HIGHLIGHTS
- Treasuries look to finish near late session highs Wednesday, lower than expected ISM Services data spurring heavy buying across the board, 10Y futures nearing pre-December 18 FOMC levels.
- The Greenback traded weaker on the data, Yen outperformance remained the key feature of the day in G10 currency markets, underpinned by the stronger-than-expected Japanese wage data.
- Stocks also consolidated after early losses, with the DJIA, SPX and Nasdaq all in the green in late trade ahead continued heavy earnings docket after the close.
MNI US TSYS: Treasuries Well Bid, Curves Bull Flatten Ahead Friday's Employ Data
- Treasuries look to finish near late session highs Wednesday, lower than expected ISM Services data spurring heavy buying across the board - ISM Services missed expectations at 52.8 (54.0 expected, 54.0 prior), with pullbacks prevalent in some key categories.
- ADP employment was stronger than expected in January at 183k (cons 150k) along with a solidly upward revised 176k (initial 122k) in Dec. Meanwhile, December's goods and services trade deficit was slightly wider than thought at $98.4B.
- No change to Treasury guidance on future issuance in the February Refunding policy statement, a modest dovish surprise vs many expectations that it would be watered down.
- The Mar'25 10Y contract has nearly made it back to pre-Dec 18 FOMC levels, topping at 109-29 high before slipping back to 109-24 (+17.5) after the bell. Curves bull flattened, 2s10s -6.344 to 23.336, 5s30s -2.856 at 39.718; 10Y yield slipped to session low of 4.4001%.
- The Greenback traded weaker on the data (BBDXY off lows at 1297.89 -2.69), Yen outperformance remained the key feature of the day in G10 currency markets, underpinned by the stronger-than-expected Japanese wage data.
- Additional cross asset moves, Gold hit new all-time high of 2882.29, Crude turned lower (WTI -1.49 at 71.21), Stocks reversed early weakness (SPX Eminis +12.0 at 60.75 vs. 6020.25 overnight low.
- Focus remains on Friday's headline employment data for January.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00053 to 4.30786 (-0.00522/wk)
- 3M +0.00003 to 4.30191 (-0.00034/wk)
- 6M -0.00263 to 4.25910 (+0.01079/wk)
- 12M -0.00393 to 4.18877 (+0.02847/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.33% (-0.02), volume: $2.344T
- Broad General Collateral Rate (BGCR): 4.31% (-0.02), volume: $909B
- Tri-Party General Collateral Rate (TCR): 4.31% (-0.02), volume: $894B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $104B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $281B
FED Reverse Repo Operation: Second Consecutive New Low
RRP usage extends to new low of $78.788B this afternoon from $85.654B Tuesday. Today's usage compares to previous low of $92.863B on Monday, January 27 - the lowest level since mid-April 2021. The number of counterparties falls to 28 from 34 prior.
US SOFR/TREASURY OPTION SUMMARY
Heavy SOFR & Treasury option volumes tallied Wednesday, leaning towards downside Tsy puts in 2s, 5s and 10s (over 114k TYH5 109 puts for example) while heavy SOFR options were more evenly paired. Reminder, March options expire on Feb 21, March futures roll to June at the end of the month. Underlying futures drift higher, at/near overnight highs w/ TYH5 highest since December 18. Projected rate cuts through mid-2025 gain slightly vs. this morning's levels (*) as follows: Mar'25 at -4.2bp (-4.1bp), May'25 at -11.9bp (-11.2bp), Jun'25 at -22.7bp (-22.1bp), Jul'25 at -29.1bp (-28.6bp).
SOFR Options:
+10,000 SFRN5 95.56/95.75/95.93 put flys 5.0 ref 96.04
-3,000 SFRH6 96.62 straddles, 37.5
+5,000 0QJ5 95.62/95.87/96.00 put trees, 0.5 ref 96.185
-4,000 0QH5 96.31 calls, 8.0 ref 96.155/0.36%
+4,000 0QH5 96.06/96.31 1x2 call spds, 3.0 ref 96.16
+10,000 0QH5 97.00/3QH5 96.87 call spds, cab net steepener
+20,000 0QU5 97.12/98.12 call spds, 6.5 ref 96.15
+10,000 SFRU5 96.62/97.62 call spds, 5.75 ref 96.015
-5,000 SFRM5 95.87/96.12 call spds, 6.75 vs. 95.915/0.54%
+10,000 SFRZ5 95.75/96.00 put spds vs. 5,000 96.50 calls, 1.75 net
-4,000 SFRN5 95.62/96.37 strangles, 13.0 ref 96.035
+5,000 SFRZ5 94.87/95.12/95.37/95.62 put condors, 2.25 ref 96.125
2,300 SFRK5 95.62/95.75/95.81/95.87 put condors ref 95.90
6,000 0QH5 95.50/95.81/96.00 broken put trees ref 96.14
2,000 SFRM5 96.12/96.18 call spds ref 95.895
1,500 0QM5/0QU5 96.75/97.25 call spd spd vs.
1,500 3QM5/3QU5 96.75/97.25 call spd spd
Treasury Options:
over +114,000 TYH5 109 puts, from 18 to 26 (expire Feb 21) open interest 66,520 coming into the session
-10,000 TYH5 109/110 strangles, 50 appr half vs. 109-13/0.05%
over 24,000 TUH5 102.5/102.75 2x1 put spds ref 102-27.88 to -28
over 15,400 USH5 110 puts, 3 last
over 7,500 USH5 112 puts, 12 last
over 4,000 TYH5 107.75/108.25/108.5/109 put condors ref 109-16
over 17,000 TYH5 109 puts, 26 last ref 109-15.5
3,000 TYJ5 109.5 calls, 57 ref 109-14
2,000 TYJ5 114/116 call spds
1,800 TYH5 110.5/112.5 1x2 call spds ref 109-13.5
5,000 TYH5 106/107 put spds, 2 ref 109-13.5
3,000 TYH5 110.5 calls, 14 last ref 109-12.5
1,500 FVH5 105/105.5/106 put trees ref 106-22.75
over 10,000 wk1 FV 106/106.25 put spds ref 106-22.75 (exp Friday)
4,500 wk2 FV 107/107.75 call spds ref 106-20.75 (exp Feb 14)
over 5,300 Wednesday weekly 10Y 109 puts, 4 (expire today)
Several wk1 TY put flows via outright, trees & spds, total volumes so far:
over 12,800 wk1 TY 108 puts; over 19,200 wk1 TY 108.5 puts; over 13,000 wk1 TY 109 puts
MNI BONDS: EGBs-GILTS CASH CLOSE: Gilt Rally Resumes
European curves flattened Wednesday, with Gilts outperforming.
- EGBs and Gilts benefited in early trade amid a lack of meaningful headline flow and softer oil prices and equities (tech earnings, US tariff concerns in the background), with Gilts outperforming on solid demand at a green bond auction.
- The rally extended in afternoon trade as the day's key data report, US ISM Services, came in on the soft side of expectations.
- ECB Chief Economist Lane drew a modestly hawkish reaction as he flagged risks that disinflation could take longer than expected; Centeno noted that the ECB may have to cut below neutral.
- The German curve twist flattened, with the UK's bull flattening as 10Y Gilt yields saw one of their biggest drops in several months (8.5bp), hitting the lowest level since mid-December. EGB periphery EGB spreads were mixed.
- French OAT saw slightly tighter spreads to Bunds on the day though they underperformed BTPs, as PM Bayrou's government survived a no-confidence vote.
- The Bank of England decision will be Thursday's focus (with apologies to German factory orders). MNI's preview (link) looks for a 25bp cut on an 8-1 vote, with any meaningful tweaks to forward guidance unlikely. Attention will be paid to other matters including the Agents' Pay Survey, and the MPR projections.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 0.6bps at 2.057%, 5-Yr is down 1.5bps at 2.155%, 10-Yr is down 3bps at 2.366%, and 30-Yr is down 4.7bps at 2.599%.
