HIGHLIGHTS
- Treasuries gapped lower following the higher than expected rise in inflation measured in the CPI data: core / supercore CPI readings reflected stronger pressures in all major sub-categories in January.
- Fed chair Powell cautioned against getting "excited" about today's CPI report ahead of Thursday's PPI, reminding the latter report carries potentially different implications for the Fed's preferred PCE gauge.
- Treasury 10Y yield climbed to 4.6576% high after the extremely strong supercore (core services ex OER & primary rents) print of 0.76% M/M sa in January followed zero revisions (to 2.d.p) for both Nov and Dec.
- Weaker yen, with EURJPY’s 1.85% rally particularly standing out. Price dynamics kickstarted across the APAC session but were then bolstered by a hotter-than-expected US CPI report.
US TSYS: Rise in Core/Supercore CPI, But Wait Until Thursday's PPI: Powell
- Treasuries gapped lower after unexpected rise in January Core/Supercore CPI inflation data Wednesday, 10Y yield climbing to 4.6576% high on heavy volumes.
- Fed chair Powell cautions against getting "excited" about today's CPI report ahead of PPI (Thursday 0830ET), reminding that the latter report carries potentially different implications for the Fed's preferred PCE gauge: "The CPI reading was above almost every forecast.
- Treasury Mar'25 10Y futures trade 108-09 (-21.5) after the bell, above initial technical support at 108-00 (Low Jan 16); curves mixed: 2s10s +2.413 at 26.981, 5s30s -1.858 at 35.507. Tsy 10Y auction didn't help matters as the new supply tailed: drawing 4.632% high yield vs. 4.622% WI; 2.48x bid-to-cover vs. 2.53x prior.
- Nevertheless, projected rate cuts through mid-2025 continue to recede vs. this morning's pre-CPI levels (*) as follows: Mar'25 at -0.5bp (-0.7bp), May'25 at -3.2bp (-6.3bp), Jun'25 at -9.1bp (-13.9bp), Jul'25 at -12.6bp (-18.9bp).
- Weaker yen, with EURJPY’s 1.85% rally particularly standing out. Price dynamics kickstarted across the APAC session but were then bolstered by a hotter-than-expected US CPI report.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00109 to 4.31738 (+0.00219/wk)
- 3M +0.00035 to 4.31504 (+0.01114/wk)
- 6M +0.00412 to 4.28305 (+0.02533/wk)
- 12M +0.00468 to 4.22440 (+0.04529/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.34% (-0.01), volume: $2.321T
- Broad General Collateral Rate (BGCR): 4.32% (-0.01), volume: $911B
- Tri-Party General Collateral Rate (TCR): 4.32% (-0.01), volume: $894B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $92B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $278B
FED Reverse Repo Operation
RRP usage falls to the lowest level since mid-April 2021 this afternoon: $67.670B vs. $76.446B on Tuesday. The number of counterparties falls to 27 from 36 prior.
US SOFR/TREASURY OPTION SUMMARY
Heavier SOFR & Treasury option trade remained mixed Wednesday, underlying futures near post-CPI lows while projected rate cuts through mid-2025 continue to recede vs. this morning's pre-CPI levels (*) as follows: Mar'25 at -0.5bp (-0.7bp), May'25 at -3.2bp (-6.3bp), Jun'25 at -9.1bp (-13.9bp), Jul'25 at -12.6bp (-18.9bp).
