EXECUTIVE SUMMARY
- TRUMP REITERATES FIRST CANADA, MEXICO TARIFFS COMING SATURDAY, Bbg
- MNI BRIEF: ECB Cuts Key Rates, Leaves Guidance Unchanged
- MNI ECB: Bloomberg Sources: May Drop “Restrictive” Label At March Meeting
- MNI US DATA: GDP Demand Details Stronger Than Headline Reading Suggests
- MNI US DATA: California Claims Volatility Drop Casts Doubt On National Improvement
- MNI US DATA: Pending Home Sales Pull Back, Casting Doubt On Sales Activity Pickup
US
MNI US: White House Rescinds Spending Freeze Memo, First Major Setback For Trump
The White House Office of Management and Budget yesterday rescinded a memorandum calling on federal government agencies to freeze spending while a review was carried out to ensure compliance with President Donald Trump's executive orders. The episode is the first major setback for the second Trump administration, demonstrating the limits of White House authority over spending. The primary takeaway is that Trump will have to lean on Congress, if he is to enact meaningful and durable change to federal spending.
NEWS
MNI BRIEF: ECB Cuts Key Rates, Leaves Guidance Unchanged
The European Central Bank cut its key interest rate by 25 basis points to 2.75% on Thursday, in line with expectations, and said inflation should return sustainably at target this year. The language in the statement was barely changed, with the Governing Council saying there is no set rate path for rates, and that coming decisions would be made meeting-by-meeting and remain data-dependent, though the direction of travel is clear.
- "Inflation has continued to develop broadly in line with the staff projections and is set to return to the Governing Council’s 2% medium-term target in the course of this year," the statement said, noting that "domestic inflation remains high, mostly because wages and prices in certain sectors are still adjusting to the past inflation surge with a substantial delay, although wage growth is moderating as expected, and profits are partially buffering the impact on inflation."
MNI BRIEF: ECB January Cut Unanimous, No 50Bp Cut Talk-Lagarde
The European Central Bank's decision to cut rates on Thursday was unanimous and interest rates "remain in restrictive territory," President Christine Lagarde said. However, while confirming the direction of policy travel was clear, Lagarde said it was "premature" to discuss an end point for rate reductions. Policymakers did not discuss picking up the pace of rate cuts to 50 basis points, she said.
- The ECB cut its key interest rate by 25 basis points to 2.75% earlier Thursday, in line with expectations, and said inflation should return sustainably to target this year, with the language in the statement barely changed from December.
MNI ECB: Bloomberg Sources: May Drop “Restrictive” Label At March Meeting
Bloomberg has run its post-ECB sources piece (full here) which says the ECB may stop describing its monetary policy stance as “restrictive” at its next decision in March. “With another quarter-point cut in borrowing costs highly likely then, bringing the deposit rate down to 2.5%, such a level may not fully deserve that label anymore, said the people, who asked not to be identified citing confidential discussions."
MNI FRANCE: Joint Committee Meets To Seek Agreement On Budget
Seven senators and seven deputies are meeting at the Palais Bourbon to reach an agreement between the Senate and National Assembly on the text of a state budget. The joint committee will discuss the 60 articles and hundreds of provisions in the budget document passed by the Senate last week. The committee will seek a resolution that allows for the presentation of a budget draft to the plenary of the National Assembly next Monday (3 Feb).
(BBG) Euro Zone Fails to Grow as Political Chaos Shakes Top Economies
The euro zone unexpectedly stagnated at the end of last year as government collapses in its top two economies bruised confidence among businesses and consumers. Fourth-quarter gross domestic product was unchanged from the previous three months, Eurostat said, defying analyst estimates that the 20-nation bloc eked out growth of 0.1%. Output fell 0.2% in Germany and 0.1% in France. Over the whole of 2024, euro-area GDP rose 0.7%, Eurostat said.
