EXECUTIVE SUMMARY
- MNI SECURITY: Gaza Ceasefire Deal Ready To Be Concluded And Implemented, Blinken
- MNI US INFLATION: December CPI Preview: Housing, Core Goods Are Focal Points
- MNI US DATA: Small Business Optimism Soars Post-Election, But "Hard" Data More Mixed
- MNI US DATA: PCE Components Of PPI Largely Benign, Outside Of Airfares Jump
US
MNI US INFLATION: December CPI Preview: Housing, Core Goods Are Focal Points
Likely to be the single most closely watched individual aspect of Wednesday’s CPI report, rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December. This of course follows the surprisingly sharp moderation to a weighted average of 0.23% M/M in November, the first month this cycle that monthly rental inflation has been below its pre-pandemic average of 0.27% (it last tied with this 0.27% increase back in June before surprisingly surging to 0.47% M/M in Aug).
- This previous moderation was significant. Housing has previously appeared to us to be the main stumbling block in the return to the inflation target. With the labor market increasingly looking like it won’t be a source of inflationary pressure in the near-term (even more so after productivity revisions), supercore inflation should start to take less precedence.
- However, the housing inflation data are volatile month-to-month, not least because of methodological quirks such as sample rotation, and its hard to read too much into any single month. Some analysts point to seasonal factors flattering SA housing inflation compared to the NSA version.
- A further soft (~0.2% M/M) reading would be a notably dovish outcome in our view.
Watching Core Goods After Recent Rare Strength Prior To Potential Tariffs
- If housing is our top pick to watch this month then core goods inflation is closely second. It’s amidst heavy focus on potential tariffs under the second Trump administration but also with a further near-term dampening factor from continued US dollar appreciation.
- Analysts look for core goods inflation between 0.2-0.3% M/M after it accelerated to 0.31% M/M in Nov for a 19-month high. That was the third consecutive monthly increase in core goods prices after sequential deflation in 14 of the previous 15 months.
- The breadth here will be important as well, including what happens to new vehicle prices after rare strength in Nov (0.6% M/M was strongest since Oct 2022) and apparel after a tepid bounce in November.
- The NY Fed’s GSCPI doesn’t point to any notable additional reacceleration in supply-driven price pressures.
NEWS
MNI US: Americans Give Biden Negative Assessment On Economy And Foreign Policy
A new survey from Gallup found that Americans “offer a largely negative assessment” of the progress made during the administration of President Joe Biden on 18 economic, national and international issues. Semafor notes on the survey: “Majorities said they believe the US lost ground over the past four years in addressing the federal debt, immigration, the wealth gap, the economy, the US’ place in the world, and crime... Meanwhile, pluralities said they think the US has fallen behind in other areas like infrastructure, despite Biden presiding over the passage and implementation of a sweeping bipartisan infrastructure law.”
MNI SECURITY: Gaza Ceasefire Deal Ready To Be Concluded And Implemented, Blinken
US Secretary of State Antony Blinken, speaking at an event hosted by the Atlantic Council, has confirmed that a Gaza ceasefire-for-hostage deal is "ready to be concluded and implemented" if Hamas accepts the conditions of the framework. Blinken says: "We believe the Palestinian Authority should invite international partners to help establish and run an interim administration in Gaza after a ceasefire deal," adding that an "interim security mission would be made up of forces from partner nations and vetted Palestinian personnel."
MNI US-RUSSIA: Russia Will Wait For 'Concrete Peace Initiatives' From Trump, Lavrov
Russian Foreign Minister Sergei Lavrov told reporters that Russia will “study” US President-elect Donald Trump’s peace initiatives on Ukraine, “when he takes office,” another signal that a meeting between Trump and Russian President Vladimir Putin may not take place in the early period of Trump’s second term. Lavrov added, per Reuters: “We will wait for concrete peace initiatives on Ukraine.”
MNI ISRAEL: Qatar Says Gaza Deal 'In Final Stage', ToI Reports Hamas Accepts Draft
Qatari Foreign Ministry spox Majed Al-Ansari has said in a press briefing on the prospect of a Gaza ceasefire deal, “We do believe we are at a developed stage, we do believe we are at a final stage, but obviously until there is an announcement, there will be no announcement,”. Says that "It's very difficult" to try to pinpoint a specific time frame for a deal, but adds “All we can say is that today we are the closest than at any time in the past to a deal,”.
MNI CHINA-EU: Xi Holds Call w/EUCO Pres But Med Dev Procurement Rpt Risks Ructions
Chinese state media reporting on a call between President Xi Jinping and European Council President Antonio Costa. On the call, Xi told Costa "China and Europe are partners [and] have no fundamental conflicts of interest or geopolitical disputes." Xi: "China has confidence in the EU, [and] hopes the EU can become a partner that China can trust." Xi: "As long as China and Europe respect each other, treat each other as equals and engage in sincere dialogue, they can advance cooperation and achieve great things."
MNI US TSYS: Tsys Bid But Well Off PPI Highs in Lead-Up to CPI Wednesday
- Treasuries are holding mildly higher levels after the bell, well off this morning's post-PPI data highs as as markets delved into the PPI details where most PCE components were on the soft side with the notable exception of airfares, which typically jump in December.
- The Mar'25 10Y contract trades +3 at 107-10.5 after the bell compared to 107-18.5 post data high - well below initial technical resistance at 108-21.5/109-06 (20-day EMA / High Dec 31). Curves bull steepened on the day: 2s10s +2.715 at 42.358, 5s30s +2.558 at 38.859.
- Focus turns to tomorrow's headline CPI inflation data for December where rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December. Core goods inflation will be closely looked at amidst heavy focus on potential tariffs under the second Trump administration but also with a further near-term dampening factor from continued US dollar appreciation.
- Analysts look for core goods inflation between 0.2-0.3% M/M after it accelerated to 0.31% M/M in Nov for a 19-month high. That was the third consecutive monthly increase in core goods prices after sequential deflation in 14 of the previous 15 months.
- Scheduled Fed speakers for Wednesday include Richmond Fed Barkin at 0920ET (text, Q&A), MN Fed Kashkari fireside chat at 1000ET (no text, Q&A), NY Fed Williams keynote address CBIA eco-summit at 1100ET (text, Q&A) and Chicago Fed Goolsbee Midwest economics forum at 1200ET (no text, Q&A). Fed Beige Book is released at 1400ET.
OVERNIGHT DATA
MNI US DATA: PCE Components Of PPI Largely Benign, Outside Of Airfares Jump
Mixed developments in key categories from a PCE perspective, all figures % M/M:
- Airfares +7.2% (after -1.6%), highest since March 2022
- Auto insurance -0.2% (after +0.20%), lowest since Feb 2023
- Portfolio management 0.2% (after -0.6%)
- Medical care 0.2% (after 0.3%)
- Healthcare services 0.0% (after 0.0%)
- If anything it looks as though most PCE components are on the soft side with the notable exception of airfares, which typically jump in December. Note these figures are not seasonally adjusted, but the airfares figure is still very high.
- We would take this chart with a grain of salt given there will be a sizeable downward seasonal adjustment to the airfares figure, but it illustrates that apart from that volatile category, the PPI report was fairly benign from a PCE translation perspective. (One of the few PPI airfare estimates we saw was from Nomura, which saw +1.8%, vs the +7.2% actual.)
- We await updated December PCE estimates which came into today centered on 0.20% M/M.
MNI US DATA: Unrounded PPI Confirm Soft Report Vs Expectations
Unrounded December PPI figures look soft across the board vs expectations:
- PPI final demand 0.22% M/M (0.40% prior; 0.4% rounded expected)
- ex-food/energy 0.04% M/M (0.24% prior, 0.3% rounded expected)
- ex-food/energy/trade 0.07% M/M (0.11% prior, 0.3% rounded expected)
- No revisions to the unrounded Nov M/M figures
MNI US DATA: Small Business Optimism Soars Post-Election, But "Hard" Data More Mixed
The NFIB Small Business Optimism index rose to the highest level since October 2018 in December, up 3.4 points at 105.1. The improvement in optimism appears to be largely driven by the November election result (we saw a similar surge in December 2016 after Donald Trump's first election as president). Of note, "the net percent of owners expecting the economy to improve rose 16 points from November to a net 52% (seasonally adjusted), the highest since the fourth quarter of 1983."
- That included the highest percent of respondents seeing it as a good time to expand their business since Feb 2020, with multiyear highs for other readings including real sales volume expectations (Jan 2020) and inventory investment (Dec 2021).
- The "hard" components of the Optimism index (NFIB defines as: Job Creation Plans, Job Openings, Inventory Plans, Earnings, Capital Expenditure Plans) were more mixed than the surging "soft" categories (Expected Business Conditions, Outlook for Expansion, Expected Real Sales, Expected Credit Conditions, Inventory Satisfaction), though. Actual earnings and sales remained unchanged from a soft November.
- In the closely-watched employment categories, the survey showed that the net percent of owners raising worker compensation fell to the lowest since March 2021 (the % planning to raise compensation in the next 3 months was down 4 points from November). However, hiring plans hit the highest since May 2023. The inflation categories (actual changes and plans) were unchanged vs November.
- It's hard to get a gauge on the underlying signal on economic activity and inflation from the survey given the post-election exuberance, though overall this is a solid if mixed report.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA up 192.12 points (0.45%) at 42486.55
S&P E-Mini Future up 0.5 points (0.01%) at 5874.5
Nasdaq down 70.5 points (-0.4%) at 19015.51
US 10-Yr yield is up 1.2 bps at 4.7903%
US Mar 10-Yr futures are up 3/32 at 107-10.5
EURUSD up 0.0058 (0.57%) at 1.0303
USDJPY up 0.5 (0.32%) at 157.98
WTI Crude Oil (front-month) down $1.11 (-1.41%) at $77.71
Gold is up $11.57 (0.43%) at $2674.62
European bourses closing levels:
EuroStoxx 50 up 26.26 points (0.53%) at 4980.47
FTSE 100 down 22.65 points (-0.28%) at 8201.54
German DAX up 138.48 points (0.69%) at 20271.33
French CAC 40 up 15.03 points (0.2%) at 7423.67
US TREASURY FUTURES CLOSE
3M10Y +2.235, 47.027 (L: 37.865 / H: 49.715)
2Y10Y +2.5, 42.143 (L: 35.894 / H: 42.568)
2Y30Y +3.492, 61.316 (L: 55.915 / H: 62.498)
5Y30Y +2.2, 38.501 (L: 35.886 / H: 40.002)
Current futures levels:
Mar 2-Yr futures up 1.625/32 at 102-17.75 (L: 102-15.875 / H: 102-19)
Mar 5-Yr futures up 2/32 at 105-14 (L: 105-12 / H: 105-19.25)
Mar 10-Yr futures up 3/32 at 107-10.5 (L: 107-07 / H: 107-18.5)
Mar 30-Yr futures up 2/32 at 110-29 (L: 110-19 / H: 111-16)
Mar Ultra futures up 3/32 at 115-10 (L: 114-27 / H: 116-02)
MNI US 10YR FUTURE TECHS: (H5) Bearish Trend Structure
- RES 4: 111-20+ High 6 and the bull trigger
- RES 3: 110-25 High Dec 12
- RES 2: 109-24+ 50-day EMA
- RES 1: 108-21+/109-06 20-day EMA / High Dec 31
- PRICE: 107-11+ @ 1555 ET Jan 14
- 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 remains bearish. Monday’s bearish start to the week, has once again, confirmed a resumption of the downtrend. Sights are on 107-04 next, a Fibonacci projection. Note too that moving average studies remain in a bear-mode position highlighting a dominant downtrend. Key short-term resistance is seen at 108-21+, the 20-day EMA.
SOFR FUTURES CLOSE
Mar 25 +0.010 at 95.740
Jun 25 +0.020 at 95.840
Sep 25 +0.030 at 95.895
Dec 25 +0.035 at 95.910
Red Pack (Mar 26-Dec 26) +0.020 to +0.035
Green Pack (Mar 27-Dec 27) +0.010 to +0.015
Blue Pack (Mar 28-Dec 28) steady to +0.005
Gold Pack (Mar 29-Dec 29) steady
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00107 to 4.30517 (+0.00263/wk)
- 3M +0.00560 to 4.30758 (+0.02057/wk)
- 6M +0.01685 to 4.29626 (+0.05168/wk)
- 12M +0.03303 to 4.27781 (+0.09948/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.29% (-0.01), volume: $2.211T
- Broad General Collateral Rate (BGCR): 4.28% (-0.01), volume: $852B
- Tri-Party General Collateral Rate (TGCR): 4.28% (-0.01), volume: $837B
- (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: $306B
FED Reverse Repo Operation
RRP usage retreats to $160.219B this afternoon from $183.669B on Monday. Compares to $98.356B on Friday, December 20 - the lowest level since mid-April 2021. The number of counterparties rises to 59 from 51.
MNI PIPELINE: Late Corporate Issuance Roundup: $19.75B to Price Tuesday
- Date $MM Issuer (Priced *, Launch #)
- 01/14 $3.5B *British Colombia 3Y SOFR+45
- 01/14 $3B *KFW +5Y +40
- 01/14 $2.5B #BNG Bank 5Y SOFR+47
- 01/14 $2.5B *CADES 5Y SOFR+68, upsized from $2B
- 01/14 $2B #Adobe $800M 3Y +30, $700M 5Y +40, $500M 10Y +55
- 01/14 $2B *CAF 5Y SOFR+82
- 01/14 $2B *IFC 3Y SOFR+29
- 01/14 $1.25B #BFCM $900M 5Y +95, $350M 5Y SOFR+123
- 01/14 $500M Blackstone Private Cr Fund 7Y +170
- 01/14 $500M #Hyundai 3Y +80
MNI BONDS: EGBs-GILTS CASH CLOSE: Pressure Continues
Bunds underperformed Gilts Tuesday, ahead of inflation data Wednesday.
- After a constructive start, regional FI softened amid EGB supply, oil prices and equities moving off lows, and continued questions surrounding French and UK politics and fiscal policy.
- A softer-than-expected US producer price report saw yields briefly hit session lows before retracing higher over the course of the day.
- The German curve leaned bear steeper on the day, with the belly underperforming overall as yields hit fresh multi-month highs across the curve, while the UK curve was mixed.
- Periphery/semi-core spreads were flat/tighter, with OAT/Bund roughly steady through new French Prime Minister Bayrou's policy address.
- Focus early Wednesday is on UK December CPI (MNI's preview here), with consensus eyeing a downtick in Y/Y core and services inflation; later we hear from BoE's Taylor, while US CPI is the main global event later in the session.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 2.6bps at 2.319%, 5-Yr is up 6.6bps at 2.462%, 10-Yr is up 3.9bps at 2.652%, and 30-Yr is up 4.6bps at 2.856%.
- UK: The 2-Yr yield is up 0.4bps at 4.605%, 5-Yr is up 1.1bps at 4.613%, 10-Yr is up 0.4bps at 4.889%, and 30-Yr is up 1.1bps at 5.449%.
- Italian BTP spread down 2.2bps at 118.8bps / French OAT down 1.4bps at 83.1bps
MNI FOREX: Dollar Index Pulls Back 0.5%, EURGBP Prints Four-Month High
- The ICE USD index sits half a percent lower on the session Tuesday, as the greenback extends a moderate retreat ahead of the key CPI data tomorrow. Softer-than-expected PPI data helped the greenback consolidate overnight weakness, with higher long-end US yields and lower equities unable to support the dollar.
- It is clear that the Fed will hold in January, with the first plausibly “live” meeting not until March. But with pricing having shifted so quickly away from 2025 cuts, it’s a good juncture to assess whether markets have gotten too hawkish, with the greenback potentially vulnerable to a deeper correction.
- Price action has seen EURUSD briefly climb back to the 1.0300 handle, rising 0.5% on the session. Higher German yields have been supportive of the single currency at the margin, further evidenced by EURGBP rising to a 4-month high of 0.8451.
- As noted, a sustained breach of 0.8448 resistance would signal scope for a move towards 0.8494, the August 26 high. Separately, the August highs reside at 0.8625, which could garner attention should UK fiscal concerns/uncertainty deteriorate further. Both the 20-day and 50-day EMA’s represent initial support for the cross, currently intersecting around 0.8325. UK CPI is due early Wednesday.
- Overall, broad pressure on core fixed income continues to weigh on the Japanese yen, with EURJPY extending its intra-day advance to 0.8% and now 260 pips above the Monday lows around the psychological 160.00 mark. USDJPY has also risen back to 158.00, as market participants continue to weigh rhetoric from Japanese officials ahead of the January BOJ decision.
WEDNESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 15/01/2025 | 0700/0700 | *** |  GB | Consumer inflation report |
| 15/01/2025 | 0700/0700 | *** | GB | Producer Prices |
| 15/01/2025 | 0700/0800 | *** |  SE | Inflation Report |
| 15/01/2025 | 0745/0845 | *** |  FR | HICP (f) |
| 15/01/2025 | 0800/0900 | *** |  ES | HICP (f) |
| 15/01/2025 | 0800/0900 |  EU | ECB's De Guindos at 15th Spain Investors Day | |
| 15/01/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 15/01/2025 | 1000/1100 | ** | EU | Industrial Production |
| 15/01/2025 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 15/01/2025 | 1330/0830 | ** |  CA | Monthly Survey of Manufacturing |
| 15/01/2025 | 1330/0830 | ** | CA | Wholesale Trade |
| 15/01/2025 | 1330/0830 | *** | US | CPI |
| 15/01/2025 | 1330/0830 | ** | US | Empire State Manufacturing Survey |
| 15/01/2025 | 1400/0900 | * | CA | CREA Existing Home Sales |
| 15/01/2025 | 1420/0920 | US | Fed's Barkin | |
| 15/01/2025 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 15/01/2025 | 1600/1100 | US | Fed's Williams | |
| 15/01/2025 | 1630/1630 | GB | BOE's Taylor Speech on Inflation Dynamics and Outlook | |
| 15/01/2025 | 1900/1400 | US | Fed Beige Book | |
| 16/01/2025 | 0030/1130 | *** |  AU | Labor Force Survey |