HIGHLIGHTS
- Treasuries gapped higher early Wednesday, 10Y yield falling to 4.6348% after lower than expected Core CPI 3M run rate of 0.225%, lowest since September.
- First projected rate cut moved forward on the calendar to July after retreating to as late as December this week.
- NY Fed’s Williams (permanent voter) said Treasury yields haven’t been driven by inflation expectations and that yields instead reflect economic strength and fiscal uncertainty.
- Fed Beige Book: Economic activity increased slightly to moderately across the twelve Federal Reserve Districts in late November and December.
MNI US TSYS: Rates Rally After Core CPI Misses Estimates, First Cut Targets July
- Treasuries are trading near the top end of the session range after gapping higher this morning on slightly lower than expected Core & Supercore CPI data.
- Across core categories, below-expected figures in the aggregates were reported: core goods (0.05% vs 0.12% expected, 0.31% prior) and core services (0.27% vs 0.30% expected, 0.28% prior) were each a touch under analyst expectations.
- NY Fed’s Williams (permanent voter) said Treasury yields haven’t been driven by inflation expectations and that yields instead reflect economic strength and fiscal uncertainty. There have been somewhat mixed views of FOMC members on long end yield drivers recently.
- Mar'25 10Y futures are trading at 108-09.5 (+30) after the bell vs. 107-16.5 pre-data, session high at 108-13, still below initial technical resistance at 108-17.5/109-06 (20-day EMA / High Dec 31). Curves Curves mixed however: 2s10s -3.416 at 38.723, 5s30s +5.544 at 43.118.
- Projected rate cuts through mid-2025 moved forward on the calendar with July now fully pricing in a 25bp cut. Current vs. this morning levels* as follows: Jan'25 steady at -0.7bp, Mar'25 at -7.4bp (-4.9bp), May'25 -13.5bp (-10.3bp), Jun'25 -22.9bp (-17.7bp), Jul'25 at -27.2bp (-21.7bp).
- Focus turns to a slew of data on Thursday: Weekly Jobless Claims, Retail Sales, Import/Export Indexes and regional Fed services and business outlooks all at 0830ET. Business Inventories and NAHB Housing Market Index at 1000ET. No scheduled Fed speakers as yet - Fed enters Blackout period Friday at midnight.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00412 to 4.30105 (-0.00149/wk)
- 3M -0.00470 to 4.30288 (+0.01587/wk)
- 6M -0.00764 to 4.28862 (+0.04404/wk)
- 12M -0.01346 to 4.26435 (+0.08602/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.28% (-0.01), volume: $2.179T
- Broad General Collateral Rate (BGCR): 4.27% (-0.01), volume: $840B
- Tri-Party General Collateral Rate (TGCR): 4.27% (-0.01), volume: $825B
- (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
RRP usage declines to $119.977B this afternoon from $160.219B on Tuesday. Compares to $98.356B on Friday, December 20 - the lowest level since mid-April 2021. The number of counterparties retreats to 39 from 59.
US SOFR/TREASURY OPTION SUMMARY
Heavy SOFR & Treasury call volume reported Wednesday after slightly softer-than-expected round of core and supercore CPI data spurred a strong rally in underlying rates: TYH5 at 108-09.5 (+30) vs. 108-13 high. Curves mixed however: 2s10s -3.416 at 38.723, 5s30s +5.544 at 43.118. Projected rate cuts through mid-2025 moved forward on the calendar with July now fully pricing in a 25bp cut. Current vs. this morning levels* as follows: Jan'25 steady at -0.7bp, Mar'25 at -7.4bp (-4.9bp), May'25 -13.5bp (-10.3bp), Jun'25 -22.9bp (-17.7bp), Jul'25 at -27.2bp (-21.7bp).