MNI US TSYS: ECB Cut Underpins Treasuries, Mixed Data Tempered Gains
- Treasuries are close to the middle of a higher session range after the bell (TYH5 +8.5 at 109-07), off highs following this morning's mixed data, while gaining support after the ECB cut rates by 25bp to 2.75% earlier adding inflation should return sustainably to target this year, with the language in the statement barely changed from December.
- Initial claims in the Jan 25 week fell 16k to a 3-week low of 207k, defying forecasts of a 2k rise to 225k. This was the largest drop in SA initial claims in 6 weeks, and largely reverses the previous two weeks' uptick.
- Q4 GDP growth missed expectations at 2.3% Q/Q annualized (vs 2.6% survey, 3.1% prior, though exactly in line with yesterday's Atlanta Fed GDP Nowcast), the weakest in 3 quarters, with the headline PCE price deflator was on the soft side (2.2% vs 2.5% expected).
- Pending sales dropped 5.5%, vs 1.6% prior (downward rev from 2.2%) and expecfations of flat growth, marking the first drop after 4 consecutive increases.
- There was little reaction in EURUSD as the information hit the wires, however, short-term positioning and softer-than-expected US GDP data, prompted a firm bounce for the pair in early US hours. BBG US$ index receded 3.31 to 1298.81 after the bell.
- Focus turns to the Fed coming out of media Blackout and next week's key CPI & PPI inflation metrics ahead of the headline Employment data for January next week Friday.
OVERNIGHT DATA
MNI US DATA: Pending Home Sales Pull Back, Casting Doubt On Sales Activity Pickup
Pending home sales unexpectedly contracted in December, raising doubt over whether a nascent uptick in home sales at end-2024 can be sustained in 2025. Pending sales dropped 5.5%, vs 1.6% prior (downward rev from 2.2%) and expecfations of flat growth, marking the first drop after 4 consecutive increases. On a Y/Y NSA basis, sales fell 2.9% (4.9% prior rev, positive 4.2% expected).
- All four US regions saw M/M and Y/Y drops, with contract signings dropping the most in the West region on a monthly basis, with the Midwest seeing the largest annual fall. The index level of 74.2 implies activity more than 25% below 2001 levels (=100).
- This is a leading indicator of sales activity, as can be seen in the accompanying chart vs existing sales, casting serious doubt on whether December's existing home sales momentum (10-month high) can be sustained.
MNI US DATA: California Claims Volatility Drop Casts Doubt On National Improvement
The latest weekly jobless claims report was more solid than expected on both the initial and continuing metrics, and despite some potential idiosyncratic factors it does nothing to dispel the perception that the labor market has stabilized at a moderately strong level.
- Initial claims in the Jan 25 week fell 16k to a 3-week low of 207k, defying forecasts of a 2k rise to 225k. This was the largest drop in SA initial claims in 6 weeks, and largely reverses the previous two weeks' uptick.
- Meanwhile continuing claims pulled back 42k to 1,858k, with the 42k drop the biggest in 4 weeks and largely reversing the previous week's 47k rise. As with initial claims, continuing numbers fell versus expectations for a rise (1,902k survey, 1,900k prior rev).
- There is some question as to whether the southern California fires in January are distorting the data: the state saw initial claims drop 13.5k, a little under one-quarter of the US total (all NSA). It was even more pronounced in continuing claims, with a drop of 43.8k, two-thirds of the US total (again, NSA). These came after a large rise in the prior week, which looks outside of seasonal norms (see chart below).
- As such we wouldn't read too much to the week-to-week movements, which look to have been exaggerated to the upside from California fire effects earlier in January, but are now reversing. But overall
MNI US DATA: GDP Demand Details Stronger Than Headline Reading Suggests
Q4 GDP growth missed expectations at 2.3% Q/Q annualized (vs 2.6% survey, 3.1% prior, though exactly in line with yesterday's Atlanta Fed GDP Nowcast), the weakest in 3 quarters, with the headline PCE price deflator was on the soft side (2.2% vs 2.5% expected). But this was a stronger advance report for the quarter in multiple respects.