SOFR Options:
+18,000 SFRU5 95.37/95.62 put spds, 3.5
+6,000 2QM5 95.25 puts w/ 3QM5 95.25 put strip covered 13.0
+10,000 SFRZ5 96.12/96.37 call spds, 6.0 ref 95.905/0.10%
-5,000 SFRZ5 95.00 puts, 5.0 ref 95.89
+5,000 0QZ5 96.25/96.75/97.25/97.75 call condors, 10.0 vs 95.92
+5,000 SFRN5 95.75/95.87/96.00 put flys, 1.0 ref 95.83
+3,000 SFRK5 95.81/95.93/96.00/96.12 call condors 1.5 ref 95.755
+10,000 0QU5 97.12 calls 5.5 vs. 95.965/0.10
+5,000 SFRJ5 95.62/95.68/95.75 put trees, 2.75 ref 9576
-2,000 0QU5/3QU5 95.25 put spds, 2.0 net
+5,000 0QU5 97.12 calls 5.0 ref 95.935
+4,000 0QH5 95.81/95.93/97.06 put flys 2.5 ref 95.925
+4,000 0QH5 96.37/96.43 1x2 call spds, 1.25, 2 legs over ref 96.025
4,000 0QJ5 95.43/95.50 2x1 put spds ref 96.03
10,000 SFRZ5 95.37/95.50 put spds ref 95.975 to -.97
2,000 0QG5 95.81/95.93/96.06 put flys ref 96.01
Block, 2,500 SFRJ5 95.62/95.75 put spds ref 95.805
11,500 SFRZ5 96.00 calls
4,100 SFRM5 95.00/95.56/95.62 broken put trees ref 95.81
4,000 SFRM5 95.75/96.00 call spds ref 95.81
5,000 SFRZ5 96.18/97.18 call spds ref 95.975
3,500 SFRH5 96.00 calls, 0.5
2,900 SFRG5 95.68 puts, 0.5
Treasury Options:
Block: +10,000 TYJ5 109/110/110.5 broken call flys, 12 vs. 108-09/0.10%
Update +20,000 TYH5 107/107.5 2x1 put spds, 2
-10,000 TYH5 108 puts, 19
-7,500 FNH5 105.5 puts, 5.5
-3,000 TYK5 108 straddles, 214 (appr vol 5.81%)
+14,400 TYJ5 106.5 puts, 15
2,000 TYJ5 108 straddles
3,800 FVK5 109 calls vs. 105.75/106.5 put spds
-30,000 TYH5 109 puts, 43-45 unwind
2,400 FVJ5 105/106 put spds vs. 107.25 calls ref 106-12
8,000 TYH5 106/107 put spds ref 108-28 to -28.5
2,000 USJ5 108 puts, 8 ref 114-18
5,800 TYH5 107.5 puts, 3 ref 108-29.5
30,000 TYH5 110.5 calls, 3 total volume over 33k
over 18,600 TYH5108.5 puts, 14 last
over 6,000 TYH5 110 calls, 5 ref 108-29
MNI BONDS: EGBs-GILTS CASH CLOSE: US Inflation Rise Pushes European Yields Higher
European yields rose Wednesday with mixed dynamics across curves following a stronger-than-expected US inflation report.
- Supply weighed early on the space (30Y Oat syndication and Greek, German, Portuguese auctions), with weak Italian industrial production data not really having an impact. The biggest catalyst of the session was the US January CPI release that showed significant upside surprises in almost all important categories.
- Cumulative global central bank rate cut pricing for end-2025 was pared (ECB 77bp vs 83bp prior; BOE 59bp vs 61bp prior)
- BOE MPC member Greene made comments that seem to move her away from her former hawkish tilt, even if she's still considered unlikely to vote for a March cut.
- The relative performance in STIR meant the German curve bear flattened, with the UK's bear steepening.
- Periphery EGB spreads tightened however, with European equities bouncing toward the end of the session.
- Thursday's scheduled highlight is UK economic activity data, including Q4 GDP, while we also get some final Eurozone January inflation data and Eurozone aggregate industrial production. ECB's Cipollone and Nagel make appearances, with the ECB also publishing its economic bulletin.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 5.3bps at 2.137%, 5-Yr is up 5.5bps at 2.267%, 10-Yr is up 4.7bps at 2.477%, and 30-Yr is up 3.2bps at 2.724%.
- UK: The 2-Yr yield is up 1.4bps at 4.198%, 5-Yr is up 2.4bps at 4.222%, 10-Yr is up 3.5bps at 4.543%, and 30-Yr is up 3.6bps at 5.135%.
