HIGHLIGHTS
- Treasuries gapped higher after lower than expected PPI inflation data, but quickly pared back from highs as most PCE components were on the soft side.
- Inside ranges for Tsys and stocks amid two-way positioning ahead of Wednesday's headline CPI inflation data, rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December.
- Banks kick off the latest earnings cycle tomorrow: Blackrock, Bank of NY Melon, Wells Fargo, JP Morgan, Goldman Sachs, Citigroup, followed by M&T Bank, US Bancorp, Morgan Stanley and PNC on Thursday.
MNI US TSYS: Tsys Bid But Well Off PPI Highs in Lead-Up to CPI Wednesday
- Treasuries are holding mildly higher levels after the bell, well off this morning's post-PPI data highs as as markets delved into the PPI details where most PCE components were on the soft side with the notable exception of airfares, which typically jump in December.
- The Mar'25 10Y contract trades +3 at 107-10.5 after the bell compared to 107-18.5 post data high - well below initial technical resistance at 108-21.5/109-06 (20-day EMA / High Dec 31). Curves bull steepened on the day: 2s10s +2.715 at 42.358, 5s30s +2.558 at 38.859.
- Focus turns to tomorrow's headline CPI inflation data for December where rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December. Core goods inflation will be closely looked at amidst heavy focus on potential tariffs under the second Trump administration but also with a further near-term dampening factor from continued US dollar appreciation.
- Analysts look for core goods inflation between 0.2-0.3% M/M after it accelerated to 0.31% M/M in Nov for a 19-month high. That was the third consecutive monthly increase in core goods prices after sequential deflation in 14 of the previous 15 months.
- Scheduled Fed speakers for Wednesday include Richmond Fed Barkin at 0920ET (text, Q&A), MN Fed Kashkari fireside chat at 1000ET (no text, Q&A), NY Fed Williams keynote address CBIA eco-summit at 1100ET (text, Q&A) and Chicago Fed Goolsbee Midwest economics forum at 1200ET (no text, Q&A). Fed Beige Book is released at 1400ET.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00107 to 4.30517 (+0.00263/wk)
- 3M +0.00560 to 4.30758 (+0.02057/wk)
- 6M +0.01685 to 4.29626 (+0.05168/wk)
- 12M +0.03303 to 4.27781 (+0.09948/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.29% (-0.01), volume: $2.211T
- Broad General Collateral Rate (BGCR): 4.28% (-0.01), volume: $852B
- Tri-Party General Collateral Rate (TGCR): 4.28% (-0.01), volume: $837B
- (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: $306B
FED Reverse Repo Operation
RRP usage retreats to $160.219B this afternoon from $183.669B on Monday. Compares to $98.356B on Friday, December 20 - the lowest level since mid-April 2021. The number of counterparties rises to 59 from 51.
US SOFR/TREASURY OPTION SUMMARY
Mixed trade on net with SOFR options leaning toward puts as underlying futures scaling off of this morning's knee-jerk rally, huge Mar'25 10Y call buying: nearly 130,000 108.5 OTM calls. Projected rate cuts through mid-2025 continue to retreat, current vs. late Friday levels* as follows: Jan'25 steady at -0.7bp, Mar'25 at -5.8bp (-4.9bp), May'25 -10.2bp (-9bp), Jun'25 -17.9bp (-16.5bp), Jul'25 at -21.2bp (-18.7bp).
SOFR Options:
+8,000 SFRZ5 95.87/96.37/96.87 call flys 7.0 ref 95.895
-8,000 0QG5 95.62/96.12 strangle 11.5-11.0 ref 95.88
+3,000 SFRM5 95.81/95.93/96.18 2x3x1 call flys 3.0 ref 95.835
+15,000 0QK5 94.75/95.00 put spds, 2.0 vs. 95.905/0.05%
+10,000 SFRU5 95.50/95.75/96.00 put flys, 6.5
+15,000 SFRZ5 95.37/95.62/95.87 put flys, 5.5-5.75 ref 95.895
+5,000 SFRM5 95.87/96.31 call spds 8.0 ref 95.835
+4,000 SFRG5 95.62/95.68/95.75 put flys 3.0 ref 95.74
+5,000 SFRZ5 95.37/95.62/95.87 put flys 5.5 ref 95.875
8,000 SFRZ5 96.50/97.50 call spds
1,500 SFRH5 95.68/95.75/95.81 put flys ref 95.735
10,800 SFRG5 95.62/95.75 put spds ref 95.735
3,200 SFRJ5 95.62/95.75/95.81/95.88 broken put condors
3,200 SFRU5 95.87 puts vs. 95.87/96.12 call spds
7,000 SFRJ5 95.50/95.56 put spds ref 95.835
2,000 SFRM5 95.37/95.62 put spds ref 95.835
-3,500 SFRU5 95.00/95.75 2x1 put spds, 12.0 ref 95.885
Treasury Options:
Update: over 128,600 TYH5 108.5 calls 27-29
2,500 TYG5 109.25/110.75/111 broken call trees
Another +38,000 TYH5 108.5 calls, 27 ref 107-09 - puts total volume over 109.7k
5,600 TYG5 108 calls, 13 ref 107-09.5, total volume over 26k
+50,000 TYH5 108.5 calls, 27 vs. 107-08.5/0.31%, total volume just over 57,000 - exceeding open interest of 31,317 coming into the session
2,000 USH5 115/117 call spds 12 ref
over 10,800 Wednesday wkly 10Y 106.75 puts, 4 ref 107-10
1,100 USJ5 110/112/114 put flys
2,250 FVG5 106.25/106.75/107.50 broken call flys
2,000 TYJ5 107/107.5 put spds ref 107-14
4,500 TYG5 107 puts
+10,000 TYG5 108 calls, 16 vs. 107-15/0.32%
MNI BONDS: EGBs-GILTS CASH CLOSE: Pressure Continues
Bunds underperformed Gilts Tuesday, ahead of inflation data Wednesday.
- After a constructive start, regional FI softened amid EGB supply, oil prices and equities moving off lows, and continued questions surrounding French and UK politics and fiscal policy.
- A softer-than-expected US producer price report saw yields briefly hit session lows before retracing higher over the course of the day.
- The German curve leaned bear steeper on the day, with the belly underperforming overall as yields hit fresh multi-month highs across the curve, while the UK curve was mixed.
- Periphery/semi-core spreads were flat/tighter, with OAT/Bund roughly steady through new French Prime Minister Bayrou's policy address.
- Focus early Wednesday is on UK December CPI (MNI's preview here), with consensus eyeing a downtick in Y/Y core and services inflation; later we hear from BoE's Taylor, while US CPI is the main global event later in the session.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 2.6bps at 2.319%, 5-Yr is up 6.6bps at 2.462%, 10-Yr is up 3.9bps at 2.652%, and 30-Yr is up 4.6bps at 2.856%.
- UK: The 2-Yr yield is up 0.4bps at 4.605%, 5-Yr is up 1.1bps at 4.613%, 10-Yr is up 0.4bps at 4.889%, and 30-Yr is up 1.1bps at 5.449%.
- Italian BTP spread down 2.2bps at 118.8bps / French OAT down 1.4bps at 83.1bps
MNI EGB OPTIONS: Large Sonia Call Spread Buying Tuesday
Tuesday's Europe rates/bond options flow included:
- RXG5 125.5p, bought for 1 in 2.2k
- RXH5 135/136cs bought for 4.5 in 7.5k
- ERM5 97.625/97.75/97.875c fly vs 97.4375/97.3125ps, bought the fly for 0.25 and half in 9k.
- SFIM5 95.75/96.00cs, bought for 6.75 in 24k.
- SFIM5 95.70/96.00cs, bought for 8.75 and 9 in 20.5k
- SFIZ5 96.35/97.00cs x3 vs 95.60p x1, bought the cs for -2 in 10k total.
- SFIZ5 95.90/96.05 call spread, bought for 6 in 15k
- 0NM5 96.00/96.20/96.30/96.40c condor, bought for 4.25 in 10k.
MNI FOREX: Dollar Index Pulls Back 0.5%, EURGBP Prints Four-Month High
- The ICE USD index sits half a percent lower on the session Tuesday, as the greenback extends a moderate retreat ahead of the key CPI data tomorrow. Softer-than-expected PPI data helped the greenback consolidate overnight weakness, with higher long-end US yields and lower equities unable to support the dollar.
- It is clear that the Fed will hold in January, with the first plausibly “live” meeting not until March. But with pricing having shifted so quickly away from 2025 cuts, it’s a good juncture to assess whether markets have gotten too hawkish, with the greenback potentially vulnerable to a deeper correction.
- Price action has seen EURUSD briefly climb back to the 1.0300 handle, rising 0.5% on the session. Higher German yields have been supportive of the single currency at the margin, further evidenced by EURGBP rising to a 4-month high of 0.8451.
- As noted, a sustained breach of 0.8448 resistance would signal scope for a move towards 0.8494, the August 26 high. Separately, the August highs reside at 0.8625, which could garner attention should UK fiscal concerns/uncertainty deteriorate further. Both the 20-day and 50-day EMA’s represent initial support for the cross, currently intersecting around 0.8325. UK CPI is due early Wednesday.
- Overall, broad pressure on core fixed income continues to weigh on the Japanese yen, with EURJPY extending its intra-day advance to 0.8% and now 260 pips above the Monday lows around the psychological 160.00 mark. USDJPY has also risen back to 158.00, as market participants continue to weigh rhetoric from Japanese officials ahead of the January BOJ decision.
MNI US STOCKS: Late Equities Roundup: Second Half Recovery, Banks Up Ahead Earnings
- Stocks have recovered from midday lows and are making moderate gains in late trade - still off this morning's post-data knee-jerk highs as accounts square risk and migrate to the sidelines ahead of Wednesday's key CPI inflation data.
- Currently, the DJIA trades up 206.18 points (0.49%) at 42504.32, S&P E-Minis up 20 points (0.34%) at 5894, Nasdaq up 46.2 points (0.2%) at 19133.11.
- Utilities continue to outperform while Financial sector shares have gained momentum in the second half. Independent power and electricity providers rebounded after Monday's selling: Vistra +4.91%, Constellation Energy +3.09%, NRG Energy +2.42%.
- Banks and financial services shares led gainers in the second half - taking some risk with banks kicking off the latest earnings cycle tomorrow: Blackrock, Bank of NY Melon, Wells Fargo, JP Morgan, Goldman Sachs, Citigroup, followed by M&T Bank, US Bancorp, Morgan Stanley and PNC on Thursday.
- Leading gainers included Citizens Financial +3.74%, Huntington Bancshares +2.81, Fifth Third +2.8% and Discover Financial Services +2.64%.
- On the flipside, Health Care and Communication Services continued to underperform in late trade. Pharmaceuticals weighed on the Health Care sector: Eli Lilly -6.5% after phase 1 trials of it's weight loss drug were terminated, Charles River Labs -5.35%, Biogen -3.64% and Moderna -2.87%.
- Interactive media and entertainment shares weighed on the Communication Services sector: Meta -1.83% amid reports of staff reductions of lowest 5% performers, Netflix -0.62%, Alphabet -0.32%.
MNI EQUITY TECHS: E-MINI S&P: (H5) Bear Threat Still Present
- 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: 5991.72 50-day EMA and a pivot resistance
- PRICE: 5902.50 @ 14:29 GMT Jan 14
- SUP 1: 5809.00 Low Jan 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 and short-term gains are considered corrective - for now. The reversal from the Dec 26 high, confirms the end of the Dec 20 - 26 correction. 5866.00, the Dec 20 low and a key short-term support, has been cleared. This strengthens a bearish theme and sights are on 5784.00, the Nov 4 low and an important short-term support. Initial pivot resistance is seen at 5991.72, the 50-day EMA.
MNI COMMODITIES: Crude Declines, Gold Holding On To Bulk Of Recent Gains
- WTI crude prices are easing lower today as prices readjust following a rally up to a high of $79.27/bbl yesterday. Recent gains have been driven by fresh US sanctions on Russia.
- WTI Feb 25 is down by 1.4% at $77.7/bbl.
- The Wall Street Journal reports that President-elect Donald Trump is preparing a set of energy-related executive orders, to sign upon his inauguration on Jan 20, that would unwind Biden administration rules on offshore/onshore drilling on federal lands, tailpipe emissions, and LNG exports approval.
- Meanwhile, a potential drop in supply from sanctions against Russia and Iran are challenging the possibility of a market surplus this year, as previously forecast by some analysts.
- The trend structure in WTI futures remains bullish, with sights on $79.59, the Jul 5 ‘24 high. On the downside, a reversal lower would expose the 20-day EMA, at $73.16.
- Spot gold has risen by 0.4% to $2,673/oz today.
- UBS analysts expect gold to hit a fresh record high this year amid trade and geopolitical uncertainties, forecasting the yellow metal to reach $2,850 by year-end.
- While recent gains in gold appear corrective for now, the yellow metal is holding on to the bulk of last week’s gains and scope is seen for a continuation higher near-term.
- A stronger recovery would open $2,726.2, the Dec 12 high and an important resistance.
WEDNESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 15/01/2025 | 0700/0700 | *** |  GB | Consumer inflation report |
| 15/01/2025 | 0700/0700 | *** | GB | Producer Prices |
| 15/01/2025 | 0700/0800 | *** |  SE | Inflation Report |
| 15/01/2025 | 0745/0845 | *** |  FR | HICP (f) |
| 15/01/2025 | 0800/0900 | *** |  ES | HICP (f) |
| 15/01/2025 | 0800/0900 |  EU | ECB's De Guindos at 15th Spain Investors Day | |
| 15/01/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 15/01/2025 | 1000/1100 | ** | EU | Industrial Production |
| 15/01/2025 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 15/01/2025 | 1330/0830 | ** |  CA | Monthly Survey of Manufacturing |
| 15/01/2025 | 1330/0830 | ** | CA | Wholesale Trade |
| 15/01/2025 | 1330/0830 | *** | US | CPI |
| 15/01/2025 | 1330/0830 | ** | US | Empire State Manufacturing Survey |
| 15/01/2025 | 1400/0900 | * | CA | CREA Existing Home Sales |
| 15/01/2025 | 1420/0920 | US | Fed's Barkin | |
| 15/01/2025 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 15/01/2025 | 1600/1100 | US | Fed's Williams | |
| 15/01/2025 | 1630/1630 | GB | BOE's Taylor Speech on Inflation Dynamics and Outlook | |
| 15/01/2025 | 1900/1400 | US | Fed Beige Book | |
| 16/01/2025 | 0030/1130 | *** |  AU | Labor Force Survey |