- Core PCE prices were in line (2.5%), and underlying demand growth appeared strong, including real personal consumption growing 4.2% (3.2% expected), the best since Q1 2023 and the 3rd consecutive acceleration (1.9% Q1, 2.8% Q2, 3.7% Q3).
- As we have been noting in monthly PCE and retail sales reports, real goods consumption is picking up strongly, rising 6.6% for the quarter, the fastest since Q1 2023 - Services PCE was solid at 3.1% but this was more of an uptick from the previous two quarters' average of 2.8%. The BEA noted strength in health care servicves spending, with goods fueled by recreational goods and vehicles/parts. Government consumption and investment pulled back slightly, on account of a dip in defense spending.
- One disappointment here was that fixed investment was soft (mild contraction in non-residential investment), shrinking 0.6% - the first drop since Q4 2022 - led by the first drop in non-residential investment since Q3 2021. As expected, residential investment rebounded from a contractionary Q3.
- Overall final sales to domestic purchasers, both private and overall (each 3.1% Q/Q vs prior 4-quarter average of 3.2%) showed no sign of deceleration.
- Inventories subtracted 0.9pp to GDP growth, the most since Q1 2023, but this is not seen as a signpost for economic activity.
- If anything, net exports were less of a drag than expected, actually adding slightly to GDP for the first quarter in 4 vs Atlanta Fed GDPNow's expectation of a -0.6pp contrib which looked plausible after December's goods trade figures surprised with a big deficit widening.
- This is a solid report in terms of underlying demand, and will reassure the Fed that the economy continues to grow at a "solid pace", per the January FOMC statement. Indeed the 2.5% Y/Y Q4 is exactly in line with the FOMC's December projection.
MNI CANADA DATA: Canada Nov. Payroll -56.1K MOM Mostly Due to Postal Strike
- Payroll employment in Nov. -56.1K MOM (-0.3%) after three straight months of little change, Statistics Canada says Thurs. That varies from the Labour Force Survey published previously, with employment +50.5K in Nov. and +90.9K in Dec.
- The drop in the month of Nov. was largely driven by a decline in transportation and warehousing -38.2K (-48.7%) due to postal services industry strike. Persons on strike are excluded in the payroll employment count for the month, StatsCan says.
- Average weekly earnings +5% YOY in Nov. Payrolls +142.9K YOY (+0.8%).
- BOC said Wed that labour market remains soft but wage pressures are showing signs of easing.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA down 29.1 points (-0.07%) at 44685.55
S&P E-Mini Future up 6 points (0.1%) at 6074
Nasdaq down 25.6 points (-0.1%) at 19607.54
US 10-Yr yield is unchanged 0 bps at 4.5284%
US Mar 10-Yr futures are up 5.5/32 at 109-4
EURUSD down 0.0024 (-0.23%) at 1.0396
USDJPY down 0.85 (-0.55%) at 154.39
WTI Crude Oil (front-month) up $0.26 (0.36%) at $72.88
Gold is up $36.13 (1.31%) at $2795.45
European bourses closing levels:
EuroStoxx 50 up 51.55 points (0.99%) at 5282.21
FTSE 100 up 89.07 points (1.04%) at 8646.88
German DAX up 89.67 points (0.41%) at 21727.2
French CAC 40 up 69.16 points (0.88%) at 7941.64
US TREASURY FUTURES CLOSE
3M10Y +0.372, 23.525 (L: 18.573 / H: 24.131)
2Y10Y +0.623, 31.702 (L: 28.69 / H: 31.928)
2Y30Y +1.128, 56.297 (L: 52.553 / H: 56.62)
5Y30Y +1.039, 44.366 (L: 42.236 / H: 45.03)
Current futures levels:
Mar 2-Yr futures up 0.625/32 at 102-27.625 (L: 102-27 / H: 102-29.25)
Mar 5-Yr futures up 3.25/32 at 106-17.25 (L: 106-15 / H: 106-22.75)
Mar 10-Yr futures up 5/32 at 109-3.5 (L: 109-00.5 / H: 109-13)
Mar 30-Yr futures up 10/32 at 114-13 (L: 114-07 / H: 115-01)
Mar Ultra futures up 8/32 at 119-7 (L: 119-03 / H: 120-06)
MNI US 10YR FUTURE TECHS: (H5) Bull Cycle Remains In Play
- 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: 109-11+/12 50-day EMA / High Jan 27
- PRICE: 109-08+ @ 11:14 GMT Jan 30
- SUP 1: 108-00/107-06 Low Jan 16 / 13 and the bear trigger
- 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
A bullish corrective cycle in Treasury futures remains intact and the contract is holding on to its recent gains. 109-11+, the 50-day EMA, remains exposed. 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 support has been defined at 108-00, the Jan 16 low.
