HIGHLIGHTS
- Treasuries look to finish near late session lows Friday, reversing early session gains in the face of next week's incoming corporate bond issuance estimated at $40B as well as the front ended Treasury supply.
- Tsy Curves briefly bear steepened around midday before retreating again in the second half (2s10s -.268 at 31.474) while Projected rate cuts through mid-2025 cooled.
- Despite the USD index slipping back to 109.00, the DXY looks set to post another 0.9% advance this week, and post its highest close since November 2022.
- Treasury futures looked to finish near late session lows Friday, early support evaporating after the December manufacturing ISM survey beat expectations, but still pointed to soft if improving sectoral dynamics. The headline reading of 49.3 was an improvement from 48.4 prior and a 9-month high, besting the survey expectation of 48.4.
- Tsy curves bear steepened briefly before retreating mildly flatter in the second half. In turn, projected rate cuts through mid-2025 look steady to lower vs. this morning's levels (*) as follows: Jan'25 steady at -2.8bp, Mar'25 -13.2bp (-14.4bp), May'25 -17.8bp (-19.5bp), Jun'25 -26.5bp (-28.2bp).
- Focus on next week: economic data and Treasury supply has been moved forward to accommodate next Thursday's "day of mourning" to honor President Carter. The Federal holiday sees most markets closed, the exception so far is CME rates that will operate on a shortened session.
- Next Thursday's weekly jobless and continuing claims will be released on Wednesday according to the Dept of Labor site LINK
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.01013 to 4.31543 (-0.03952/wk)
- 3M -0.00236 to 4.29369 (-0.03509/wk)
- 6M +0.00415 to 4.24195 (-0.04298/wk)
- 12M +0.00230 to 4.16471 (-0.07460/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.40% (-0.09), volume: $2.501T
- Broad General Collateral Rate (BGCR): 4.36% (-0.09), volume: $853B
- Tri-Party General Collateral Rate (TGCR): 4.36% (-0.09), volume: $820B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $106B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $264B
FED Reverse Repo Operation
Well off Tuesday's year-end high of $473.460B (highest level since June 28) RRP usage continues to recede, $237.377B this afternoon from $239.858 Thursday. Compares to $98.356B on Friday, December 20 - the lowest level since mid-April 2021. The number of counterparties retreats to 57 from 64 prior.
US SOFR/TREASURY OPTION SUMMARY
Though volumes waned in the second half, SOFR & Treasury option trade leaned toward upside call structures Friday while underlying futures reversed early support to finish near session lows: TYH5 -5.5 at 108-20.5. Projected rate cuts through mid-2025 look steady to lower vs. this morning's levels (*) as follows: Jan'25 steady at -2.8bp, Mar'25 -13.2bp (-14.4bp), May'25 -17.8bp (-19.5bp), Jun'25 -26.5bp (-28.2bp).
SOFR Options:
-2,500 2QH5 95.87/4QH5 95.75 put spds, 0.0 net steepener
+4,000 SFRU5 96.50/97.50 call spds, 10.25 - legged
5,200 SFRF5 95.87/96.00/96.06 broken call flys ref 95.82
2,000 2QF5 96.25/96.37 call spds ref 96.055
Block, 3,000 SFRU5 96.31/96.43 call spds, 3.0 ref 96.025
4,000 SFRM5 96.25 calls ref 95.95
3,000 SFRZ5 95.25/95.43/95.75 broken put trees ref 96.07
Treasury Options:
-10,000 wk2 TY 108 puts 7 ref 108-23.5 to -24
over 3,000 USG5 111/113 put spds vs. USH5 111 put ref 113-24
+17,000 Wednesday wkly TY 109.75 calls, 4 (expire next wk)
3,200 TYG5 111 calls, 7 last
2,600 TYG5 109 straddles
2,000 FVG5 105.75 puts, 10
over 10,000 FVG5 106.5/107 call spds vs. 105.75 puts ref 106-12.75
MNI BONDS: EGBs-GILTS CASH CLOSE: Short Ends Underperform
Gilts easily outperformed Bunds Friday, with short ends underperforming on respective curves.
- Hawkish repricing in Euro rates stood out, amid EUR weakness and ahead of next week's Euro inflation data. Implied ECB rate cuts were pared by around 7bp through 2025 (around 105bp seen through the year); BOE-implied remained relatively steady at 58bp (2bp less than the prior session).
- A more solid-than-expected US ISM Manufacturing survey upped the pressure toward the European cash close.
- In European data, German labour market data on balance showed some signs of revival. BOE November Money and Credit data indicated UK loan approvals were softer compared to October and consumer credit remains weak.
- With the short end weakening, the German curve bear flattened sharply, with the UK's lightly twist flattening.
- Periphery EGB spreads were little changed, though notably OATs underperformed for another session amid continued perceptions of fiscal and political risks.
- There are no sovereign credit rating updates scheduled after Friday's market close, but MNI's ratings calendar for 2025 is here.
- Next week's schedule is highlighted by the December Eurozone inflation round - MNI's preview is here.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 6.1bps at 2.161%, 5-Yr is up 5.9bps at 2.23%, 10-Yr is up 4.6bps at 2.425%, and 30-Yr is up 3.2bps at 2.653%.
- UK: The 2-Yr yield is up 1.2bps at 4.422%, 5-Yr is up 0.6bps at 4.385%, 10-Yr is down 0.2bps at 4.593%, and 30-Yr is down 0.9bps at 5.156%.
- Italian BTP spread down 0.1bps at 116.3bps / French OAT up 2.4bps at 87.4bps
MNI OPTIONS: Post-Holiday Activity Picks Up With Multiple Put Structures
Friday's Europe rates/bond options flow included:
- Week 2 RX 130.50 puts (expire next Friday) paper paid 4.5 on 3K.
- RXH5 134.00/135.00/135.50 broken call fly paper paid 19.5 on 2K
- ERG5 97.62/97.50 1x2 put spread 5K given at 1.25, contact flags trade is exiting existing long.
- ERH5 97.62/97.50 put spread 5K given at 3.5
- ERJ5 98.00/97.875/97.75 put ladder bought for 1 in 4k
MNI FOREX: USD Index Set For Near 1% Advance This Week
- The greenback is a touch softer on Friday as markets have displayed much more contained ranges approaching the weekend close. Despite the USD index slipping back to 109.00, the DXY looks set to post another 0.9% advance this week, and post its highest close since November 2022.
- Most notable in G10 has been the breach of 1.0335 for EURUSD, as the pair extends the post-election decline to ~5.8%. Since breaking on Thursday, spot has not been back above this level, which now becomes immediate resistance. While there are small supports noted at 1.0198, and 1.0181 (the 2.0% 10-dma envelope), chart levels remain scant between here and parity, which once again becomes a focus going forward.
- Options markets now price an implied probability of 49% for the pair to touch 1.00 in the coming three months (up from 28% a week ago), and a 21% probability (up from 13% a week ago) of the pair closing below parity at end-Q1.
- GBPUSD weakness also stood out to start the year, with the pair sinking below 1.2400 to print an 8-month low of 1.2353. Very subdued price action on Friday keeps the medium-term downtrend firmly intact, opening 1.2300, the Apr 22 ‘24 low and an important chart point.
- USDCAD has risen 0.4% on the session and stands just below cycle highs at 1.4460. We pointed out that the latest pause appeared to be a flag formation - a bullish continuation signal. Immediate sights are on 1.4508 next, a Fibonacci projection level, before 1.4539.
- Notably USD/CNH rallied to levels above 7.36 once more, close to cycle highs amid concerns over China’s economic struggles. Potentially more significantly, the onshore USD/CNY rate broke above 7.3000 - a long held and long-tested level over the past week or so.
- Eurozone inflation readings will be a focus at the beginning of next week, and US ISM Services PMI and JOLTS data headline the docket in the US on Tuesday.
MNI OPTIONS: Expiries for Jan06 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0263($643mln), $1.0285-00(E738mln)
- GBP/USD: $1.2500(Gbp555mln)
MNI US STOCKS: Late Equities Roundup: New High for Early 2025
- Stocks continue to extend highs Friday -- surpassing yesterday's early highs before stocks retreated to December 20 levels (early November lows). Currently, the DJIA trades up 366.16 points (0.86%) at 42756.6, S&P E-Minis up 78.5 points (1.33%) at 5994.75, Nasdaq up 353.3 points (1.8%) at 19632.73.
- Consumer Discretionary and Information Technology sectors continued to lead gainers in the second half, autos and home builders supporting the former: after falling over 6% Thursday Tesla surged 7.1% while Ford gained 2.54%; builders saw Tapestry gained 1.97% while PulteGroup gained 2.00%.
- Semiconductor and hardware maker shares buoyed the IT sector: Super Micro Computer +7.85%, Palantir +5.83%, Jabil +5.41% and Nvidia +4.22%.
- On the flipside, Materials and Consumer Staples sectors underperformed in late trade, metals and mining shares weighing on the former: Celanese -1.87%, Smurfit WestRock -0.97%, Corteva -0.91%. Meanwhile, household and personal products weighed on the Consumer Staples sector: Estee Lauder -2.14%, Kimberly-Clark -0.44%, Kenvue -0.35%.
- Looking ahead, the next round of quarterly earnings kicks off mid-January with Blackrock, Bank of NY Melon, Wells Fargo, JP Morgan, Goldman Sachs, Citigroup, US Bancorp, M&T Bank and PNC all reporting between January 13-16.
MNI EQUITY TECHS: E-MINI S&P: (H5) Bear Threat Still Present
- RES 4: 6194.19 1.236 proj of the Aug 5 - Sep 3 - Sep 9 price swing
- RES 3: 6178.75 High Dec 6 and key resistance
- RES 2: 6163.75 High Dec 16
- RES 1: 6007.63/6107.50 50-day EMA / High Dec 26
- PRICE: 5986.00 @ 1355 ET Jan 3
- SUP 1: 5866.00 Low Dec 20
- SUP 2: 5811.65 38.2% retracement of the Aug 5 - Dec 6 bull leg
- SUP 3: 5784.00 Low Nov 4
- SUP 4: 5698.25 50.0% retracement of the Aug 5 - Dec 6 bull leg
A bear threat in the S&P E-Minis contract remains present and the latest move down highlights the end of the recent Dec 20 - 26 corrective bounce. Attention is on 5866.00, the Dec 20 low and a key short-term support. Clearance of this level would strengthen a bearish theme. Initial firm resistance to monitor is 6107.50, the Dec 26 high. A break of this level is required to open key resistance at 6178.75, the Dec 6 high.
MNI Oil End of Day Summary: WTI Rises 6.4% on Week
WTI has shrugged off earlier losses to headed for its highest close since Oct. 11, up 6.4% on the week. The US crude stock draw helped offset weaker Chinese economic data. A push above the 100-day moving average earlier in the week also spurred bullish sentiment.
- WTI FEB 25 up 1.3% at 74.08$/bbl
- The US total gas rig count was down 1 on the week at 482 rigs, according to Baker Hughes. This is down 19 rigs on the year.
- Outgoing US President Joe Biden is expected to invoke an obscure provision of the 1953 Outer Continental Shelf Lands Act that would give him latitude to withdraw federal waters from future oil and gas leasing, the NYT reported.
- Donald Trump said the UK government was making “a very big mistake” vis a vis an increase in the windfall tax on North Sea oil and gas producers to fund renewable energy projects.
- Russian oil product exports from the Black Sea port of Tuapse are set to fall to 798k mt in January - down 9.8% on December, sources told Reuters.
- Venezuela’s oil exports rose 10.5% in 2024 y/y averaging 772,000 bpd according to LSEG vessel tracking.
- Pemex's crude production is expected to decline further in 2025, Platts said.
- Colombia’s 2024 crude exports fell to their lowest annual level since at least 2019, Bloomberg said.
- Iraqi oil exports climbed by 1% in December, even as OPEC+ delayed its plans to unwind production cuts, Bloomberg said.
- The Mediterranean region's capacity to absorb returning sour crude output in 2025 will hinge on nimble pricing strategies by Saudi Arabia and Iraq, Argus said.
- Exports of top Nigerian crude oil grades are set to decline in February, Reuters said.
MONDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 06/01/2025 | 0730/0830 | ** |  CH | Retail Sales |
| 06/01/2025 | 0815/0915 | ** |  ES | S&P Global Services PMI (f) |
| 06/01/2025 | 0815/0915 | ** | ES | S&P Global Composite PMI (final) |
| 06/01/2025 | 0845/0945 | ** |  IT | S&P Global Services PMI (f) |
| 06/01/2025 | 0845/0945 | ** | IT | S&P Global Composite PMI (final) |
| 06/01/2025 | 0850/0950 | ** |  FR | S&P Global Services PMI (f) |
| 06/01/2025 | 0850/0950 | ** | FR | S&P Global Composite PMI (final) |
| 06/01/2025 | 0855/0955 | ** |  DE | S&P Global Services PMI (f) |
| 06/01/2025 | 0855/0955 | ** | DE | S&P Global Composite PMI (final) |
| 06/01/2025 | 0900/1000 | ** |  EU | S&P Global Services PMI (f) |
| 06/01/2025 | 0900/1000 | ** | EU | S&P Global Composite PMI (final) |
| 06/01/2025 | 0930/0930 | ** |  GB | S&P Global Services PMI (Final) |
| 06/01/2025 | 0930/0930 | *** | GB | S&P Global/ CIPS UK Final Composite PMI |
| 06/01/2025 | 1300/1400 | *** | DE | HICP (p) |
| 06/01/2025 | 1445/0945 | *** |  US | S&P Global Services Index (final) |
| 06/01/2025 | 1445/0945 | *** | US | S&P Global US Final Composite PMI |
| 06/01/2025 | 1500/1000 | ** | US | Factory New Orders |
| 06/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 06/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 06/01/2025 | 1800/1300 | *** | US | US Note 03 Year Treasury Auction Result |
| 07/01/2025 | 0001/0001 | * | GB | BRC-KPMG Shop Sales Monitor |
| 07/01/2025 | 0030/1130 | * |  AU | Building Approvals |