EXECUTIVE SUMMARY
- MNI FED: Boston's Collins: "Don't See Urgency" To Ease Policy
- MNI US: Trump Confirms Tariffs On Mexican Imports Will Be Paused For One Month
- MNI US: Canada Not Confident Of Tariff 'Off-Ramp' - NYT
- MNI US TSYS/SUPPLY: Treasury Borrowing Requirements At Low End Of Expectations
- MNI US DATA: Construction Spending Picking Back Up, Led By Housing
- MNI US DATA: ISM Mfg New Orders Highest Since 2022 As Pre-Tariff Recovery Extends
US
MNI FED: Boston's Collins: "Don't See Urgency" To Ease Policy
Boston Fed President Collins, a dovish-leaning FOMC member, talks down Fed easing prospects in a CNBC interview: "In my view, that it's really appropriate for policy to be patient, careful, and there's no urgency for making additional adjustments, especially given all of the uncertainty, even though, of course, we're still somewhat restrictive."
- Asked if that means she still sees rates coming down this year, she says "what I would say is, again, there is more to do. I have seen the underlying trend in inflation going in the right direction, but there's a lot of uncertainty there, and it's important to preserve those healthy labor markets, and so I think the data is going to have to tell us. You know, at some point, I certainly would see additional normalization in terms of what the policy stance is. But again, I don't see an urgency there. And I think we'll have to see when it will be appropriate to ease rates further."
- On tariff growth impact, Collins sounds equivocal: "On the growth side, if you have an increase in intermediate goods for the firms that are impacted, that is likely to impact their production. There also can be a demand side effect. So to the extent that tariffs have an impact on real incomes, that can reduce demand for goods and services, but at the same time, increases in the prices of imported goods can cause demand to rise on the domestic goods that are very substitutable. So there's a range of different factors on the real side that are important to consider as well. "
NEWS
MNI US: Trump Confirms Tariffs On Mexican Imports Will Be Paused For One Month
US President Donald Trump has confirmed in a message on Truth Social that he has paused imposing tariffs on Mexican imports for one month, citing an agreement with Mexican President Claudia Sheinbaum to take steps to secure the US-Mexico border to illicit flows of fentanyl and migrants.
- Trump: "I just spoke with President Claudia Sheinbaum of Mexico. It was a very friendly conversation wherein she agreed to immediately supply 10,000 Mexican Soldiers on the Border separating Mexico and the United States. These soldiers will be specifically designated to stop the flow of fentanyl, and illegal migrants into our Country. We further agreed to immediately pause the anticipated tariffs for a one month period during which we will have negotiations headed by Secretary of State Marco Rubio, Secretary of Treasury Scott Bessent, and Secretary of Commerce Howard Lutnick, and high-level Representatives of Mexico. I look forward to participating in those negotiations, with President Sheinbaum, as we attempt to achieve a “deal” between our two Countries."
- Sheinbaum noted the same agreement in a message on Xa short time ago: We had a good conversation with President Trump with great respect for our relationship and sovereignty; we reached a series of agreements... They are pausing tariffs for one month from now.."
- Trump's message doesn't mention separate tariffs on Canada and China, with Trump scheduled to hold a second call of the day with Prime Minister Justin Trudeau at 15:00 ET 20:00 GMT.
MNI US: Canada Not Confident Of Tariff 'Off-Ramp' - NYT
- The Times reports separately that the US-Mexico deal appears to have come together with a package of proposals from Mexico to recalibrate its trade practices within the existing USMCA trade agreement.
- NYT notes that Sheinbaum said at her news conference that Trump brought up the US trade deficit with Mexico: “I told him that, in fact, it was not a deficit, that we had a trade agreement, that we are trade partners.” she added, according to the Times, that the current U.S.-Canada-Mexico trade agreement was “the best way” to continue competing against China and other regions of the world.
- The Times continues: "Mexico will also focus on expanding an import substitution plan, dubbed Plan Mexico... The program essentially seeks to curb imports from countries like China, start producing those goods in Mexico and strengthen Mexican industries..."
- Taken together with stronger measures on border security, which Canada has already begun implementing, the deal appears to offer a blueprint for Canada to resolve the dispute before the tariffs come into effect tomorrow.
