HIGHLIGHTS
- Treasuries took mixed morning data in stride Thursday, but climbed to the highest levels since January 6 after dovish comments from Fed Gov Waller seeing as many as three rate cuts this year if data cooperates.
- Projected rate cuts through mid-2025 have regained traction after cooling this morning, July now nearly pricing in the first 25bp cut.
- U.S. Treasury nominee Scott Bessent told his confirmation hearing Thursday that President-elect Donald Trump's policies will leave inflation on an easing path toward the Federal Reserve's 2% goal.
- Treasuries look to finish near late session highs Thursday, scaling to the highest levels since January 6 after Fed Gov Waller's dovish comments on CNBC earlier estimated as many as three rate cuts are still possible this year if data cooperates.
- Projected rate cuts through mid-2025 have regained traction after cooling this morning, current lvls vs. this morning* as follows: Jan'25 steady at -0.7bp, Mar'25 at -7.6bp (-6.3bp), May'25 -14bp (-11.8bp), Jun'25 -24.2bp (-20.4bp), Jul'25 at -28.7bp (-23.7bp).
- Treasuries had pared early losses but held to narrow ranges after this morning's mixed data:
- Retail sales closed December on a solid note, signifying continued strong domestic demand to end 2024. While headline retail sales growth was slightly softer than expected (0.4% vs 0.6% survey), but that was offset in part by an upward revision to November (0.8% from 0.7%).
- Initial jobless claims surprised higher but remained at a healthy level last week whilst continuing claims continued a trend modest easing away from recent months. The combination continues to point to dampened re-hiring activity compared to much of 2024 but actual layoffs remain very low and don’t show signs of stress.
- Reminder, The Fed enters their self imposed media Blackout at midnight Friday through January 30.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00233 to 4.29872 (-0.00382/wk)
- 3M -0.00971 to 4.29317 (+0.00616/wk)
- 6M -0.02649 to 4.26213 (+0.01755/wk)
- 12M -0.05634 to 4.20801 (+0.02968/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.28% (+0.00), volume: $2.280T
- Broad General Collateral Rate (BGCR): 4.26% (-0.01), volume: $859B
- Tri-Party General Collateral Rate (TGCR): 4.26% (-0.01), volume: $844B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $112B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $306B
FED Reverse Repo Operation
A swift decline in RRP usage continues -- lowest level since mid-April 2021 as it fall below $100B this afternoon to $94.489B from $119.977B on Wednesday. The number of counterparties retreats to 34 from 39.
US SOFR/TREASURY OPTION SUMMARY
SOFR & Treasury option flow turned mixed on net yet again Thursday, strong put flow kicked off the session while call volume surged by midday as underlying futures reacted positively to Fed Gov Wallers dovish comments. Projected rate cuts through mid-2025 have regained traction after cooling this morning, current lvls vs. this morning* as follows: Jan'25 steady at -0.7bp, Mar'25 at -7.6bp (-6.3bp), May'25 -14bp (-11.8bp), Jun'25 -24.2bp (-20.4bp), Jul'25 at -28.7bp (-23.7bp).
SOFR Options:
over 18,000 0QH5 96.50/96.75 call spds, 2.5 ref 96.06
+20,000 SFRZ5 96.37/96.87 call spds, 10.0-10.5 ref 96.05
-4,000 SFRU5 95.62/95.81/95.87/96.06 put condors, 3.5 ref 96.005
+20,000 SFRZ5 96.37/96.87 call spds 10 ref 96.02
+15,000 SFRZ5 95.62/95.87/96.12/96.37 put condor, 5.75 ref 95.98
-5,000 0QG5 96.12 calls, 7.5 vs. 96.01/0.36%
-14,000 SFRH5 95.62/95.87/96.12 call flys 10-9.75 ref 95.765 to -75.5
-7,000 SFRJ5 95.31/95.43/95.68/95.81 put condors, 4.75 vs. 95.89/0.18%
-5,000 SFRM5 95.68/95.81 put spds, 6.25 vs. 95.88/0.15%
Blocks: -40,000 SFRH5 95.00/95.50/96.00 put flys, 24.0 ref 95.77 to -.765
Pit: -8,000 SFRH5 95.00/95.50/96.00 put flys, 24.0 vs. 95.765
11,750 SFRZ5 94.75/95.25 put spds ref 95.995
11,600 SFRH5 95.87/95.93 call spds ref 95.765
3,850 SFRZ5 96.50/97.00/97.50 call flys ref 95.985
Treasury Options:
over +22,700 TYG5 108 puts, 22-23 (open interest 71,777)
2,300 TYG5 107.5/108.25 put spds ref 108-03
over 5,600 TYH5 106 puts, 12 ref 108-07.5
1,700 FVG5 105.5/106.5 strangles ref 105-31
over 17,300 wk3 TY 109 puts, 49 ref 108-08 (expire tomorrow)
1,800 TYG5 107.5 puts ref 108-08.5
MNI BONDS: EGBs-GILTS CASH CLOSE: Gilt Relief Rally Continues
Gilts outperformed for a second consecutive session Thursday, as Wednesday's softer-than-expected US inflation data maintained the global FI relief rally.