SOFR FUTURES CLOSE
Mar 25 -0.005 at 95.755
Jun 25 steady00 at 95.915
Sep 25 +0.010 at 96.035
Dec 25 +0.010 at 96.095
Red Pack (Mar 26-Dec 26) +0.015 to +0.020
Green Pack (Mar 27-Dec 27) +0.020 to +0.025
Blue Pack (Mar 28-Dec 28) +0.025 to +0.030
Gold Pack (Mar 29-Dec 29) +0.025 to +0.030
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00127 to 4.31159 (-0.00382/wk)
- 3M +0.00386 to 4.29075 (-0.00909/wk)
- 6M +0.00719 to 4.23682 (-0.02224/wk)
- 12M +0.01158 to 4.15062 (-0.04828/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.35% (+0.00), volume: $2.323T
- Broad General Collateral Rate (BGCR): 4.33% (-0.01), volume: $897B
- Tri-Party General Collateral Rate (TGCR): 4.33% (-0.01), volume: $859B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $92B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $274B
FED Reverse Repo Operation
RRP usage inches up to $125.965B this afternoon from $121.842B yesterday. Compares to Monday, January 27 usage of $92.863B - the lowest level since mid-April 2021. The number of counterparties rises to 45 from 35 prior.
MNI PIPELINE: Corporate Bond Issuance Update: $7.75B Oracle 6Pt Debt Launched
- Date $MM Issuer (Priced *, Launch #)
- 01/30 $7.75B #Oracle $1.5B +3Y +57, $500M +3Y SOFR+76, $1.25B 7Y +87, $1.75B +10Y +97, $1.75B +30Y +122, $1B +40Y +135
- 01/30 $5B #NextEra Energy $1B 3Y +60, $500M 3Y SOFR+80, $1B 5Y +73, $750M 7Y +88, $1B 10Y +98, $750M 30Y +113
- 01/30 $3B #Stryker $500M 2Y +38, $700M 3Y +48, $800M 5Y +58, $1B 10Y +73
- 01/30 $2.65B #Scotiabank $1.25B 4NC3 +70, $400M 4NC3 SOFR+89, $1B 6NC5 +82
- 01/30 $1.75B DirecTV Financing 6NC2 investor calls
- 01/30 $1.5B Medical Properties 7NC3 8.75%a
- 01/30 $750M #State Street PerpNC5 6.45%
- 01/30 $550M #Alexandria Real Estate 10Y +102
MNI BONDS: EGBs-GILTS CASH CLOSE: German Short End Leads Gains On ECB, Soft Data
EGBs and GIlts rallied Thursday after the ECB decision and soft Eurozone data.
- While the ECB 25bp cut didn't surprise, and there were few revelations in Lagarde's press conference, the German short end led gains as ECB cut pricing deepened (by 8bp for end-year to close to 78bp vs 70bp prior).
- Even before the ECB, bonds had been on the front foot, following an overnight recovery in US Treasuries from an initial drop on the Fed's slightly hawkish hold.
- Weak flash Q4 GDP prints in France, Germany, Italy and the Eurozone provided impetus to the European FI rally. Spanish inflation came in a little higher than expected on both a monthly and annual basis, though core CPI was a touch softer, with some indications of benign services prices developments.
- The German and UK curves both bull steepened. Periphery EGB / semi-core spreads closed slightly wider - OATs underperformed again on lingering French political risk concerns.