SOFR Options:
+10,000 SFRM5 98.37 calls, 0.75 vs 95.925/0.05%
+25,000 SFRZ5 96.50/97.00 call spds, 8.25 ref 96.00
+5,000 0QH 95.75/96.18 call over risk reversals, 2.5 net vs. 96.005/0.70%
+5,000 0QK5 96.25/96.62 csll spds 9.0 ref 96.01
+10,000 SFRH5 95.87/96.00/96.12 call trees, 0.25 ref 95.77
+2,500 SFRM5 95.75/95.93/96.18/96.37 call condors, 5.5 ref 95.90
Block, -2,500 0QG5/0QH5 96.12/96.37 2x3 call spd spds, 0.0 net/Feb over
-5,000 2QM5 94.75 puts, 3.5 ref 95.87
+5,000 SFRJ5 95.62/95.75/95.87 put tree, 5.5 ref 95.91
+5,000 SFRU5 96.25/97.00/97.25 call flys, 4.25 ref 95.985
-15,000 SFRH5 95.75/95.93 call spds, 4.25 vs. 95.87/0.39%
-12,000 SFRZ5 95.62/95.87 put spds w/ 95.68/95.93 put spd strip, 25.75 cr ref 95.92
over 13,000 SFRJ5 96.25/96.50 call spds
over 7,100 SFRJ5 96.00 calls
3,600 SFRJ5 95.81/95.93/96.06 call flys ref 95.85
1,650 SFRM5 95.93/96.12 call spds vs. 95.56/95.68 put spds ref 95.845
3,500 0QU5/3QU5 95.25 put spds, 2.5 cr flattener (3QU sold over)
1,200 SFRZ5 99/100/101 call flys ref 95.91
Treasury Options:
1,300 TYH5 105/106/107 1x3x2 call flys ref 108-09
4,500 FVG5 107/108 call spds ref 105-30.5
13,000 TYH5 109 calls, 32 ref 108-05, total volume over 23,000
over 9,700 TYH5 110 calls, 16 last ref 108-04.5
11,000 TYG5 106/107 put spds 4 ref 108-03.5
over 31,000 wk3 TY 108.25 calls, 5 vs. 107-16.5/0.17% (expire Friday)
4,000 TYG5 108/108.5 2x3 call spds ref 107-17
5,000 TYH5 106 puts 22 ref 107-17
4,000 wk3 TY 108/108.5 2x3 call spds ref 107-17
8,000 TYH5 106/107 put spds ref 107-17
4,600 TYG5 107.75/108.5 call spds, 13 ref 107-16.5
3,500 TYH5 108/109.5 2x3 call spds ref 107-16.5
+3,000 FVH5 107/108 call spds, 5.5 ref 105-16.5
2,000 TYG5 105.75/106.75 put spds trf 107-14.5
Block, +9,000 wk3 TY 108 calls 8 vs. 107-15.5/0.25%, more on screen at 9
4,000 FVH5 106.5/107 call spds, 6.0-6.5 ref 105-17.5 to -16
MNI BONDS: EGBs-GILTS CASH CLOSE: Relief Rally As US CPI Comes In Low
Gilts and EGBs soared Wednesday after the much-anticipated US CPI report proved benign for bond markets.
- Gilts initially strengthened after December CPI readings came in lower than expected, but reversed lower as the reading appeared to have been skewed downward by volatile components (namely airfares). They would recovered but set back anew on a weak Jul-34 Gilt auction.
- Ultimately though, a US CPI report on the soft side of expectations triggered a sizeable global FI relief rally, in which Gilts outperformed peers across the curve after weeks of underperformance. UK yields ticked up toward the cash close amid a speech by BoE dove Taylor, but the move looked driven by external factors rather than the speech itself. The UK curve bull flattened overall.
- Bunds largely tracked the wider global moves. The German belly outperformed on the curve, with EGB periphery spreads narrowing sharply as risk-sensitive assets rallied.
- Thursday's schedule includes UK monthly activity data and final German and Italian inflation, as well as the accounts of the December ECB meeting.
Closing Yields / 10-Yr EGB Spreads To Germany:
- Germany: The 2-Yr yield is down 6.2bps at 2.257%, 5-Yr is down 9.9bps at 2.363%, 10-Yr is down 9.8bps at 2.554%, and 30-Yr is down 7.5bps at 2.781%.
- UK: The 2-Yr yield is down 13.6bps at 4.469%, 5-Yr is down 14.2bps at 4.471%, 10-Yr is down 15.6bps at 4.733%, and 30-Yr is down 14.7bps at 5.302%.