MNI US TSYS/SUPPLY: Treasury Borrowing Requirements At Low End Of Expectations
Treasury's financing requirement estimates for the first half of calendar 2025 were a little on the low side of expectations, though not dramatically so.
- Versus November's estimate, Q1 2025's (Jan-Mar) marketable borrowing requirement was barely changed, at $815B vs $823B prior. Importantly, Treasury didn't adjust its end-of-quarter TGA cash balance target of $850B (which represents a $128B increase from the level at end-2024).
- In the newly-issued Q2 2025 estimates, borrrowing is seen dropping off considerably, to $123B (consensus had been between $100-500B), with a net negative financing need, with no change in the end-quarter cash level from the preceding quarter ($850B).
- All of these estimates assume that Fed QT will continue at its current pace through the middle of 2025.
- See table below:
MNI US TSYS: Mexico Scores Tariff Delay, Canada & China Negotiations Ongoing
- Treasuries look to finish mostly higher Monday, curves twisting flatter with short end rates under pressure as projected rate hike pricing through mid-year cools. Markets reacted positively midmorning to headlines that Pres Trump agreed to delay 25% tariff on Mexico, negotiations on Canada & China ongoing but expected to begin tomorrow.
- Well off early overnight low of 108-21.5, the March'25 10Y contract trades 109-00 (+5) after the bell vs. 109-15.5 high - briefly through initial technical resistance of 109-10.5 (50D EMA) with focus on 109-31 (High Dec 18); the 2Y contract -1.25 at 102-24.75; 2s10s -5.988 at 27.761.
- Stocks pared losses on the news, the DJIA trading in the green briefly (44,594.54) before receding ahead anoth heavy earnings announcement docket this week.
- FX markets have been extremely volatile Monday, with the initial likely implementation of tariffs prompting a broad strengthening of the greenback, and particular pressure on the Mexican peso and the Canadian dollar. Despite the headlines being Mexico centric, similar price action saw USDCAD almost reverse the entire gap to last Friday’s close, hitting a pullback low of 1.4546 from session highs of 1.4793.
- Tariff negotiations with Canada and China ongoing, while data focus turns to this week's CPI, PPI and January employment report this Friday.
OVERNIGHT DATA
MNI US DATA: ISM Mfg New Orders Highest Since 2022 As Pre-Tariff Recovery Extends
- The ISM manufacturing index was stronger than expected in January at 50.9 (cons 49.9) after a slightly downward revised 49.2 (initial 49.3) as the manufacturing sector continues a strong recovery seen off October lows of 46.9.
- It follows the particularly strong recovery in the regional Fed surveys that we have been flagging (see most recently here), although those gains have admittedly been particularly concentrated in the Philly survey.
- New orders led the increase on the month, increasing to 55.1 from a downward revised 52.1 (initially 52.5) for a fresh high since May 2022.
- Business export orders are lower at 52.4 but show a similar relative trajectory, rising from 50.0 for also their highest since May 2022.
- The press release on new orders: “Of the six largest manufacturing sectors, four (Petroleum & Coal Products; Machinery; Chemical Products; and Transportation Equipment) reported increased new orders. Panelists noted an improved level of demand performance, with a 2-to-1 ratio of positive comments versus those expressing concern about near-term demand, an improvement compared to December. Capital and export orders were significant contributors.”
- Imports “Imports expanded this month after contracting for seven months in a row, preceded by five consecutive months of expansion and 14 consecutive months of contraction prior to that. Imports re-entered growth as inventory constraints weaken, tariff countermeasures are put in place, a ports strike was avoided and the deliveries from the Lunar New Year season arrive at U.S. ports".
- Prices paid meanwhile were close to expectations as they increased to 54.9 (cons 54.8 with a typically small survey of just 5 responses) after an unrevised 52.5. It pokes above the 54.8 in October for the highest since May.
MNI US DATA: Construction Spending Picking Back Up, Led By Housing
Construction activity surprised significantly to the upside in December, rising 0.5% M/M (0.2% expected, 0.2%), with residential construction leading the way.
- Private sector construction (more than 75% of total spend, with public spending the remainder) rose by 0.9% M/M to a fresh all-time high on a SAAR basis, with residential construction up 1.5%.
- The latter is picking up again after a lull in the fall, which may have been impacted by hurricanes.
- Public sector construction - which had been soaring for most of H2 2024 - pulled back sharply at -0.5%, the weakest since July 2023 and after a 0.1% contraction in November.
- There has been a clear pickup in private versus public sector spending: the 3M/3M annualized rise in private sector spending hit a 31-month high 6.2%, with public spending slowing to 7.3% by that metric, vs double-digit growth in the preceding 2 months.
- Private nonresidential investment on the other hand remained fairly soft, growing just 0.1% M/M (same as prior) and has been fairly static for 6+ months.
- Considering the apparent recovery in both "soft" and "hard" manufacturing indicators, manufacturing construction has failed to pick up any momentum - it remains below mid-2024 levels, albeit that came after an impressive tripling of spending over the preceding 3 years.
- These figures are all in nominal terms but broadly reflect what we saw in the Q4 GDP figures: residential investment rose for the first time in 3 quarters (+5.3% Q/Q annualized in real terms) with nonresidential structures contracting for a 2nd consecutive quarter (-1.1%).
- Both look to be stabilizing going into 2025.
MNI US DATA: Highest Mfg PMI Output Price Inflation Since March 2024
- The S&P Global US manufacturing PMI was surprisingly revised up to 51.2 in the final January print (prelim 50.1) from 49.4 in December, leaving it at its highest since June.
- “Both output and new orders returned to growth in January, while optimism in the year-ahead outlook for production hit a 34-month high. At least part of the jump in confidence and more buoyant demand picture reflected a sense among firms that business conditions will improve under President Trump.”
- “Meanwhile, input costs continued to increase sharply, leading the pace of output price inflation to accelerate for the third month running to reach the highest since March 2024."
- See the full S&P Global press release here.
MNI CANADA: CAD Rates See Large Paring Of Gains On US-Mexico Tariff Delay
- CAD rates have seen a sizeable paring of earlier gains on Mexico President Sheinbaum saying the US has agreed to pause tariffs for one month (since confirmed by Trump).
- There’s the clear assumption here that Canada will see a similar development (presumably helped by last week’s Reuters piece on the potential for a delay to Mar 1) but nothing concrete has come since Trump and Trudeau’s earlier call and with another call set for 1500ET today.
- Dec’25 CORRA futures implied yields have lifted some 8bps intraday but are still 12bp lower on the day. They're back close to where they traded at the US crossover after thin overnight trade.
- Terminal CORRA yields are seen at 2.27% (BoC neutral rate 2.25-3.25%), 45bp lower since Trump’s inauguration.
- As for the very near-term, odds of an inter-meeting cut from the BoC have been trimmed from earlier levels, with one-month OIS showing almost 3bp of cuts vs between 4-5bp earlier. For the meeting itself on Mar 12, there are 27.5bp of cuts prices vs 19bp on Friday.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA down 107.69 points (-0.24%) at 44441.98
S&P E-Mini Future down 42.75 points (-0.7%) at 6024.75
Nasdaq down 231.3 points (-1.2%) at 19397.98
US 10-Yr yield is down 0.2 bps at 4.5368%
US Mar 10-Yr futures are up 4.5/32 at 108-31.5
EURUSD down 0.0067 (-0.65%) at 1.0294
USDJPY down 0.44 (-0.28%) at 154.76
WTI Crude Oil (front-month) up $0.34 (0.47%) at $72.86
Gold is up $18.11 (0.65%) at $2816.33
European bourses closing levels:
EuroStoxx 50 down 68.96 points (-1.3%) at 5217.91
FTSE 100 down 90.4 points (-1.04%) at 8583.56
German DAX down 303.81 points (-1.4%) at 21428.24
French CAC 40 down 95.25 points (-1.2%) at 7854.92
US TREASURY FUTURES CLOSE
3M10Y -0.663, 23.785 (L: 16.382 / H: 26.62)
2Y10Y -5.791, 27.958 (L: 24.77 / H: 29.367)
2Y30Y -7.433, 51.112 (L: 47.407 / H: 52.647)
5Y30Y -4.158, 41.434 (L: 39.574 / H: 43.04)
Current futures levels:
Mar 2-Yr futures down 1.375/32 at 102-24.625 (L: 102-23.125 / H: 102-27.75)
Mar 5-Yr futures up 0.75/32 at 106-13.25 (L: 106-07.5 / H: 106-23.25)
Mar 10-Yr futures up 4.5/32 at 108-31.5 (L: 108-21.5 / H: 109-15.5)
Mar 30-Yr futures up 16/32 at 114-13 (L: 113-28 / H: 115-15)
Mar Ultra futures up 28/32 at 119-11 (L: 118-20 / H: 120-24)
MNI US 10YR FUTURE TECHS: (H5) Holding On To The Bulk Of Its Recent Gains
- RES 4: 110-25 High Dec 12
- RES 3: 110-19 76.4% retracement of the Dec 6 - Jan 13 bear leg.
- RES 2: 109-31 High Dec 18
- RES 1: 109-10+/13 50-day EMA / High Jan 30
- PRICE: 109-03 @ 16:55 GMT Feb 3
- SUP 1: 108-23+/21+ 20-day EMA / Low Feb 3
- SUP 2: 108-06/107-06 Low Jan 23 / 13 and the bear trigger
- SUP 3: 107-04 Low Apr 25 ‘24 and a key support
- SUP 4: 106-11 2.00 proj of the Oct 1 - 14 - 16 price swing
Treasury futures gave up a sharp mid-session rally to fade into the London close, and test the 20-day EMA support in the process. A bullish corrective cycle is intact and the contract is holding on to its recent gains. 109-10+, the 50-day EMA, remains exposed. It has been pierced, a clear break of it would strengthen a bullish theme and open 109-31, the Dec 18 high. The medium-term trend condition is bearish. The bear trigger is 107-06, the Jan 13 low. Initial firm support has been defined at 108-06, the Jan 23 low.
SOFR FUTURES CLOSE
Mar 25 -0.010 at 95.740
Jun 25 -0.025 at 95.870
Sep 25 -0.030 at 95.975
Dec 25 -0.030 at 96.035
Red Pack (Mar 26-Dec 26) -0.02 to +0.005
Green Pack (Mar 27-Dec 27) +0.010 to +0.030
Blue Pack (Mar 28-Dec 28) +0.025 to +0.040
Gold Pack (Mar 29-Dec 29) +0.040 to +0.050
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00040 to 4.31268 (-0.00233 total last wk)
- 3M +0.00088 to 4.30313 (+0.00241 total last wk)
- 6M +0.00276 to 4.25107 (-0.01075 total last wk)
- 12M +0.00744 to 4.16774 (-0.03860 total last wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.38% (+0.02), volume: $2.533T
- Broad General Collateral Rate (BGCR): 4.34% (+0.00), volume: $918B
- Tri-Party General Collateral Rate (TCR): 4.34% (+0.00), volume: $892B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $83B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $227B
FED Reverse Repo Operation
RRP usage falls back below $100B again -- to $97.781B this afternoon from $187.913B Friday. Compares to Monday, January 27 usage of $92.863B - the lowest level since mid-April 2021. The number of counterparties falls to 39 from 57 prior.
MNI PIPELINE: Late Corporate Bond Issuance Update
Rather slow start to February, a few names on the docket including supra sovereign from Romania - that has yet to launch Monday. Comes after January 2025 finished with record $288.45B total bond issuance from domestic & foreign corporate and supra-sovereigns.
- Date $MM Issuer (Priced *, Launch #)
- 02/03 $1.25B Romania 12Y +300
- 02/03 $800M Hess Midstream 3NC1
- 02/03 $500M Air Transport 7NC3 7.25%
- 02/03 $Benchmark L-Bank 2Y SOFR, 5Y
- Expected Tuesday:
- 02/04 $3B EIB WNG 10Y +60a
- 02/04 $Benchmark BNG Bank 3Y SOFR+38a
MNI BONDS: EGBs-GILTS CASH CLOSE: Bunds Outperform Amid US Tariff-Driven Volatility
European yields fell sharply Monday in a bull steepening move inspired by US tariff policy uncertainty.
- Safe-haven instruments were bid early after the weekend's news that US President Trump announced he would follow through with tariffs on Mexico, Canada and China starting Feb 4, with equities falling and the dollar soaring.
- Yields were hitting fresh lows when headlines emerged that US tariffs on Mexico would be postponed for one month. Uncertainty over US tariffs lingers after the cash close, with levies set to be imposed on Canada and China overnight.
- Earlier firmer-than-expected Eurozone January flash inflation data helps contain the downside in Bund yields.
- Bunds outperformed Gilts (in part due to perception that the UK would be less tariff-targeted by the US than the EU), with bull steepening in both curves though a touch of belly outperformance in the UK.
- While periphery EGB spreads widened, French OATs impressed in the semi-core space: the French socialist party decided not to support the censure motion against PM Bayrou.
- Apart from tariff developments, Tuesday's European calendar includes Spanish labor market and French budget data, with an appearance by ECB's Villeroy.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 8.5bps at 2.034%, 5-Yr is down 8bps at 2.155%, 10-Yr is down 7.5bps at 2.385%, and 30-Yr is down 7.4bps at 2.639%.
- UK: The 2-Yr yield is down 5.4bps at 4.165%, 5-Yr is down 6.3bps at 4.161%, 10-Yr is down 5.1bps at 4.487%, and 30-Yr is down 3.6bps at 5.09%.
- Italian BTP spread up 2.4bps at 111.7bps / French OAT down 1.2bps at 72.2bps
MNI FOREX: MXN Surges Back as Trump/Sheinbaum Strike Accords
- FX markets have been extremely volatile Monday, with the initial likely implementation of tariffs prompting a broad strengthening of the greenback, and particular pressure on the Mexican peso and the Canadian dollar. However, positive discussions between US and Mexican officials, and an associated tariff pause on Mexico, have seen currency markets reverse significantly.
- The Mexican peso came surging back as President Sheinbaum appears to have made good on her promises that Mexico had a plan in the event of tariff implementation. While only pushed back by a month, the multiple accords have provided a much more optimistic backdrop and should foster hopes of a broader trade agreement.
- USDMXN traded as low as 20.4164 after rising to 21.2932 overnight. Short-term positioning likely leaves the downside vulnerable at this juncture, and the 50-day EMA is the closest point of reference for some added momentum south. This average intersects today at 20.4111, closely matching session lows. Below here, key support has been defined at 20.1343, the Jan 24 low.
- Despite the headlines being Mexico centric, similar price action saw USDCAD almost reverse the entire gap to last Friday’s close, hitting a pullback low of 1.4546 from session highs of 1.4793.
- Overall, the USD index does remain over half a percent in the green, largely reflective of the general weakness for major equity indices, highlighted by 0.75% declines for the likes of AUD, NZD and EUR. EURUSD specifically was unable to bridge its opening gap, rising only to a recovery high of 1.0335 before fading back below 1.03. The earlier extension to fresh cycle lows today highlights a resumption of the technical downtrend. Attention is on 1.0138, the 1.764 projection of the Sep 25 - Oct 23 - Nov 5 price swing.
- US JOLTS data highlights the Tuesday docket, before the more meaningful calendar points of US refunding, the BOE decision and Friday’s NFP.
TUESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 04/02/2025 | 0745/0845 |  FR | France Budget Balance | |
| 04/02/2025 | 1000/1000 | ** |  GB | Gilt Outright Auction Result |
| 04/02/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 04/02/2025 | 1355/0855 | ** |  US | Redbook Retail Sales Index |
| 04/02/2025 | 1500/1000 | ** | US | Factory New Orders |
| 04/02/2025 | 1500/1000 | *** | US | JOLTS jobs opening level |
| 04/02/2025 | 1500/1000 | *** | US | JOLTS quits Rate |
| 04/02/2025 | 1600/1100 | US | Atlanta Fed's Raphael Bostic | |
| 04/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 04/02/2025 | 1900/1400 | US | San Francisco Fed's Mary Daly | |
| 05/02/2025 | 2200/0900 | * |  AU | S&P Global Final Australia Services PMI |
| 05/02/2025 | 2200/0900 | ** | AU | S&P Global Final Australia Composite PMI |
| 05/02/2025 | 2330/0830 | ** |  JP | average wages (p) |
| 05/02/2025 | 0030/0930 | ** | JP | S&P Global Final Japan Services PMI |
| 05/02/2025 | 0030/0930 | ** | JP | S&P Global Final Japan Composite PMI |
| 04/02/2025 | 0030/1930 | US | Fed Vice Chair Philip Jefferson | |
| 05/02/2025 | 0145/0945 | ** |  CN | S&P Global Final China Services PMI |
| 05/02/2025 | 0145/0945 | ** | CN | S&P Global Final China Composite PMI |