HIGHLIGHTS
- Treasury curves twist steeper as Trump comments to WEF in Davos spurred short end bid as he demanded that "interest rates drop immediately"
- Projected rate cuts through mid-2025 running largely steady vs. late Wednesday levels (*) as follows: Jan'25 steady at -0.1bp, Mar'25 at -6.9bp (-6.6bp), May'25 at -12.9bp (-12.4bp), Jun'25 at -23.2bp (-21.8bp), Jul'25 at -27.6bp (-26.1bp).
- Fed speakers since the December FOMC meeting have unanimously backed a more patient approach to rate cuts than foreseen just a few months earlier.
MNI US TSYS: Curves Twist Steeper, Trump Demands Lower Rates, Oil Prices
- Treasuries look to finish Thursday's session mostly weaker, curves twist steeper after demanding that "interest rates drop immediately" when he spoke remotely to the World Economic Forum meeting in Davos, Switzerland earlier.
- Tsy 2s10s climbed to 36.088 high, 5s30s to 43.580 highs on the day, Mar'25 2Y futures +.78 at 102-23.25 while 10Y futures traded -6.5 at 108-11.5 vs. 108-06 low, still above initial technical support at 108-00/107-06 (Low Jan 16 / 13 and the bear trigger).
- Trump comments saw sudden spike higher for the Greenback that was met with an immediate reversal, highlighting the ongoing sensitivity across FX markets to any comments from the President. Following this, the greenback drifted lower, and the USD index sits around 0.15% in the red as we approach the APAC crossover.
- Stocks traded mostly higher: DJIA trades up 329.87 points (0.75%) at 44485.06, S&P E-Minis up 14.5 points (0.24%) at 6134.5, Nasdaq down 41.8 points (-0.2%) at 19966.92. Earnings expected from Texas Instruments, CSX Corp and Intuitive Surgical after the close.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00581 to 4.31064 (+0.01024/wk)
- 3M +0.00343 to 4.30007 (+0.00998/wk)
- 6M +0.00102 to 4.26323 (+0.00942/wk)
- 12M +0.00115 to 4.20606 (+0.01181/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.30% (+0.01), volume: $2.269T
- Broad General Collateral Rate (BGCR): 4.28% (+0.01), volume: $883B
- Tri-Party General Collateral Rate (TGCR): 4.28% (+0.01), volume: $865B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $101B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $307B
FED Reverse Repo Operation
RRP usage climbs to $132.031B this afternoon from yesterday's $123.981B. Compares to Thursday Jan 16 low of $94.489B, the lowest level since mid-April 2021. The number of counterparties falls to 34 from 44 prior.
US SOFR/TREASURY OPTION SUMMARY
Treasury call options dominated Thursday's FI option flow, SOFR options did see some moderate limited upside call fly buying covering Dec'25. Underlying futures mostly trading weaker, off lows, curves bear steepening (2s10s +4.354 at 35.273, 5s30s +3.361 at 42.149). Projected rate cuts through mid-2025 running largely steady vs. late Wednesday levels (*) as follows: Jan'25 steady at -0.1bp, Mar'25 at -6.9bp (-6.6bp), May'25 at -12.9bp (-12.4bp), Jun'25 at -23.2bp (-21.8bp), Jul'25 at -27.6bp (-26.1bp).