- Italian BTP spread down 4.9bps at 113.9bps / French OAT down 3.4bps at 79.7bps
MNI EGB OPTIONS: CPI Spurs Sonia Upside Activity
Wednesday's Europe rates/bond options flow included:
- OEG5 116.50/117.00/117.50c fly, bought for 10.5 in 3k
- RXH5 132.5/133.5/134 broken call fly, bought for 11 in 2k
- RXH5 133c, boought for 30.5 in 9k vs 1.62k at 130.65
- RXH5 131.50/132.50cs, bought for 17.5 in 3k
- ERJ5 97.3125p vs ERM5 97.4375p, sold the June at 2.5 in 4k
- ERM5 97.62/97.75/97.87c fly, bought for 2.25 in 8.88k
- SFIK5 95.45/95.60cs, bought for 10.25 in 3k
- SFIM5 95.70/95.85/96.00c fly, bought for 2.75 in 6k
- SFIU5 96.00/96.35/96.70 call fly vs. SFIM5 95.55 puts, paper paid -1.5 for the fly on 7K.
- SFIU5 95.85/96.00cs vs 95.50/95.35ps, bought the cs for 1.5 in 9k total
MNI FOREX: USD Steady Despite Softer US Core CPI, Japanese Yen Outperforms
- Despite a dovish repricing in the U.S. short end on the back of the slightly softer-than-expected round of core and supercore CPI data, moves in the US dollar have been less clear cut, with the USD index only marginally lower on the day.
- Some major pairs saw sharp intra-day reversals, emphasised by EURUSD declining on the session as we approach the APAC crossover. Initially, the pair rose to 1.0354 on the broad based greenback selling, however, gradual declines since picked up momentum through the pre-data levels of 1.0300, briefly trading down to a 1.0260 low before stabilising around 1.0290 at typing.
- A clearer theme on Wednesday has been the outperformance of the Japanese Yen, as lower core yields and BOJ rhetoric have boosted local FX sentiment. USDJPY has declined 0.92% at typing and is around 160 pips off earlier session highs, having briefly tested below 156.00 in the aftermath of the US data.
- As a reminder, headlines from BoJ Governor Ueda crossed overnight, reiterating that a decision on whether to raise rates will be made next week (so largely echoing Deputy Governor Himino's remarks from yesterday). The probability for a hike on Jan 24 has now risen to around 70%. A sustained breach of 156.02 (Dec 31 low), would target a deeper correction to 154.71, the 50-day EMA.
- GBP volatility has also been a key feature of Wednesday’s session, following the lower-than-expected UK CPI data in early European trade. While sterling initially traded weaker on the release (GBPUSD down to a 1.2163 low), the potentially good news for the UK economy and the fact the downside surprise was mostly driven by volatile components assisted a sterling recovery, which was exacerbated by the US data, prompting an impressive recovery to 1.2306. The pair has since slipped back to 1.2225. Similar price action for EURGBP sew the cross slip back towards the 0.84 handle, after printing fresh four-month highs at 0.8463 earlier in the session.
- Australian employment data is due overnight before UK GDP on Thursday. US retail sales and jobless claims headlines the US economic calendar.
MNI US STOCKS: Late Equities Roundup: Bank, Chips & Media Stocks Lead Post-CPI Rally
- Stocks surged higher Wednesday after core inflation data slowed for December. After a couple rounds of profit taking major indexes looked to test session highs again in late trade with the DJIA up up 706.28 points (1.66%) at 43225.25, S&P E-Minis up 105 points (1.79%) at 5987.5, Nasdaq up 445.2 points (2.3%) at 19489.8.
- Financials, Communication Services and Information Technology sectors continued to outperform in late trade, banks led gainers after better than expected earnings were reported by Blackrock +4.72%, Bank of NY Melon +7.97%, Wells Fargo +7.19%, JP Morgan +1.85%, Goldman Sachs +6.03% and Citigroup +7.33% this morning.
- Interactive media and entertainment shares helped the Communication Services sector rebound after declining the last couple sessions: Meta +4.27%, Alphabet +3.10%, Netflix gained 2.37%. Same for IT with semiconductor shares trading stronger despite ongoing curbs on China exports: Micron Technologies +6.00%, Qualcomm +3.5%, Advanced Micro Devices +3.38%, Nvidia +2.91%.
- On the flipside, Health Care and Consumer Staples sectors underperformed in late trade, pharmaceuticals weighing on the former with Viatris -2.94%, AbbVie -2.40%, Charles River Labs -1.56%. Food manufacturers weighed on the Consumer Staples sector: Hershey -3.01%, Conagra -1.98% and Kroger -1.3%.
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: 5996.25 @ 19:38 GMT Jan 15
- 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. However, today’s gains have resulted in a print above resistance at 5987.43, 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: WTI Rises Above $80, Precious Metals Rally Further
- WTI has broken the $80/bbl level today, supported by the drawdown in US crude stockpiles as well as the IEA’s downward revision for the 2025 oil supply surplus. A weaker USD following softer US CPI data is also bullish.
- WTI Feb 25 is up by 3.5% at $80.2/bbl.
- The IEA expects global oil inventories to grow by 725,000 bpd in 2025, compared to 950,000 bpd previously.
- Meanwhile, the US Energy Department is “quite likely” to refill the depleted SPR under the incoming Trump administration, according to Chris Wright, Trump’s nominee for Energy Secretary.
- WTI futures have pierced $80.14, the Apr 12 ’24 high and a key medium-term resistance. Next resistance is at $80.60, the 3.00 projection of the Nov 18 - 22 - Dec 6 price swing.
- Spot gold has risen by 0.6% today to $2,694/oz, benefitting from the round of slightly-softer-than-expected core and supercore US CPI figures.
- 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.
- Meanwhile, silver is outperforming and has risen by 2.6% to $30.7/oz
- Key resistance has been defined at $32.338, the Dec 12 high.
- Copper has also rallied by 1.3% to $440/lb, the highest level since Nov 8.
- The move through key short-term resistance at $433.50, the Dec 12 high, opens $452.85, the Nov 5 ‘24 high and a key resistance.
THURSDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 16/01/2025 | 0700/0700 | ** |  GB | UK Monthly GDP |
| 16/01/2025 | 0700/0700 | ** | GB | Trade Balance |
| 16/01/2025 | 0700/0700 | ** | GB | Index of Services |
| 16/01/2025 | 0700/0800 | *** |  DE | HICP (f) |
| 16/01/2025 | 0700/0700 | *** | GB | Index of Production |
| 16/01/2025 | 0700/0700 | ** | GB | Output in the Construction Industry |
| 16/01/2025 | 0900/1000 | ** |  IT | Italy Final HICP |
| 16/01/2025 | 1000/1100 | * |  EU | Trade Balance |
| 16/01/2025 | 1230/1330 | EU | Account of Dec 2024 ECB Monetary Policy Meeting | |
| 16/01/2025 | 1315/0815 | ** |  CA | CMHC Housing Starts |
| 16/01/2025 | 1330/0830 | *** |  US | Jobless Claims |
| 16/01/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 16/01/2025 | 1330/0830 | *** | US | Retail Sales |
| 16/01/2025 | 1330/0830 | ** | US | Import/Export Price Index |
| 16/01/2025 | 1330/0830 | ** | US | Philadelphia Fed Manufacturing Index |
| 16/01/2025 | 1500/1000 | * | US | Business Inventories |
| 16/01/2025 | 1500/1000 | ** | US | NAHB Home Builder Index |
| 16/01/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 16/01/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 16/01/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 16/01/2025 | 1730/1230 | CA | BOC Deputy Gravelle speech to women in markets group. | |
| 17/01/2025 | 0200/1000 | *** |  CN | Fixed-Asset Investment |
| 17/01/2025 | 0200/1000 | *** | CN | Retail Sales |
| 17/01/2025 | 0200/1000 | *** | CN | Industrial Output |
| 17/01/2025 | 0200/1000 | *** | CN | GDP |
| 17/01/2025 | 0200/1000 | ** | CN | Surveyed Unemployment Rate M/M |