- Italian BTP spread down 1.6bps at 108.4bps / Spanish down 1bps at 62.2bps
MNI EGB OPTIONS: Call Condors, Spreads, Outrights Feature Wednesday
Wednesday's Europe rates/bond options flow included:
- DUH5 106.80/107.00/107.20 call fly 5.2K given at 4.75
- RXH5 134c, bought for 6 in 10k
- ERJ5 97.9375/98.0625 call spread paper paid 2.5 on 5K
- ERM5 97.875/98.00/98.0625/98.1875c condor, sold at 3.5 in 10k
- ERM5 97.875/98.00/98.125/98.25c condor, bought for 4.75 in 2k
- ERU5 98.12/9837cs vs ERM5 98.0625c, bought the cs for 3.25 in 5k
- SFIM5 95.75/95.50 put spread 7K given at 3
- SFIU5 96.35/96.65/96.80c fly, bought for 4 in 25k
MNI FOREX: EURJPY Soars Amid Higher Core Yields, Russia/Ukraine Optimism
- Wednesday’s session in FX has been characterised by a weaker yen, with EURJPY’s 1.85% rally particularly standing out. Price dynamics kickstarted across the APAC session but were then bolstered by a hotter-than-expected US CPI report, assisting the hawkish repricing across core fixed income markets.
- The single currency received an additional boost in late trade, as the positive tone of the Trump/Putin discussions fuels optimism towards what Trump describes as a ‘successful conclusion’ to the Russia/Ukraine conflict
- EURUSD had a brief flurry down to 1.0317 on the US CPI release, however, the pair has reversed back above 1.04 and is now testing the 50-day EMA, intersecting today a 1.0427. This marks a key resistance, and a clear break of it would be a bullish development.
- For EURJPY, session highs just below 161.00 display an intra-day range greater than 300 pips. The cross has extended the recovery from Monday’s lows to an impressive 3.5%. While we have noted that the move higher is allowing a recent oversold condition to unwind, the significant reversal and fundamental developments places the short-term focus on an even stronger reversal. Key short-term resistance is at 161.09, the 50-day EMA.
- Overall, the USD index is 0.3% lower on the session as markets shrugged off the inflation readings and focused more on the recovering equities and ongoing developments surrounding the US administration. Alongside the Trump/Putin call, economic adviser Hassett stated that reciprocal tariffs are a ‘work in progress’, potentially hinting of room for negotiation and further fostering a more optimistic tone for risk. Indeed, AUDUSD and NZDUSD have bounced back well from near 1% losses on the session to trade back in positive territory ahead of the APAC crossover.
- NZ inflation expectations data is due overnight, before UK GDP and Swiss CPI headline the European data docket. In the US, PPI figures are scheduled.
MNI FX OPTIONS: Expiries for Feb13 NY Cut 1000ET (Source DTCC)
- EUR/USD: $1.0300-15(E896mln), $1.0375(E1.2bln), $1.0400(E1.3bln), $1.0500(E1.9bln)
Larger FX Option Pipeline
- EUR/USD: Feb14 $1.0200(E1.6bln), $1.0220-25(E1.5bln), $1.0275-80(E1.9bln), $1.0300-20(E4.5bln), $1.0325(E1.6bln), $1.0400(E3.8bln), $1.0435(E1.0bln), $1.0475(E1.5bln), $1.0500(E1.4bln); Feb17 $1.0500(E2.3bln); Feb18 $1.0300(E1.7bln)
- USD/JPY: Feb14 Y150.00($1.9bln), Y150.90-00($1.6bln), Y152.00($2.3bln), Y154.00($1.2bln), Y156.00($1.7bln)
- EUR/JPY: Feb14 Y157.65(E1.7bln)
- GBP/USD: Feb14 $1.2080-00(Gbp1.2bln)
- AUD/USD: Feb14 $0.6200(A$1.2bln), $0.6275-00(A$1.3bln)
- USD/CAD: Feb14 C$1.4450($1.1bln), C$1.4600($1.1bln), C$1.4800($2.1bln)
- USD/CNY: Feb14 Cny7.1500($3.3bln), Cny7.2000($2.6bln), Cny7.3000($2.2bln), Cny7.3400($2.4bln)
MNI US STOCKS: Late Equities Roundup: Autos, Travel & Broadline Retailers Rebound
- Major stock averages trade mixed late Wednesday, well off this morning's post-CPI related lows, some desks said sentiment improved after President Trump confirmed call with Russia's Putin Call to end war in Ukraine. Currently, the DJIA trades down 204.88 points (-0.46%) at 44392.64, S&P E-Minis down 14.75 points (-0.24%) at 6077.5, Nasdaq up 28 points (0.1%) at 19672.59.
- Consumer Discretionary and Consumer Staples sectors led gainers in the second half, autos and travel related shares buoyed the former: Tesla +5.04%, Airbnb +4.32$, GM +2.31% while Expedia gained 2.25%. Broadline retailers supported the Consumer Staples sector: Kroger +1.0%, Walmart +0.90%, Walgreens Boots +0.80%.
- Conversely, Energy and Materials sectors underperformed in late trade, oil and gas stocks weaker as crude prices pare early week gains (WTI -1.98 at 71.34): Diamondback Energy -4.09%, APA -3.93%, Devon & Valero Energy both declining -3.5%. Container & packing shares weighed on the Materials sector: CF Industries Holdings -6.50%, Smurfit WestRock -5.00%, Mosaic -4.75%.
- Reminder, expected Wednesday afternoon earnings include: Equinix Inc, MGM Resorts International, Reddit, Robinhood Markets, Albemarle, AppLovin, Williams Cos, Corebridge Financial, Aurora Innovation, Dutch Bros, HubSpot and Cisco Systems.
MNI EQUITY TECHS: E-MINI S&P: (H5) Short-Term Reversal Threat Still Present
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: 6123.25 High Feb 7
- PRICE: 6078.75 @ 1505 ET Feb 12
- SUP 1: 6014.00/5935.50 Low Feb 10 / 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
Price action on Feb 3 in the S&P E-Minis contract 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 ‘24 high. Clearance of this hurdle would resume the primary uptrend.
MNI COMMODITIES: Crude Extends Losses Amid Russia/Ukraine Optimism, Copper Rebounds
- Crude has extended losses today after Presidents Trump and Putin appeared to agree to begin talks over ending the Ukraine war, a bearish move for oil markets. This added to existing pressure from an above-expectation US stock build.
- WTI Mar 25 is down by 2.7% at $71.4/bbl.
- US crude inventories rose 4.07mbbl, more than expected but less than suggested in API data, remaining below the five-year seasonal average. API data yesterday showed a large crude stock build of 9mbbl, according to Bloomberg.
- The move lower in WTI futures narrows the gap to key short-term support and the bear trigger at $70.43, the Feb 6 low. Below here, next support is at $68.05, the Dec 20 ’24 low.
- Meanwhile, spot gold has edged down by 0.1% to $2,895/oz, leaving the yellow metal almost $50 below yesterday’s record high.
- A bull cycle in gold remains in play, with sights on $2,962.2, a Fibonacci projection.
- Copper has rebounded today, with price up by 2.1% at $469/lb, unwinding yesterday’s losses and taking the red metal back to 4½-month highs.
- Copper futures remain in a bull cycle and the most recent gains have highlighted an acceleration of the uptrend.
- Price is through $461.24, 76.4% of the Sep 30 ‘24 - Jan 2 bear leg, with sights on $480.00, the Sep 30 high and bull trigger.
THURSDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 13/02/2025 | 0700/0700 | ** |  GB | UK Monthly GDP |
| 13/02/2025 | 0700/0700 | ** | GB | Trade Balance |
| 13/02/2025 | 0700/0700 | ** | GB | Index of Services |
| 13/02/2025 | 0700/0700 | *** | GB | Index of Production |
| 13/02/2025 | 0700/0800 | *** |  DE | HICP (f) |
| 13/02/2025 | 0700/0700 | ** | GB | Output in the Construction Industry |
| 13/02/2025 | 0700/0700 | *** | GB | GDP First Estimate |
| 13/02/2025 | 0730/0830 | *** |  CH | CPI |
| 13/02/2025 | 0840/0940 |  EU | ECB's Cipollone pre-recorded interview at Frankfurt Digital Finance conference | |
| 13/02/2025 | 1000/1100 | ** | EU | Industrial Production |
| 13/02/2025 | 1330/0830 | *** |  US | Jobless Claims |
| 13/02/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 13/02/2025 | 1330/0830 | *** | US | PPI |
| 13/02/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 13/02/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 13/02/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 13/02/2025 | 1800/1300 | *** | US | US Treasury Auction Result for 30 Year Bond |