SOFR Options:
Block, 5,000 SFRZ5 96.75 calls, 14.0 ref 96.025
+2,000 SFRM6 95.87 puts 42.5 vs. 96.005/0.44%
-2,500 0QH5 95.50 puts, 2.5 vs. 96.00/0.10%
-4,000 SFRZ5 95.75/96.00/96.25/96.50 put condors, 5.5 ref 96.01
over 16,300 SFRZ5 96.50/97.00 call spds ref 96.005
3,000 SFRZ5 95.25/95.31/95.50 broken put flys, ref 96.01 to -.005
2,000 SFRH5/SFRU5 95.62/95.87 put spd spd
3,000 SFRG5 95.68 puts, 0.5 last
2,000 SFRH7 96.00 puts
Treasury Options:
+50,000 TYJ5 112 calls, 8 ref 108-09.5, total volume 53,490 w/OI 16.9k
4,000 USH5 120 calls ref 112-20
+6,000 TYH5 111 calls, 5 ref 108-09
4,000 wk5 TY 109/109.25 call spds, 2 net ref 108-10
+5,000 USH5 108 puts, 10
5,900 wk5 TY 108.25/108.75/109.25 call trees vs. TYG5 108/108.5/109.25
over +14,700 TYG5 108.75 calls, 2 ref 108-10
2,500 TYH5 104.5 puts ref 108-12
19,000 FVH5 106.5/107.5 call spds ref 106-00 to -01.5
2,000 Wednesday wkly 10Y 107.5/107.75/108.25 1x3x2 put flys ref 108-11.5
4,500 TYH5 111 calls, 5 ref 108-12.5 to -13
5,900 TYG5 109 calls, 1 ref 108-13.5 to -12.5
2,000 Wednesday wkly 10Y 107.75/108.25 put spds, expire Jan 29
MNI BONDS: EGBs-GILTS CASH CLOSE: UK Short End Outperforms Amid Broader Softness
EGB yields rose modestly Thursday, with short-end Gilts outperforming across the space.
- Global core FI was soft in European morning trade, amid French OAT supply and higher energy prices.
- Later, US developments were constructive: weaker US continuing jobless claims data helped EGB futures away from session lows, while a late dip in oil (US Pres Trump called on OPEC to lower prices) saw a renewed bid toward the bond cash close (which ultimately faded).
- The UK curve twist steepned, with notable outperformance at the short end as Chancellor Reeves announced some relaxation to proposed non-dom tax regime changes, while the German curve lightly bear steepened.
- Periphery spreads widened early and failed to regain lost ground by the close, despite steady tightening throughout the session as equities rallied. BTPs underperformed.
- Confidence readings were roughly in line (France business/manufacturing, Eurozone consumer confidence -14.2 vs -14.1 expected), with UK GfK due after the cash close.
- Flash January PMIs are Friday's scheduled highlight, with ECB's Lagarde appearing at Davos.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 0.9bps at 2.245%, 5-Yr is up 1.5bps at 2.35%, 10-Yr is up 2bps at 2.55%, and 30-Yr is up 2.4bps at 2.778%.
- UK: The 2-Yr yield is down 2.9bps at 4.325%, 5-Yr is down 1.5bps at 4.336%, 10-Yr is up 0.3bps at 4.636%, and 30-Yr is up 1.1bps at 5.193%.
- Italian BTP spread up 2.6bps at 109.7bps / Greek up 2.2bps at 87.7bps
MNI EGB OPTIONS: Upside Theme In Euro Rates Continues
Thursday's Europe rates/bond options flow included:
- ERJ5 97.75/97.87/98.00c fly, bought for 2.75 in 6.75k.
- ERJ5 97.8125/97.87/97.9375c fly, bought for 1 in 5k.
- ERM5 97.75/97.87/98.00c fly, bought for 1.25 in 2.5k.
- ERM5 97.8125/97.9375cs, bought for 4.75 in 2.5k.
- ERM5 98.00/98.12/98.25/98.37c condor bought for 1.5 in 20k.
- ERM5 98.12/.98.25/98.37c fly, bought for 0.25 in 10k.
- ERM5 98.00/98.12/98.25c fly, bought for 1.25 in 7.5k.
- ERM5 97.75/97.87/98.00/98.12c condor, bought for 3.25 in ~1.2k.
- ERM5 97.875/97.9375/98.12/98.1875, bought for 2 in 38k total
- ERM5 97.75/97.87/98.00c fly, bought for 1.25 in another 3k..
- SFIM5 95.90/96.10/96.30c fly vs 95.60p, bought the fly for -1 (receive) in 7k
- SFIU5 96.05/96.15/96.20/96.30c condor, bought for 1.25 in 4k.
MNI FOREX: USD Weakness Prevails After Contained Session, BOJ Up Next
- Overall, currency markets traded in relatively contained ranges on Thursday as they awaited remarks from President Trump, participating online at the World Economic Forum. As comments started to filter through, a very sudden spike higher for the dollar was met with an immediate reversal, highlighting the ongoing sensitivity across FX markets to any comments from the President. Following this, the greenback drifted lower, and the USD index sits around 0.15% in the red as we approach the APAC crossover.
- Most notable weakness in G10 is seen for USDJPY, down 0.37%. However, given Wednesday’s punchy recovery, the pair resides just above mid-range for the week around the 156.00 handle. The decline is noteworthy given the close proximity to the Bank of Japan decision, due overnight. Expectations are that the BOJ will move further along its policy normalisation path, with both market consensus and MNI analysis suggesting a 25bps rate hike as the most likely outcome. In the January Outlook Report, we expect the BoJ to maintain its economic growth forecast but slightly raise its inflation outlook.
- GBP also showed some outperformance as cable rose back above 1.2350 amid with related strength at the short end of the UK curve as Chancellor Reeves announced some relaxation to proposed non-dom tax regime changes. A clear break of the tested 20-day EMA would highlight a stronger corrective phase for GBPUSD and signal scope for an extension, possibly towards the 50-day EMA, at 1.2529.
- In emerging markets, both the Brazilian real and the Mexican peso rallied strongly again, with the former extending a clean break below the 6.00 handle during Wednesday's session.
- Alongside the BOJ, the Eurozone data calendar is headlined by the January flash PMIs on Friday. Data will help set the tone for sentiment heading into 2025, with questions still remaining around the likely pace and magnitude of ECB rate cuts later this year.
MNI FX OPTIONS: Expiries for Jan23 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0295-00(E2.7bln), $1.0400(E1.9bln), $1.0425-40(E2.1bln)
- USD/JPY: Y155.00($1.7bln), Y156.00($987mln), Y156.15-20($561mln), Y156.50-60($734mln)
- GBP/USD: $1.2500(Gbp713mln), $1.2565(Gbp748mln)
- AUD/USD: $0.6200-05(A$1.8bln), $0.6260(A$695mln), $0.6300(A$1.1bln)
- NZD/USD: $0.5660-75(N$1.2bln)
- USD/CAD: C$1.4390-05($1.6bln), C$1.4450($1.1bln)
MNI US STOCKS: Late Equities Roundup: Drifting Near Highs
- US stocks remain mixed late Thursday, the DJIA outperforming since President Trump addressed the World Economic Forum in Davos - demanding an immediate drop in interest rates and oil prices.
- Currently, the DJIA trades up 329.87 points (0.75%) at 44485.06, S&P E-Minis up 14.5 points (0.24%) at 6134.5, Nasdaq down 41.8 points (-0.2%) at 19966.92.
- Industrials and Health Care sectors led gainers in the second half, transportation stocks supporting the former with General Electric +6.30%, Union Pacific +5.14%, GE Vernova +3.69%.
- The Health Care sector was buoyed by pharmaceutical makers: Moderna +6.86%, Abbott Labs +3.68%, Bristol-Myers Sqibb +3.38%.
- On the flipside, Information Technology sector shares underperformed with profit taking weighing on semiconductor stocks after Wednesday's strong gains: Micron Tecnology -4.14%, Lam Research both -3.13%, Applied Materials -2.93% and Teradyne -2.65%.
- Earnings expected from Texas Instruments, CSX Corp and Intuitive Surgical after the close.