- Friday's scheduled highlight is inflation data from France and Germany. (MNI's Eurozone inflation preview is here).
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 7bps at 2.208%, 5-Yr is down 6.7bps at 2.315%, 10-Yr is down 6.4bps at 2.519%, and 30-Yr is down 4.5bps at 2.759%.
- UK: The 2-Yr yield is down 7.4bps at 4.256%, 5-Yr is down 7.1bps at 4.253%, 10-Yr is down 6.1bps at 4.56%, and 30-Yr is down 5.1bps at 5.125%.
- Italian BTP spread up 0.1bps at 108.1bps / French OAT up 0.6bps at 75.2bps
MNI FOREX: Euro Strength Post ECB Retraces, JPY Outperforms
- The ECB reduced its benchmark Deposit Rate by 25bps to 2.75% on Thursday as expected. This was its fourth consecutive cut, and the committee left the language in its statement unchanged, expressing confidence that inflation will converge towards its 2% target in 2025.
- There was little reaction in EURUSD as the information hit the wires, however, short-term positioning and softer-than-expected US GDP data, prompted a firm bounce for the pair in early US hours.
- EURUSD rallied from levels just above 1.0400 to a 1.0467 high, and price action gathered topside momentum as it broke a cluster of prior highs printed across the Tuesday and Wednesday sessions. With President Lagarde stating “it is premature in this point in time to discuss the point where we have to stop,” and stressing that decisions will be taken on a meeting-by-meeting basis, the Euro spent the remainder of Thursday trade steadily paring its initial advance. EURUSD is close to unchanged as we approach the APAC crossover.
- JPY is favoured across G10 for a second session, helping USDJPY consolidate a move back below its 50-day EMA. The moves follow a speech from the BoJ's deputy governor Himino, who stressed that real rates in Japan remain in negative territory despite a recent rate hike - meaning the BoJ has scope to continue to tighten policy should its economic outlook unfold inline with expectations. Price action raises the focus on key support below - crossing at 153.72 to coincide with the DeepSeek-inspired sell-off in US equities this week. This level also marks the 50% retracement for the upleg in the pair posted off December low - meaning a break below will open the next leg toward 152.55.
- Tokyo core CPI data highlights the overnight docket before German state level and French CPI cross in European hours. Elsewhere, Canada GDP and US Core PCE Price Index are expected, alongside the MNI Chicago Business Barometer.
FRIDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 31/01/2025 | 0700/0800 | ** |  DE | Retail Sales |
| 31/01/2025 | 0730/0830 | ** |  CH | Retail Sales |
| 31/01/2025 | 0745/0845 | *** |  FR | HICP (p) |
| 31/01/2025 | 0745/0845 | ** | FR | PPI |
| 31/01/2025 | 0855/0955 | ** | DE | Unemployment |
| 31/01/2025 | 0900/1000 | *** | DE | North Rhine Westphalia CPI |
| 31/01/2025 | 0900/1000 | *** | DE | Bavaria CPI |
| 31/01/2025 | 0900/1000 | ** |  EU | ECB Consumer Expectations Survey |
| 31/01/2025 | 1000/1100 | ** |  IT | PPI |
| 31/01/2025 | 1300/1400 | *** | DE | HICP (p) |
| 31/01/2025 | 1330/0830 | *** |  CA | Gross Domestic Product by Industry |
| 31/01/2025 | 1330/0830 | *** |  US | Personal Income and Consumption |
| 31/01/2025 | 1330/0830 | *** | US | Employment Cost Index |
| 31/01/2025 | 1330/0830 | *** | CA | Gross Domestic Product by Industry |
| 31/01/2025 | 1330/0830 | US | Fed Governor Michelle Bowman | |
| 31/01/2025 | 1445/0945 | *** | US | MNI Chicago PMI |
| 31/01/2025 | 1600/1100 | CA | Finance Dept monthly Fiscal Monitor (expected) | |
| 31/01/2025 | 1800/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |