVH5 106.5 puts
2,000 TYH5 107.5/108.5 2x1 put spds ref 109-17.5
over 5,000 TYH5 110/111 call spds ref 109-17.5
1,600 TYH5 107.5 puts, 4 ref 109-21
+10,000 TYH5 108 puts, 8 total volume over 11.6k
+13,000 wk1 TY 110.25 puts, 44
MNI BONDS: EGBs-GILTS CASH CLOSE: Gilts Underperform Alongside BoE Reappraisal
Core European curves bear steepened Thursday, reversing some of the prior session's flattening.
- Gilts outperformed core EGBs ahead of the Bank of England decision, with the space as a whole weighed down by supply pressure (French/Spanish bond auctions), a risk-on move in equities, and solid German factory order data.
- The BoE decision appeared to vindicate the move as it brought an immediate dovish reaction with MPC member Mann surprisingly dissenting in favour of a 50bp cut vs the 25bp delivered (joining dove Dhingra).
- However that proved temporary, with a bearish reversal following the decision \as the details were digested, including as closer inspection of the Bank's higher-than-expected inflation projections, while Gov Bailey noted uncertainty over future cuts.
- For the day, Gilts underperformed Bunds, with both curves bear steepening.
- Periphery EGB spreads tightened, benefiting from European equities reaching fresh record highs.
- Friday's calendar includes appearances by BOE's Pill and ECB's Guindos.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 0.2bps at 2.059%, 5-Yr is up 1.1bps at 2.166%, 10-Yr is up 1.3bps at 2.379%, and 30-Yr is up 1.3bps at 2.612%.
- UK: The 2-Yr yield is up 2.4bps at 4.174%, 5-Yr is up 5.1bps at 4.175%, 10-Yr is up 4.7bps at 4.484%, and 30-Yr is up 3.8bps at 5.061%.
- Italian BTP spread down 1.8bps at 106.7bps / French OAT unchanged at 71.6bps
MNI OPTIONS: Plenty Of Sonia Trade Pre and Post BOE Decision
Thursday's Europe rates/bond options flow included:
- ERM5 98.375/98.50cs vs 97.625/97.50ps, bought back the ps for 0.75 in 28k
- ERM5 97.875/98.00/98.125/98.25c condor vs 97.75/97.625ps, bought the condor for 2 in 4k.
- ERU5 9825/98.50/98.75c fly bought for 2.5 in 2k.
- SFIH5 95.60/95.80/96.00c fly sold at 6 in 10k (pre-BoE)
- SFIJ5 96.15/96.25cs, bought for 1.5 in 5k. (pre-BoE)
- SFIK5 95.70/95.60/95.55/95.45 put condor, ppr sells 12k at 0.75
- SFIM5 95.80/95.60/95.40p fly, bought for 3.5 in 12.55k, around 20k in the past 2 sessions. (pre-BoE)
MNI FOREX: GBPJPY Approaches December Lows Following BOE Decision
- Two things have weighed on GBP on Thursday, which is among the poorest performers in G10. A particularly soft UK Construction PMI set the initial tone (48.1 vs. Exp. 53.5), underpinning the sensitivity around growth and the near-term trajectory of the UK economy. Secondly, two dissenting votes for a bolder 50bp rate cut from the BoE’s MPC provided a moderately dovish surprise and spurred an extension of sterling weakness.
- This saw GBPUSD fall sharply back below the 1.24 handle, but given the recent focus on developing Yen strength, GBPJPY weakness was in the spotlight, having depreciated back below 190.00 and piercing the January lows at 189.34.
- Bearish momentum has been building for this cross since the start of the year, where fiscal worries prompted a clean break of trendline support around 195.00, a level we have not been back above since. The cross narrowed the gap to within 16 pips of the December low (188.09), before recovering amid some underlying hawkish details within the BOE minutes.
- Elsewhere, EURUSD’s firm rejection of the 50-day EMA on Wednesday keeps bearish momentum for EURJPY at the forefront of G10 FX sentiment, with the cross printing fresh recent lows of 157.24 on Thursday.
- A more hawkish BOJ narrative and ongoing growth concerns in the Eurozone have provided headwinds, and losses now tally around 3.2% on the year. 156.18, is a key support, the Dec 3 low. The USDJPY trend needle points firmly south, with spot currently residing below 152.00, down half a percent on the session.
- All focus turns to January’s US employment report, which will receive almost as much attention for comprehensive revisions as for the monthly nonfarm payroll gains, which are expected to slow to 170-180k from December’s strong 256k.
MNI US STOCKS: Late Equities Roundup: Reversing Early Gains Ahead Earnings, NFP
- Stocks broke narrow ranges late Thursday, SPX Eminis and Nasdaq indexes trading mildly weaker for the first time all day, while the DJIA pared losses. Late session moves likely position squaring ahead of another round of earnings after the bell, not to mention Friday morning's headline January employment data.
- Currently, the DJIA trades 242.86 points (-0.54%) at 44632.73, S&P E-Minis down 5 points (-0.08%) at 6081.75, Nasdaq down 6.2 points (0%) at 19685.19.
- Energy and Health Care sectors continued to underperform in late trade: Valero Energy -4.76%, Baker Hughes -4.52% and Marathon Petroleum -3.89%. In Health Care, Molina declined 10.89% after missing earnings estimates on higher costs, Hologic -10.78% after several downgrades, while Becton Dickenson declined -6.87%.
- On the positive side, Financials and Consumer Staples sectors continued to lead gainers in late trade, banks and financial services shares supporting the former: Citigroup +2.74%,Wells Fargo and JP Morgan +1.18%, Bank of America +0.83%. On Financial services: Intercontinental Exchange rallied 4.15%, Invesco +2.54%.
- Food, beverage & tobacco shares buoyed the Consumer Staples sector: Philip Morris +10.02% on strong sales of nicotine pouch Zyn, Hershey gained 4.91% while Campbell's gained 1.05%.
- Earnings expected after today's close include: Monolithic Power Systems, Take-Two Interactive Software, Cloudflare Inc, Illumina Inc, Expedia Group Inc, Pinterest, Mohawk Industries, Skechers USA, Fortinet, Amazon and Microchip Technology.
MNI EQUITY TECHS: E-MINI S&P: (H5) Continues To Trade Below Key Resistance
- RES 4: 6178.75 High Dec 6 and key resistance
- RES 3: 6162.25 High Jan 24
- RES 2: 6147.75 High Jan 31
- RES 1: 6106.25 Intraday high
- PRICE: 6101.00 @ 14:33 GMT Feb 6
- SUP 1: 6025.21/5935.50 50-day EMA / Low Feb 3
- SUP 2: 5892.37 76.4% retracement of the Aug 5 - Dec 6 bull leg
- SUP 3: 5842.50 Low Jan 14
- SUP 4: 5809.00 Low Jan 13 and a key resistance
Monday’s initial sell-off in the S&P E-Minis contract and a breach of support at 5948.00, the Jan 27 low, continues to highlight a possible short-term reversal threat. If correct, it suggests that the latest bounce is a correction. A resumption of weakness would open 5892.37, a Fibonacci retracement point. On the upside, a stronger rally would expose key resistance at 6178.75, the Dec 6 high.
MNI COMMODITIES: Crude Extends Losses, Gold Bull Wave Remains Intact
- Oil prices have fallen further today, as President Trump’s plan to squeeze Iranian exports clashes with his vows to lift production. The two opposing forces have seen WTI struggle for direction.
- WTI Mar 25 is down by 0.6% at $70.6/bbl.
- Donald Trump could ultimately prove to be a bearish influence on the oil market, Citigroup said, with a forecast of $60-65/bbl through H2 2025.
- Recent weakness in WTI futures marks an extension of the current corrective cycle. Price has fallen below the 50-day EMA at $72.20, suggesting scope for a deeper retracement towards $68.05, the Dec 20 low.
- Meanwhile, Henry Hub is on track for gains, with falling temperatures in the coming week and an average-level stock draw last week offsetting strong production figures.
- US Natgas Mar 25 is up 1.6% at $3.41/mmbtu.
- Spot gold has fallen by 0.6% on Thursday to $2,851/oz, leaving the yellow metal ~$31 below yesterday’s fresh record high.
- Despite this, a bull cycle remains in play, and Citi analysts see gold hitting $3,000 within three months due to geopolitical tensions and trade wars.
- From a technical perspective, sights are on $2,889.9 next, a Fibonacci projection, followed by round number resistance at the $2,900 level.
FRIDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 07/02/2025 | 0700/0800 | ** |  DE | Trade Balance |
| 07/02/2025 | 0700/0800 | ** | DE | Industrial Production |
| 07/02/2025 | 0745/0845 | * |  FR | Foreign Trade |
| 07/02/2025 | 0745/0845 | FR | Wages Data for Q4 | |
| 07/02/2025 | 0800/0900 | ** |  ES | Industrial Production |
| 07/02/2025 | 0845/0945 |  EU | ECB's De Guindos remarks in 'VI Encuentro Economico-Asegurador' conference | |
| 07/02/2025 | 1215/1215 |  GB | BOE's Pill at National MPC Agency briefing | |
| 07/02/2025 | - | EU | ECB to publish report on R* | |
| 07/02/2025 | 1330/0830 | *** |  CA | Labour Force Survey |
| 07/02/2025 | 1330/0830 | *** |  US | Employment Report |
| 07/02/2025 | 1425/0925 | US | Fed Governor Michelle Bowman | |
| 07/02/2025 | 1500/1000 | ** | US | Wholesale Trade |
| 07/02/2025 | 1500/1000 | ** | US | U. Mich. Survey of Consumers |
| 07/02/2025 | 1700/1200 | US | Fed Governor Adriana Kugler | |
| 07/02/2025 | 2000/1500 | * | US | Consumer Credit |