MNI EQUITY TECHS: E-MINI S&P: (H5) Northbound
- RES 4: 6178.75 High Dec 6 and key resistance
- RES 3: 6163.75 High Dec 16
- RES 2: 6148.00 High Dec 18
- RES 1: 6139.00 High Jan 23
- PRICE: 6134.5 @ 1500 ET Jan 23
- 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 have traded higher this week, marking an extension of last week’s bull phase. 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 key resistance. Initial firm support to watch is 5961.75, the Jan 16 low.
MNI COMMODITIES: Oil Slips Lower on Trump OPEC Remarks, Gold Steady
- Crude futures look likely to close lower on the session, having taken a sharp knock following Trump’s speech at Davos where he called on OPEC to lower oil prices. WTI March ‘25 is currently down 1% at 74.67$/bbl.
- Trump said that he would ask Saudi Arabia and other OPEC members to “bring down the cost of oil,” predicting that action by the bloc could decrease inflation and allow for the reduction of interest rates.
- Liam Denning notes that President Trump’s threat of sweeping tariffs against Canada fits with his desire for US “energy dominance” in theory. In practice, the drive for dominance has relied heavily on Canadian oil.
- Tighter global supply concerns due to sanctions on Russia and Iran are still providing support as Asian buyers look to non-sanctioned Middle East barrels and driving up shipping costs. Some Asian refineries are looking to reduce output due to narrower margins.
- Natural Gas (Henry Hub) is headed for the close trading lower today. Front month has been losing ground in the US afternoon following a below-expectation, albeit above-average, draw in US natural gas inventories.
- For precious metals, gold trades close to unchanged on Thursday, having mirrored the broader price action for the dollar. However, the yellow metal has breached resistance this week at 2726.2, the Dec 12 high and a key short-term resistance. The clear break of this hurdle strengthens a bullish theme and signals scope for an extension near-term. Sights are on $2790.1, the Oct 31 all-time high.
FRIDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 24/01/2025 | 0700/0800 | ** |  SE | PPI |
| 24/01/2025 | 0700/0800 | ** | SE | Unemployment |
| 24/01/2025 | 0800/0900 | ** |  ES | PPI |
| 24/01/2025 | 0815/0915 | ** |  FR | S&P Global Services PMI (p) |
| 24/01/2025 | 0815/0915 | ** | FR | S&P Global Manufacturing PMI (p) |
| 24/01/2025 | 0830/0930 | ** |  DE | S&P Global Services PMI (p) |
| 24/01/2025 | 0830/0930 | ** | DE | S&P Global Manufacturing PMI (p) |
| 24/01/2025 | 0900/1000 | ** |  EU | S&P Global Services PMI (p) |
| 24/01/2025 | 0900/1000 | ** | EU | S&P Global Manufacturing PMI (p) |
| 24/01/2025 | 0900/1000 | ** | EU | S&P Global Composite PMI (p) |
| 24/01/2025 | 0930/0930 | *** |  GB | S&P Global Manufacturing PMI flash |
| 24/01/2025 | 0930/0930 | *** | GB | S&P Global Services PMI flash |
| 24/01/2025 | 0930/0930 | *** | GB | S&P Global Composite PMI flash |
| 24/01/2025 | 1000/1100 | EU | ECB's Lagarde in dialogue on the global economic outlook | |
| 24/01/2025 | 1100/1100 | ** | GB | CBI Distributive Trades |
| 24/01/2025 | 1100/1200 | EU | ECB's Cipollone in panel discussion on the effects of CB digital currencies | |
| 24/01/2025 | 1330/0830 | ** |  US | WASDE Weekly Import/Export |
| 24/01/2025 | 1330/0830 |  CA | StatsCan Labour Force Survey: Revisions, 1987 to 2024 | |
| 24/01/2025 | 1445/0945 | *** | US | S&P Global Manufacturing Index (Flash) |
| 24/01/2025 | 1445/0945 | *** | US | S&P Global Services Index (flash) |
| 24/01/2025 | 1500/1000 | *** | US | NAR existing home sales |
| 24/01/2025 | 1500/1000 | ** | US | U. Mich. Survey of Consumers |
| 24/01/2025 | 1800/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |