EXECUTIVE SUMMARY
- MNI FED: Williams Still Sees Work To Be Done On Inflation
- MNI FED: Williams Sees Economic Strength & Fiscal Uncertainty Behind Higher Yields
- MNI BRIEF: BOE MPC's Taylor Backs Pre-emptive Rate Cuts
- MNI US DATA: Core Goods And Services Both Below Expectations
- MNI US DATA: Supercore CPI At Low End Of Expectations
- MNI MACRO ANALYSIS: MNI US Inflation Insight: Progress But Caution Still Needed
US
MNI: Fed's Williams Still Sees Work To Be Done On Inflation
The Federal Reserve aims to keep inflation moving toward 2% and the labor market in balance amid shifting fiscal, trade and immigration policies as President-elect Donald Trump and a new Congress take office, New York Fed President John Williams said Wednesday. He made no specific promise to cut interest rates further. "Since the Federal Reserve’s mandate is to achieve maximum employment and price stability, we want to see demand in line with supply and keep the risks to achieving our goals in balance. Because that balance has now been achieved, our job is to ensure the risks remain in balance," he said in remarks prepared for an economics conference in Hartford, Conn.
MNI FED: Williams Sees Economic Strength & Fiscal Uncertainty Behind Higher Yields
Speaking in a media scrum after an earlier appearance, NY Fed’s Williams (permanent voter) said Treasury yields haven’t been driven by inflation expectations and that yields instead reflect economic strength and fiscal uncertainty. There have been somewhat mixed views of FOMC members on long end yield drivers recently. Goolsbee (’25 voter, dove) on Friday said long-term yields reflected increased growth expectation and weren’t driven by inflation expectations as well, although Gov. Bowman (permanent voter, hawk) on Thursday saw higher inflation expectations at least in part attributing to moves. Barkin (non-voter) meanwhile last week said he saw term premium as a factor.
NEWS
MNI US-EU: Dutch Govt Issues New Export Controls On Semiconductor Supply Chain
The government of the Netherlands said in a statement it has enacted new export controls on equipment used in the measuring and inspection of advanced semiconductors. The controls appear to apply to metrology and inspection systems manufactured by Dutch firm ASML - a crucial component in the supply chain of high-end chips.
- The announcement comes after sweeping new export controls, announced by the Biden administration this week, designed to curb the US' adversaries - including China and Russia - access to high-end semiconductor technology related to artificial intelligence. The measures include a three-tier licencing system with some US allies, including the Netherlands, permitted unfettered access to US chip markets and some countries, including China, hit with a near-total restriction on advanced US chips.
MNI BRIEF: BOE MPC's Taylor Backs Pre-emptive Rate Cuts
The UK economic outlook is increasingly gloomy and there is growing evidence that demand was weakening, Bank of England Monetary Policy Committee member Alan Taylor said Wednesday as he made the case for pre-emptive rate cuts. Speaking for the first time publically as an MPC member, at Leeds University Taylor said he increasingly saw the most likely scenario as one where the economy had suffered a large external inflation shock that would wear off as normal and that demand was worsening and households were suffering from "cashlow squeeze" as a consequence of restrictive monetary policy and recent Budget measures.
MNI TURKEY: Erdogan-Countries Should 'Take Their Hands Off' Syria
Reuters reporting comments from President Recep Tayyip Erdogan regarding the situation in Syria following the collapse of the Assad regime. Says that it the Kurdish People's Protection Units (YPG) militia does not disarm "it will not be able to escape its inevitable end." Adds all countries should "take their hands off" Syria, and that Turkey is able to crush all terrorist organisations. The comments come a week after Erdogan threatened military action against Kurdish militias in northern Syria, saying in a presser “We will not consent to the disintegration of Syria or the disruption of its unitary structure under any guise. If we see a risk in this regard, we will take the necessary steps swiftly,”
MNI SOUTH KOREA: Yoon's Questioning To Continue Into Night; Trial To Resume Tomorrow
The Senior Civil Servants' Corruption Investigation Office (CIO) has said that the questioning of detained President Yoon Suk-yeol will continue into the evening, but it is not yet confirmed whether this will continue overnight. Yoon is set to be moved to at the Seoul detention centre at some point overnight. The CIO has confirmed that Yoon maintains his silence and refuses to answer their questions regarding his declaration of martial law in December 2024.
(BBG) BlackRock CEO Calls Record Client Cash ‘Just the Beginning’
BlackRock Inc. hauled in an annual record of $641 billion in client cash, underlining the firm’s global reach across stocks and bonds, index and active funds and increasingly the fast-growing — and lucrative — market for private assets. The tally included $390 billion flowing into its ETF business overall last year, $226 billion into equity funds and
$164 billion into fixed-income, BlackRock said in a statement Wednesday announcing the full-year and quarterly earnings of the world’s largest asset manager.
MNI US TSYS: Rates Rally After Core CPI Misses Estimates, First Cut Targets July
- Treasuries are trading near the top end of the session range after gapping higher this morning on slightly lower than expected Core & Supercore CPI data.
- Across core categories, below-expected figures in the aggregates were reported: core goods (0.05% vs 0.12% expected, 0.31% prior) and core services (0.27% vs 0.30% expected, 0.28% prior) were each a touch under analyst expectations.
- NY Fed’s Williams (permanent voter) said Treasury yields haven’t been driven by inflation expectations and that yields instead reflect economic strength and fiscal uncertainty. There have been somewhat mixed views of FOMC members on long end yield drivers recently.
- Mar'25 10Y futures are trading at 108-09.5 (+30) after the bell vs. 107-16.5 pre-data, session high at 108-13, still below initial technical resistance at 108-17.5/109-06 (20-day EMA / High Dec 31). Curves Curves mixed however: 2s10s -3.416 at 38.723, 5s30s +5.544 at 43.118.
- Projected rate cuts through mid-2025 moved forward on the calendar with July now fully pricing in a 25bp cut. Current vs. this morning levels* as follows: Jan'25 steady at -0.7bp, Mar'25 at -7.4bp (-4.9bp), May'25 -13.5bp (-10.3bp), Jun'25 -22.9bp (-17.7bp), Jul'25 at -27.2bp (-21.7bp).
- Focus turns to a slew of data on Thursday: Weekly Jobless Claims, Retail Sales, Import/Export Indexes and regional Fed services and business outlooks all at 0830ET. Business Inventories and NAHB Housing Market Index at 1000ET. No scheduled Fed speakers as yet - Fed enters Blackout period Friday at midnight.
Excerpt from the latest Beige Book: "Economic activity increased slightly to moderately across the twelve Federal Reserve Districts in late November and December. Consumer spending moved up moderately, with most Districts reporting strong holiday sales that exceeded expectations. Vehicle sales grew modestly. Construction activity decreased overall, with several Districts indicating that high costs for materials and financing were weighing on growth."
- On Labor Markets: "Employment ticked up on balance, with six Districts reporting a slight increase and six reporting no change. Contacts in several service industries, notably healthcare, continued to see job growth."
- On Prices: "Prices increased modestly overall, with growth rates ranging from flat to moderate."
MNI MACRO ANALYSIS: MNI US Inflation Insight: Progress But Caution Still Needed
- We have published and e-mailed to subscribers the MNI US Inflation Insight.
- Please find the full report including MNI analysis and analyst view changes here.
OVERNIGHT DATA
MNI US DATA: Core Goods And Services Both Below Expectations
Across core categories, we saw below-expected figures in the aggregates: core goods (0.05% vs 0.12% expected, 0.31% prior) and core services (0.27% vs 0.30% expected, 0.28% prior) were each a touch under analyst expectations. OER and primary rents were on aggregate close to expected; lodging prices unexpectedly contracted, offset by above-expected used car and airfares (the latter was however flagged by the PPI release); auto insurance was basically in line.
MNI US DATA: CPI Core & Supercore Latest Trends
Core CPI 3-mth run rate lowest since Sept but 6-mth highest since June.
Core CPI (SA)
- % M/M: 0.225 in Dec '24 after 0.308 in Nov'24
- % 3mth ar: 3.3 in Dec '24 after 3.7 in Nov'24
- % 6mth ar: 3.2 in Dec '24 after 2.9 in Nov'24
CPI Core Services Non-Housing (SA)
- % M/M: 0.205 in Dec '24 after 0.342 in Nov'24
- % 3mth ar: 3.5 in Dec '24 after 4.3 in Nov'24
- % 6mth ar: 3.7 in Dec '24 after 3.1 in Nov'24
Source: Bloomberg, MNI
MNI US DATA: Supercore CPI At Low End Of Expectations
- Core services excl OER & primary rents ('supercore'): 0.205% M/M after 0.342%. Latest 3mth av of 0.287%
- Limited analyst estimates for ex OER & rents had averaged 0.27% M/M, ranging from 0.20 to 0.36
- Core services excl all shelter: 0.282% M/M after 0.233%. Latest 3mth av of 0.284%
- This comes with lodging away from home slipping -0.95%.
MNI US DATA: Key CPI Rent Series On Balance Close To Expectations
- OER: 0.31% M/M (analyst av. 0.33, range 0.28-0.39) in Dec after a surprisingly soft 0.23% M/M in Nov.
- Primary rents: 0.31% M/M (analyst av. 0.28, range 0.24-0.32) in Dec after 0.21% M/M in Nov.
- The weighted average of 0.31% M/M compares with the 0.23% from November, the first time since Apr 2021 that monthly rental inflation was below the 0.27/0.28% M/M averaged pre-pandemic.
MNI US DATA: Mortgage Applications Jump Despite Rates At Highs Since May
- MBA composite mortgage applications jumped 33% (sa) last week, in the first full week for the year, after a four-week cumulative decline of 25% primarily seen in the last two weeks of December.
- Refis jumped 44% on the week vs -36% over that same four-week period, whilst new purchase applications jumped 27% after a cumulative -18%.
- It’s a strong start to the year but seasonal adjustment can be difficult around the festive period and it’s worth remembering that composite applications are still only 48% of 2019 averages (purchases 63%, refis 33%).
- It comes despite the 30Y conforming rate increasing another 10bps to 7.09% for its highest since May 2024, up from a recent low of 6.19% in late September.
- In a further sign of some relative easing in lending standards, the regular to jumbo spread pushed higher again last week, with the regular rate (7.09%) pushing above the jumbo rate (7.05%) for the first time since Nov 2023.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA up 765.11 points (1.8%) at 43283.96
S&P E-Mini Future up 115 points (1.96%) at 5997.25
Nasdaq up 490.9 points (2.6%) at 19534.76
US 10-Yr yield is down 13.9 bps at 4.6531%
US Mar 10-Yr futures are up 30.5/32 at 108-10
EURUSD down 0.001 (-0.1%) at 1.0298
USDJPY down 1.53 (-0.97%) at 156.43
WTI Crude Oil (front-month) up $3.02 (3.9%) at $80.53
Gold is up $17.97 (0.67%) at $2695.32
European bourses closing levels:
EuroStoxx 50 up 51.84 points (1.04%) at 5032.31
FTSE 100 up 99.59 points (1.21%) at 8301.13
German DAX up 303.35 points (1.5%) at 20574.68
French CAC 40 up 50.92 points (0.69%) at 7474.59
US TREASURY FUTURES CLOSE
3M10Y -13.363, 33.611 (L: 31.521 / H: 45.785)
2Y10Y -3.416, 38.723 (L: 36.878 / H: 42.167)
2Y30Y +0.488, 60.845 (L: 58.315 / H: 63.252)
5Y30Y +5.127, 42.701 (L: 35.805 / H: 43.474)
Current futures levels:
Mar 2-Yr futures up 5.75/32 at 102-23.875 (L: 102-17.375 / H: 102-24.625)
Mar 5-Yr futures up 18.75/32 at 106-1.75 (L: 105-13.5 / H: 106-03.5)
Mar 10-Yr futures up 30.5/32 at 108-10 (L: 107-10 / H: 108-13)
Mar 30-Yr futures up 1-20/32 at 112-17 (L: 110-30 / H: 112-30)
Mar Ultra futures up 1-30/32 at 117-8 (L: 115-14 / H: 117-23)
MNI US 10YR FUTURE TECHS: (H5) Trend Structure Remains Bearish
- RES 4: 111-20+ High 6 and the bull trigger
- RES 3: 110-25 High Dec 12
- RES 2: 109-21+ 50-day EMA
- RES 1: 108-17+/109-06 20-day EMA / High Dec 31
- PRICE: 107-15 @ 11:03 GMT Jan 15
- SUP 1: 107-06 Low Jan 13
- SUP 2: 107-04 Low Apr 25 ‘24 and a key support
- SUP 3: 107-00 Round number support
- SUP 4: 106-11 2.00 proj of the Oct 1 - 14 - 16 price swing
The trend condition in Treasury futures is unchanged and the needle points south. Monday’s bearish start to the week confirms a resumption of the downtrend. Sights are on 107-04 next, the Apr 25 ‘24 low (cont) and key support. Note too that Moving average studies remain in a bear-mode position highlighting a dominant downtrend. Key short-term resistance is seen at 108-17+, the 20-day EMA. Gains would be considered corrective.
SOFR FUTURES CLOSE
Mar 25 +0.035 at 95.775
Jun 25 +0.055 at 95.895
Sep 25 +0.080 at 95.975
Dec 25 +0.10 at 96.015
Red Pack (Mar 26-Dec 26) +0.120 to +0.155
Green Pack (Mar 27-Dec 27) +0.160 to +0.165
Blue Pack (Mar 28-Dec 28) +0.150 to +0.160
Gold Pack (Mar 29-Dec 29) +0.135 to +0.145
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00412 to 4.30105 (-0.00149/wk)
- 3M -0.00470 to 4.30288 (+0.01587/wk)
- 6M -0.00764 to 4.28862 (+0.04404/wk)
- 12M -0.01346 to 4.26435 (+0.08602/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.28% (-0.01), volume: $2.179T
- Broad General Collateral Rate (BGCR): 4.27% (-0.01), volume: $840B
- Tri-Party General Collateral Rate (TGCR): 4.27% (-0.01), volume: $825B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $112B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $306B
FED Reverse Repo Operation
RRP usage declines to $119.977B this afternoon from $160.219B on Tuesday. Compares to $98.356B on Friday, December 20 - the lowest level since mid-April 2021. The number of counterparties retreats to 39 from 59.
MNI PIPELINE: Corporate Debt Issuance Update
- Date $MM Issuer (Priced *, Launch #)
- 01/16 $1B #Citadel LP $500M 5Y +170, $500M 7Y +190
- 01/15 $750M #NY Life 10Y +70
- 01/15 $500M #NLG Global Funding 5Y +95
- 01/15 $Benchmark Dexia 5Y SOFR+73a
- Expected to issue Thursday:
- 01/16 $Benchmark CABEI 3Y +75a
- 01/16 $1B Kommuninvest WNG 3Y SOFR+37a
- 01/16 $Benchmark CDP Financial 5Y SOFR+63a
MNI BONDS: EGBs-GILTS CASH CLOSE: Relief Rally As US CPI Comes In Low
Gilts and EGBs soared Wednesday after the much-anticipated US CPI report proved benign for bond markets.
- Gilts initially strengthened after December CPI readings came in lower than expected, but reversed lower as the reading appeared to have been skewed downward by volatile components (namely airfares). They would recovered but set back anew on a weak Jul-34 Gilt auction.
- Ultimately though, a US CPI report on the soft side of expectations triggered a sizeable global FI relief rally, in which Gilts outperformed peers across the curve after weeks of underperformance. UK yields ticked up toward the cash close amid a speech by BoE dove Taylor, but the move looked driven by external factors rather than the speech itself. The UK curve bull flattened overall.
- Bunds largely tracked the wider global moves. The German belly outperformed on the curve, with EGB periphery spreads narrowing sharply as risk-sensitive assets rallied.
- Thursday's schedule includes UK monthly activity data and final German and Italian inflation, as well as the accounts of the December ECB meeting.
Closing Yields / 10-Yr EGB Spreads To Germany:
- Germany: The 2-Yr yield is down 6.2bps at 2.257%, 5-Yr is down 9.9bps at 2.363%, 10-Yr is down 9.8bps at 2.554%, and 30-Yr is down 7.5bps at 2.781%.
- UK: The 2-Yr yield is down 13.6bps at 4.469%, 5-Yr is down 14.2bps at 4.471%, 10-Yr is down 15.6bps at 4.733%, and 30-Yr is down 14.7bps at 5.302%.
- Italian BTP spread down 4.9bps at 113.9bps / French OAT down 3.4bps at 79.7bps
MNI FOREX: USD Steady Despite Softer US Core CPI, Japanese Yen Outperforms
- Despite a dovish repricing in the U.S. short end on the back of the slightly softer-than-expected round of core and supercore CPI data, moves in the US dollar have been less clear cut, with the USD index only marginally lower on the day.
- Some major pairs saw sharp intra-day reversals, emphasised by EURUSD declining on the session as we approach the APAC crossover. Initially, the pair rose to 1.0354 on the broad based greenback selling, however, gradual declines since picked up momentum through the pre-data levels of 1.0300, briefly trading down to a 1.0260 low before stabilising around 1.0290 at typing.
- A clearer theme on Wednesday has been the outperformance of the Japanese Yen, as lower core yields and BOJ rhetoric have boosted local FX sentiment. USDJPY has declined 0.92% at typing and is around 160 pips off earlier session highs, having briefly tested below 156.00 in the aftermath of the US data.
- As a reminder, headlines from BoJ Governor Ueda crossed overnight, reiterating that a decision on whether to raise rates will be made next week (so largely echoing Deputy Governor Himino's remarks from yesterday). The probability for a hike on Jan 24 has now risen to around 70%. A sustained breach of 156.02 (Dec 31 low), would target a deeper correction to 154.71, the 50-day EMA.
- GBP volatility has also been a key feature of Wednesday’s session, following the lower-than-expected UK CPI data in early European trade. While sterling initially traded weaker on the release (GBPUSD down to a 1.2163 low), the potentially good news for the UK economy and the fact the downside surprise was mostly driven by volatile components assisted a sterling recovery, which was exacerbated by the US data, prompting an impressive recovery to 1.2306. The pair has since slipped back to 1.2225. Similar price action for EURGBP sew the cross slip back towards the 0.84 handle, after printing fresh four-month highs at 0.8463 earlier in the session.
- Australian employment data is due overnight before UK GDP on Thursday. US retail sales and jobless claims headlines the US economic calendar.
THURSDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 16/01/2025 | 0700/0700 | ** |  GB | UK Monthly GDP |
| 16/01/2025 | 0700/0700 | ** | GB | Trade Balance |
| 16/01/2025 | 0700/0700 | ** | GB | Index of Services |
| 16/01/2025 | 0700/0800 | *** |  DE | HICP (f) |
| 16/01/2025 | 0700/0700 | *** | GB | Index of Production |
| 16/01/2025 | 0700/0700 | ** | GB | Output in the Construction Industry |
| 16/01/2025 | 0900/1000 | ** |  IT | Italy Final HICP |
| 16/01/2025 | 1000/1100 | * |  EU | Trade Balance |
| 16/01/2025 | 1230/1330 | EU | Account of Dec 2024 ECB Monetary Policy Meeting | |
| 16/01/2025 | 1315/0815 | ** |  CA | CMHC Housing Starts |
| 16/01/2025 | 1330/0830 | *** |  US | Jobless Claims |
| 16/01/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 16/01/2025 | 1330/0830 | *** | US | Retail Sales |
| 16/01/2025 | 1330/0830 | ** | US | Import/Export Price Index |
| 16/01/2025 | 1330/0830 | ** | US | Philadelphia Fed Manufacturing Index |
| 16/01/2025 | 1500/1000 | * | US | Business Inventories |
| 16/01/2025 | 1500/1000 | ** | US | NAHB Home Builder Index |
| 16/01/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 16/01/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 16/01/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 16/01/2025 | 1730/1230 | CA | BOC Deputy Gravelle speech to women in markets group. | |
| 17/01/2025 | 0200/1000 | *** |  CN | Fixed-Asset Investment |
| 17/01/2025 | 0200/1000 | *** | CN | Retail Sales |
| 17/01/2025 | 0200/1000 | *** | CN | Industrial Output |
| 17/01/2025 | 0200/1000 | *** | CN | GDP |
| 17/01/2025 | 0200/1000 | ** | CN | Surveyed Unemployment Rate M/M |