- UK: The 2-Yr yield is down 3.1bps at 4.15%, 5-Yr is down 6.4bps at 4.124%, 10-Yr is down 8.5bps at 4.437%, and 30-Yr is down 10.2bps at 5.023%.
- Italian BTP spread down 1.5bps at 108.5bps / French OAT down 0.4bps at 71.6bps
MNI FOREX: Economic Data Weighs Heavily on USDJPY, Bear Cycle for Extends
- Yen outperformance remains the key feature of the day in G10 currency markets, as USDJPY looks to consolidate a 1.25% move lower, extending the most recent bearish theme for the pair. Moves have been underpinned by the stronger-than-expected Japanese wage data, fostering a more hawkish BOJ narrative, as well as core yields extending their slide lower in the aftermath of weaker US ISM Services data.
- USDJPY took out a number of supports throughout the session, including a key Fibonacci retracement at 152.55. This further expands the downside range, and the pair is now on track for the lowest daily close since December 10th, narrowing the gap to more meaningful support at 151.81, the Dec 12 low. Below here, attention would be on 151.06, the 76.4% retracement of the Dec 3 - Jan 10 bull leg.
- Following the US data, EURUSD managed to match the 50-day EMA resistance to the pip (at 1.0442), which has helped EURJPY to extend session lows in late trade, currently down 0.9% on the session, comfortably back below the pivotal 160.00 mark. Price action sees the cross narrow the gap to Monday’s lows of 157.97.
- Elsewhere, a solid showing for equities has kept the US dollar on the back foot, and the firmer risk sentiment has in turn boosted the likes of AUD and NZD which are up 0.6% and 0.75% respectively.
- Resistance levels in GBPUSD at 1.2503 (50-day EMA) and 1.2523 (Jan 27 high), have been breached Wednesday. This cancels a recent bearish threat and instead reinstates the bull cycle that started Jan 13. The break higher paves the way for a climb towards 1.2610, a Fibonacci retracement.
- German factory orders and UK construction PMI are highlights of a quiet Thursday calendar, before the Bank of England decision takes focus. US jobless claims and Fed speakers will also garner interest.
MNI FX OPTIONS: Expiries for Feb06 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0250(E1.5bln), $1.0300(E1.0bln), $1.0315-25(E2.2bln), $1.0350-55(E1.1bln), $1.0370-80(E1.5bln), $1.0390-10(E2.8bln), $1.0430-50(E2.4bln), $1.0500(E1.2bln)
- USD/JPY: Y152.50($720mln), Y153.90($1.4bln)
- EUR/JPY: Y159.30(E878mln)
- GBP/USD: $1.2455(Gbp1.4bln), $1.2550(Gbp1.1bln)
- EUR/GBP: Gbp0.8465(E1.1bln)
- USD/CAD: C$1.4200($1.8bln)
- USD/CNY: Cny7.3000($524mln), Cny7.3550($648mln)
MNI US STOCKS: Late Equities Roundup: Near Session Highs, IT & Pharmaceuticals Ahead
- Stocks continue to extend gains/pare losses, the Nasdaq mildly underperforming in late Wednesday trade. Currently, the DJIA trades up 250.53 points (0.56%) at 44807.48, S&P E-Minis up 14 points (0.23%) at 6077, Nasdaq down 8 points (0%) at 19646.43.
- Information Technology and Health Care sectors continued to lead gainers in late trade: Johnson Controls International gaining over 12.25% after beating earnings estimates (and replacing it's CEO) this morning, while Fiserv Inc gained 7.45%, Super Micro Computer +6.79% and Broadcom +6.21%.
- Better than expected earnings also helped pharmaceuticals with Amgen +6.23%, Bio-Techne gaining 4.8% and Regeneron Pharmaceuticals +2.77%.
- Communication Services and Consumer Discretionary sectors continued to underperform in late trade, interactive media and entertainment shares weighing on the former with Alphabet -8.08% after beating street estimates in 4Q EPS, but missing 4Q revenue, Match Group -7.62%, Interpublic Group -3.99%.
- Leading laggers in the Consumer Discretionary sector included Tesla -3.22%, Chipotle Mexican Grill -2.69%, Nike -2.46 and Amazon -2.3%.
- Reminder, earnings expected after the bell include: MetLife, Cognizant Technology Solutions, MicroStrategy, QUALCOMM Inc, Skyworks Solutions, McKesson Corp, Molina Healthcare, Viking Therapeutics, Ford Motor Co, Allstate Corp and O'Reilly Automotive Inc.
MNI EQUITY TECHS: E-MINI S&P: (H5) Bear 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: 6081.00 High Feb 5
- PRICE: 6078.75 @ 1515 ET Feb 5
- SUP 1: 5935.50 Low Feb 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
Monday’s initial sell-off in the S&P E-Minis contract and breach of support at 5948.00, the Jan 27 low, strengthens a bearish threat and cancels - for now - a recent bullish theme. An extension down would open 5892.37, a Fibonacci retracement point. Initial resistance is at 6069.00, Tuesday’s intraday high. Gains are considered corrective, however, a stronger rally would expose key resistance at 6178.75, the Dec 6 high.
MNI COMMODITIES: Gold Extends Gains, Copper Outlook Remains Bullish, WTI Falls
- Gold rose to a fresh record high earlier in Wednesday’s session before paring gains, with the yellow metal currently up by 0.9% at $2,868/oz.
- Earlier in the session, gold reached a high of $2,882 on the back of a further pullback in the US dollar and continued haven demand amid ongoing geopolitical and tariff uncertainty.
- With a bull cycle in gold still in play, sights are on $2,889.9 next, a Fibonacci projection, followed by round number resistance at the $2,900 level.
- Meanwhile, copper has also rallied by 2.3% today to $445/lb, taking the red metal to its highest level since Jan 17.
- Copper remains in a bull cycle, with gains this week taking it through $433.50, the Dec 12 high. The break of this level highlights a reversal and opens $452.85, the Nov 5 ‘24 high and a key resistance.
- Next resistance above here is $469.30, the Oct 3 high.
- Crude has extended earlier losses following a large US crude stocks build and with pressure from signs of increasing global trade friction.
- WTI Mar 25 is down by 2.2% at $71.1/bbl.
- According to the EIA weekly US petroleum summary, crude stocks rose by 8,664mn w/w vs. an expected +1,034mn
- WTI futures have pierced support around the 50-day EMA, at $72.27, a clear break of which would open $68.05, the Dec 20 low.
THURSDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 06/02/2025 | 0645/0745 | ** |  CH | Unemployment |
| 06/02/2025 | 0700/0800 | ** |  DE | Manufacturing Orders |
| 06/02/2025 | 0700/0800 |  SE | Flash CPI | |
| 06/02/2025 | 0830/0930 | ** |  EU | S&P Global Final Eurozone Construction PMI |
| 06/02/2025 | 0930/0930 | ** |  GB | S&P Global/CIPS Construction PMI |
| 06/02/2025 | 1000/1100 | ** | EU | Retail Sales |
| 06/02/2025 | 1200/1200 | *** | GB | Bank Of England Interest Rate |
| 06/02/2025 | 1200/1200 | *** | GB | Bank Of England Interest Rate |
| 06/02/2025 | 1230/1230 | GB | BOE MPR press conference | |
| 06/02/2025 | 1330/0830 | *** |  US | Jobless Claims |
| 06/02/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 06/02/2025 | 1330/0830 | ** | US | Preliminary Non-Farm Productivity |
| 06/02/2025 | 1400/1400 | GB | Decision Maker Panel data | |
| 06/02/2025 | 1500/1000 | * |  CA | Ivey PMI |
| 06/02/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 06/02/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 06/02/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 06/02/2025 | 1900/1400 | *** |  MX | Mexico Interest Rate |
| 06/02/2025 | 1930/1430 | US | Fed Governor Christopher Waller | |
| 06/02/2025 | 2200/1700 | CA | BOC Governor speech at BIS conference | |
| 06/02/2025 | 2210/1710 | US | Dallas Fed's Lorie Logan | |
| 07/02/2025 | 2330/0830 | ** |  JP | Household spending |