MNI (NEW YORK) - HIGHLIGHTS:
- USD Trades on Firmer Footing As Treasury Yields Tick Higher Post-US Holiday
- Gilts Underperform Ahead Of UK Inflation Data Wednesday
- WTI Gains Amid Supply Disruption, Gold Within Sight Of Record High
US TSYS: Steadily Weaker As Fed Rate Cut Optimism Dims Again
Treasury futures weakened Tuesday, completing the reversal from last Friday's highs.
- Since the Globex re-open Monday evening, Treasuries have been under mild but steady pressure: Mar 10-Yr futures (TY) are last down 17/32 at 108-25 (L: 108-25 / H: 109-11) - above immediate support at 108-04/00 (the post-CPI low on Feb 12 / Low Jan 16).
- That leaves front TYs 22 ticks below Friday's high and back at levels seen just after last Thursday's seemingly benign PPI report.
- Seemingly the dovish implications of Friday's weak retail sales report are being faded, with Fed Gov Waller late Monday expressing less optimism than usual over the prospect of near-term rate cuts. That helped pare end-2025 implied Fed rate cuts by 3bp, last 3.96% (or, one-and-a-half 25bp cuts).
- Data was mixed, with Empire State manufacturing beating and NAHB sentiment missing - but both reports suggested private sector concern over the growth and inflationary impact of tariffs, with New York State manufacturers expecting increasing price pressures over the next half-year.
- Cash Treasuries bear steepened in the return to trade after Monday's Sifma-recommended holiday: the 2-Yr yield is up 4bps at 4.2992%, 5-Yr is up 7.1bps at 4.3986%, 10-Yr is up 7.6bps at 4.5523%, and 30-Yr is up 7.5bps at 4.7717%.
- Treasury supply resumes Wednesday with $16B 20Y Bond auction, while we also get January housing starts/permits data and the January FOMC meeting minutes (followed by an appearance by Fed VC Jefferson).
MNI POLITICAL RISK ANALYSIS-Germany Election Preview
Germany goes into a federal election on 23 February amid an upheaval in the country’s political landscape. Deep splits have emerged between major parties concerning the policies required to revive Germany’s flagging economy – and crucially the possibility of reform to the constitutional ‘debt brake’ – as well as how to deal with rising public anger over high levels of immigration and terrorist attacks. These domestic concerns do not exist in a vacuum and come during one of the most turbulent periods for regional and global geopolitics in years.
This Election Preview contains background information on how the election system works, the parties involved, a chartpack of opinion polling, outlooks for the election from financial and energy markets, and a round-up of sell-side analyst views.
For full article PDF: MNIPOLITICALRISK-GermanyElectionPreview.pdf
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
US TSYS/OVERNIGHT REPO: Repo Rates Set To Pick Up Slightly Early This Week
Repo reference rates softened slightly overall on Friday Feb 14, the most recent session for which we have data owing to Monday's holiday.
- While SOFR was unchanged at 4.33%, BGCR and TGCR saw 1bp dips to 4.31% each.
- Secured rates are seen picking up moderately this week, particularly today as it marks the month's Treasury refunding auctions settlement.
- Though of course, the main pressure is expected to come at end-month as usual, especially given unusually large auction settlements at the end of the month.
- Effective Fed funds as usual was unchanged at 4.33%.
REPO REFERENCE RATES (rate, change from prev. day, volume):
* Secured Overnight Financing Rate (SOFR): 4.33%, no change, $2319B
* Broad General Collateral Rate (BGCR): 4.31%, -0.01%, $932B
* Tri-Party General Collateral Rate (TGCR): 4.31%, -0.01%, $913B
New York Fed EFFR for prior session (rate, chg from prev day):
* Daily Effective Fed Funds Rate: 4.33%, no change, volume: $91B
* Daily Overnight Bank Funding Rate: 4.33%, no change, volume: $268B
US TSYS/OVERNIGHT REPO: ON RRP Takeup Bounces Sharply From Multiyear Lows
Overnight reverse repo facility takeup bounced sharply Tuesday, rising $19.0B (most since Jan 31) vs Friday to $77.8B.
- That's the highest level since Feb 10 and for the moment brings takeup above the post-April 2021 lows set last week ($58.8B on Friday).
- Takeup is expected to remain steady from here/head higher toward end-month.
SOFR FIX - Source BBG/CME
- 1M 4.31180 -0.00185
- 3M 4.32192 -0.00107
- 6M 4.29580 -0.01519
- 12M 4.23157 -0.0433
US SOFR/TREASURY OPTION SUMMARY
Tuesday's US rates/bond options flow included:
- SFRH5 96.06c, traded for half in 4k.
- SFRJ5 95.87/95.81/95.62p ladder, traded for 4 in 2k.
- SFRK5 97.43c, traded for 0.75 in 2k.
- SFRM5 95.93/96.06cs, traded for 1.5 in 7.5k.
- SFRM5 95.68p, traded for 2.5 in 3k.
- SFRM5 95.56/95.68/96.00/96.12 Iron Condor, sold at 2.25 in 3k.
- SFRQ5 95.93^, bought for 34.5 in 2k.
- SFRU5 95.93^, sold at 37 and 36.5 in 8k total
- SFRU5 95.93^, traded for 37 in 2k and 36.5 in 3.5k.
- SFRZ5 96.37/96.12/95.68p ladder, sold at 6.25 in 3k.
- 0QH5 95.93/96.06/96.18/96.43c condor, traded 3.5 in 5k.
- 0QM5 96.06 with 2QM5 96.00 straddle strip, bought for 93 in 1.5k.
- 2QU5 96.62/97.00cs, traded 5 in 3k.
EGBs-GILTS CASH CLOSE: Gilts Underperform Ahead Of UK Inflation Data
Gilts underperformed Bunds Tuesday, fully unwinding Monday's outperformance.
- UK labour market data early in the session set the tone: the implications of stronger-than-expected signals from the quantity side were weighed against broadly in-line pay growth.
- Gov Bailey said later that the labour market data did not fundamentally change the outlook.
- ECB's Cipollone said at an MNI event that he believes the move away from scarce collateral conditions is not yet having a major impact on Eurozone money markets.
- The UK curve bear flattened on the day, while the German curve leaned steeper though was mixed throughout.
- Periphery/semi-core EGB spreads tightened moderately, with European equities gaining.
- Wednesday's schedule is highlighted by UK inflation data - MNI's preview is here.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 0.8bps at 2.132%, 5-Yr is unchanged at 2.267%, 10-Yr is up 0.4bps at 2.493%, and 30-Yr is down 0.1bps at 2.745%.
- UK: The 2-Yr yield is up 3.9bps at 4.243%, 5-Yr is up 3.3bps at 4.253%, 10-Yr is up 3.1bps at 4.558%, and 30-Yr is up 2.8bps at 5.146%.
- Italian BTP spread down 0.4bps at 105.4bps / French OAT down 1.6bps at 71.2bps
OPTIONS: Bund Trades Prevalent Monday
Tuesday's Europe rates/bond options flow included:
- RXJ5 132.50c, bought for 46 in 6k.
- RXM5 127.50/126.50/125.50p fly, bought for 5.5 in 3k.
- RXM5 134.5/137.5 call spread sold at 30.5 in 3k
- ERZ5 98.25/9850 call spread bought for 5.5 in 5k.
FOREX: USD Index Trades on Firmer Footing, Assisted by Higher Yields
- Higher treasury yields have helped the US dollar recoup some of its recent losses on Tuesday, with pressure on equity markets providing an additional tailwind for the greenback.
- G10 declines have been led by the risk sensitive New Zealand dollar, notably underperforming its Antipodean counterpart following the hawkish cut from the RBA. As such, The AUDNZD cross has advanced 0.52% on the session, close to recent highs of 1.1149. Late 2024 highs represent the most notable level on the topside at 1.1180, a breach of which would place the cross at the highest level since late 2022.
- Fixed income market dynamics have weighed on the Japanese yen, and USDJPY stands comfortably above the overnight lows around the 152.00 mark. The pair remains in a technical bear cycle, and the focus remains on the bear trigger at 150.93, the Feb 7 low. Clearance of this level would resume the bear cycle that started on Jan 10, and would target 149.69 (Dec 9 low) and 148.65, the Dec 3 low and a key support.
- The firmer dollar has worked against the single currency, with EURUSD sliding 0.4% to 1.0440. Given a short-term bullish theme dominates, technical support is not seen until 1.0280, the Feb 10 low.
- Wednesday’s APAC session is headlined by the RBNZ, expected to cut the official cash rate by 50bp to 3.75%, before the focus then turns to UK CPI. In the US, the FOMC minutes have the spotlight. Details surrounding the most recent adjustments to the January statement, as well as any discussion or analysis regarding the potential impact of the new presidential administration's policy shifts will be scrutinised.
FX OPTIONS: Larger FX Option Pipeline
- EUR/USD: Feb20 $1.0400-10(E2.7bln), $1.0430-35(E3.0bln), $1.0450(E1.1bln), $1.0520-25(E1.5bln); Feb21 $1.0400(E1.5bln); Feb24 $1.0450(E1.1bln), $1.0460(E1.7bln), $1.0465-70($2.4bln)
- USD/JPY: Feb20 Y154.00($3.0bln)
- USD/CAD: Feb21 C$1.4500($1.2bln), C$1.4600($1.7bln)
- USD/CNY: Feb20 Cny7.2000($1.9bln), Cny7.2500($1.9bln), Cny7.3700($1.3bln)
EQUITY TECHS: E-MINI S&P: (H5) Key Resistance Remains Exposed
- RES 4: 6205.38 0.764 proj of the Jan 13 - 24 - Feb 3 price swing
- RES 3: 6200.00 Round number resistance
- RES 2: 6178.75 High Dec 6 and key resistance
- RES 1: 6162.25 High Jan 24
- PRICE: 6155.75 @ 14:08 GMT Feb 18
- SUP 1: 6075.54 20-day EMA
- SUP 2: 6014.00/5935.50 Low Feb 10 / 3
- SUP 3: 5892.37 76.4% retracement of the Aug 5 - Dec 6 bull leg
- SUP 4: 5842.50 Low Jan 14
S&P E-Minis continue to climb and the contract maintains a firmer tone. Attention is on resistance at 6162.25, the Jan 24 high. Clearance of this level would expose the key resistance at 6178.75, the Dec 6 ‘24 high. A move above this hurdle would resume the primary uptrend. On the downside, initial key support has been defined at 6014.00, the Feb 10 low. A break would highlight a bearish development.
COMMODITIES: WTI Gains Amid Supply Disruption, Gold Within Sight Of Record High
- Crude has risen today on reports of reduced CPC pipeline flows and speculation that OPEC is considering another delay to output rises. This is offsetting bearish pressure from US-Russia talks, which could pave the way to a Ukraine peace agreement.
- WTI Mar 25 is up by 1.6% at $71.9/bbl.
- Transneft says the damaged CPC station will take 1.5-2 months to repair and may lead to a 30% drop in Kazakh flows.
- For WTI futures, key short-term resistance is at $74.06, the Feb 3 high. On the downside, attention is on $70.20, the Feb 6 low, which has been pierced. A clear break would open $67.75, the Dec 20 ‘24 low.
- Meanwhile, Henry Hub has surged to its highest level since Jan 24, boosted by freezing weather across large parts of the US and record feedgas flows to US LNG terminals.
- US Natgas Mar 25 is up by 7.5% at $4.01/mmbtu.
- Despite US dollar gains today, spot gold has risen by 1.3% to $2,935/oz, bringing the yellow metal to within sight of last week’s record high at $2,942.7.
- Goldman Sachs has raised its year-end gold target to $3,100 due to central bank buying and inflows into bullion-backed ETFs. If uncertainty over economic policy persists, gold could even hit $3,300, in their view.
- A bull cycle in gold remains in play, with sights on $2,962.2, a Fibonacci projection, followed by $3,000 psychological round number resistance.
DATA/EVENTS CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 18/02/2025 | 2100/1600 | ** |  US | TICS |
| 19/02/2025 | 2350/0850 | ** |  JP | Trade |
| 19/02/2025 | 2350/0850 | * | JP | Machinery orders |
| 19/02/2025 | - |  NZ | Reserve Bank of New Zealand Meeting | |
| 19/02/2025 | 0001/0001 | * |  GB | Brightmine pay deals for whole economy |
| 19/02/2025 | 0030/1130 | *** |  AU | Quarterly wage price index |
| 19/02/2025 | 0100/1400 | *** | NZ | RBNZ official cash rate decision |
| 19/02/2025 | 0700/0700 | *** | GB | Consumer inflation report |
| 19/02/2025 | 0700/0700 | *** | GB | Producer Prices |
| 19/02/2025 | 0900/1000 | ** |  EU | EZ Current Account |
| 19/02/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 19/02/2025 | 1000/1100 | * | EU | labour costs |
| 19/02/2025 | 1200/0700 | ** | US | MBA Weekly Applications Index |
| 19/02/2025 | 1330/0830 | *** | US | Housing Starts |
| 19/02/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 19/02/2025 | 1800/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |
| 19/02/2025 | 1900/1400 | US | FOMC Minutes | |
| 19/02/2025 | 1900/1400 | *** | US | FOMC Minutes |
| 19/02/2025 | 2200/1700 | US | Fed Vice Chair Philip Jefferson | |
| 20/02/2025 | 0030/1130 | *** | AU | Labor Force Survey |