- Bunds and Gilts started the session mixed, with Gilts outperforming on dovish comments from BoE's Taylor late Wednesday, with UK GDP coming in on the soft side.
- Global markets largely shrugged off mixed US data in the European afternoon. But dovish comments by US Federal Reserve Governor Waller on prospective 2025 rate cuts helped European FI rally into the cash close, with yields finishing at/near the session lows.
- The accounts of the ECB December meeting noted "some" saw acase for a 50bp cut last month but this was not a market mover.
- The UK and German curves bull steepened on the day. EGB periphery and semi-core spreads were broadly tighter to Bunds, with BTPs and GGBs outperforming.
- Friday's calendar includes UK retail sales and the final reading of Eurozone December inflation. We also get appearances by ECB's Nagel, Escriva and Centeno, as well as BOE's Bailey.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 3bps at 2.229%, 5-Yr is down 2.1bps at 2.346%, 10-Yr is down 1.3bps at 2.547%, and 30-Yr is down 0.1bps at 2.785%.
- UK: The 2-Yr yield is down 8.5bps at 4.381%, 5-Yr is down 6.1bps at 4.406%, 10-Yr is down 5.4bps at 4.677%, and 30-Yr is down 5.8bps at 5.241%.
- Italian BTP spread down 2.7bps at 110.8bps / French OAT down 0.2bps at 79.5bps
MNI EGB OPTIONS: More Rate Upside Thursday
Thursday's Europe rates/bond options flow included:
- ERM5 97.87/98.00/98.12/98.25c condor, bought for 3 in 8k
- ERM5 98.125/98.50 call spread paper paid 2.5 on 15K.
- SFIM5 95.40/95.20ps, bought for 2.5 in 6k.
- SFIU5 96.00/96.35/96.70c fly vs 95.50p, bought the cs for -0.75 in 5k.
- SFIZ5 96.00/96.25cs vs 95.50/95.35ps, bought the cs for 5.5 in 5k.
MNI FOREX: Waller Remarks Prompt Softer Dollar, USDJPY Prints 4-Week Lows
- There has been broad dollar weakness in the aftermath of comments from Fed’s Waller, who failed to rule out a rate cut in March, contrasting with current market pricing. While not substantially different to his prior comments, the ICE USD index slid from session gains to losses amid March Fed cut pricing lifting to 8.5bps vs 6bp pre-Waller and 5bp pre-CPI.
- With Japanese yen volatility in focus overnight, USDJPY (-0.75%) had the most significant adjustment, falling from 156.10 to fresh four-week lows of 155.11. Spot has narrowed the gap to the 50-day EMA, intersecting today at 154.90.
- Price action so far appears to be technically corrective, however, it is worth noting USDJPY trendline support at 153.83 (drawn from the Sep 16 low), a break of which would be a stronger signal of a directional trend shift.
- EURJPY (-0.61%) and GBPJPY (-0.71%) are notably pressuring the psychological pivots of 160.00 and 190.00 respectively once again, with bearish threats for both crosses continuing to develop.
- Barring the 100 pip range in the aftermath of the US inflation data yesterday, EURUSD has spent the majority of the past three sessions trading in close proximity to 1.0300, with a decent amount of option expiries either side of this mark helping to contain momentum in either direction. For reference, there is 5.54bn rolling off between 1.0250/1.0350 today, with a further 3.17bn at 1.0300 on Friday and 2bn at 1.0300/1.0305 on Monday.
- China activity data will be a focus for Friday’s APAC calendar, before UK retail sales. In the US, building permits and industrial production highlights a lighter docket.
MNI US STOCKS: Late Equities Roundup: Autos, Media Shares Underperform
- Stocks are drifting near steady to modestly negative territory late Thursday, off lows amid position squaring ahead of the Federal Reserve's self imposed policy Blackout late Friday and Trump's inauguration next Monday.
- Currently, the DJIA trades down 25.2 points (-0.06%) at 43196.13, S&P E-Minis up 1.25 points (0.02%) at 5990.5, Nasdaq down 61.5 points (-0.3%) at 19449.95.
- Consumer Discretionary and Communication Services sectors continued to underperform as accounts took profits following gains over the last couple sessions. Autos weighed on the discretionary sector with Tesla -3.68%, BorgWarner -1.58%, AutoZone -1.07%. Warner Brothers -2.35%, Paramount -1.92% and Walt Disney -1.59% weighed on the Communication Services sector.
- On the positive side, Utility and Real Estate sectors led gainers at midday, independent power and electricity providers supporting the former: Constellation Energy +4.89%, Vistra +3.79%, NextEra Energy +2.94%. Estate management shares, particularly specialized and industrial REITs supported the Real Estate sector: American Tower +4.82%, Crown Castle +3.73%, Iron Mountain +3.38%.
- Meanwhile, corporate earnings resume Friday with JB Hunt Transportation, Citizens Financial, Truist Financial, Huntington Bancshares, Fastenal, Schlumberger and State Street Corp announcing before the open.
MNI EQUITY TECHS: E-MINI S&P: (H5) Pierces Resistance At The 50-Day EMA
- 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: 6035.50 61.8% retracement of the Dec 6 - Jan 13 bear leg
- PRICE: 5997.75 @ 14:31 GMT Jan 16
- SUP 1: 5879.50/5809.00 Low Jan 15 / 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. However, yesterday’s gains resulted in a print above resistance at 5987.49, the 50-day EMA. The average marks an important short-term pivot level and a clear break of it would signal a possible reversal. This would open 6107.50, the Dec 26 high. Key short-term support has been defined at 5809.00, the Jan 13 low. A breach of this level would confirm a resumption of the downtrend.
MNI COMMODITIES: Crude Falls Back, Gold, Copper Extend Gains
- WTI has lost ground today as it eases back from its highest level since July. Recent support comes from expectations of a tighter market.
- WTI Feb 25 is down by 2.1% at $78.4/bbl.
- The Russian sanctions may take some time to be fully in place, but buyers are already increasing interest in alternative non-sanctioned barrels.
- Middle East spot premiums for crude oil have risen to above a two-year high in some cases, as Chinese and Indian buyers seek alternatives to Russian flows.
- The recent strong impulsive rally in WTI futures has resulted in a breach of $76.41, the Oct 8 high, while $80.14, the Apr 12 ‘24 high has also been pierced, strengthening the bullish theme. Sights are on $81.69, a Fibonacci projection.
- Meanwhile, spot gold has risen by 0.7% to $2,716/oz today, bringing the yellow metal to its highest level since Dec 12.
- The recovery in gold opens $2,726.2, the Dec 12 high and an important resistance. Clearance of this level would be a bullish development, opening $2,730.4 next, the 76.4% retracement of the Oct 31 - Nov 14 bear leg.
- Copper has also extended its rally, with the red metal rising by another 1.0% today to $443/lb, taking total gains this month to 10%.
- Copper futures remain in a bull cycle. Recent gains have resulted in a move through key short-term resistance at $433.50, the Dec 12 high, opening $452.85, the Nov 5 ‘24 high and a key resistance.
FRIDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 17/01/2025 | 0700/0700 | *** |  GB | Retail Sales |
| 17/01/2025 | 0900/1000 | ** |  EU | EZ Current Account |
| 17/01/2025 | 1000/1100 | *** | EU | HICP (f) |
| 17/01/2025 | 1100/1200 | EU | ECB's Cipollone lecture at Crypto Asset Lab conference | |
| 17/01/2025 | 1330/0830 | * |  CA | International Canadian Transaction in Securities |
| 17/01/2025 | 1330/0830 | *** |  US | Housing Starts |
| 17/01/2025 | 1415/0915 | *** | US | Industrial Production |
| 17/01/2025 | 1600/1100 | CA | BOC releases review of pandemic policy actions. | |
| 17/01/2025 | 2100/1600 | ** | US | TICS |