EXECUTIVE SUMMARY
- MNI EUROPEAN INFLATION: MNI Eurozone Inflation Preview - December 2024
- MNI US DATA: Dallas Fed Survey Affirms Slowly Firming National Services Activity
- MNI US DATA: House Prices Continue To Rise, But High Rates To Maintain Headwinds
US/EUROPE
MNI EUROPEAN INFLATION: MNI Eurozone Inflation Preview - December 2024
Services Momentum To End Year On A Soft Note?
- The holiday season stretches the December Eurozone inflation round over two weeks this year. It also has limited the number of analyst expectations for the data to only a handful, which centre on a higher headline number underpinned by energy base effects, for a current MNI median Eurozone estimate of 2.4-2.5%.
MNI US: Republicans Outnumber Democrats For First Time In Decades
New analysis of survey data from Gallup shows that there are now more Republican and Republican-leaning voters in the electorate than Democrats, for the first time in decades.
- Patrick Ruffini at Echelon Insights notes: “Historically, this is practically unheard of. Democrats have held a longstanding advantage in party identification that dates back to the New Deal, with Republicans drawing even on only a couple of occasions — the 1994 Republican Revolution and the immediate post-9/11 period.”
- Ruffini continues: “We are now entering a period where the roughly even party ID split reflects the highly competitive nature of national elections. All things being equal we should expect a 50-50 political environment to yield tied party ID, rather than a 3- or 4-point Democratic ID edge. Good Democratic years will mean more Democratic identifiers in the electorate, and good Republican years will mean more Republican identifiers.”
Figure 1: US Adult Party Identification and Leaning in Presidential Election Years
Source: Gallup
NEWS
MNI SOUTH KOREA: Choi Agrees To Appoint Justices, Lowers Risk Of Third Impeachment
Acting South Korean President, Choi Sang-mok, announced he will appoint two Constitutional Court justices immediately, and fill a third open position on the nine-member bench when rival parties reach an agreement. The decision will relieve pressure on Choi as the opposition Democratic Party has pledged to impeach successive acting presidents until the bench is filled, escalating the risk of a protracted political crisis.
(BBG) Germany’s DAX Index Concludes Its Best Two-Year Rally Since 2013 -- "Germany’s main equity benchmark concluded its biggest two-year run in more than a decade, leaving the country’s European rivals trailing in the dust. Expectations for a healthy global economy and a recovery in China have supported German stocks at a time when the local economy is facing challenges. SAP SE was the biggest contributor to 2024’s continued gains as investors sought technology plays, accounting for nearly a third of the index’s rally."
(BBG) China Raises Salaries for Government Workers to Boost Spending -- "China has awarded a range of civil servants across the nation their first significant pay rise in years, according to people familiar with the matter, as policymakers try to boost morale and spur spending. The basic salaries of many government employees have been
bolstered by at least 500 yuan ($68.51) per month, according to people who asked not to be identified discussing sensitive matters."
(BBG) Russian Gas to Europe Via Ukraine Set to Halt as Deal Lapses -- "European natural gas prices soared to €50 for the first time in more than a year on signs that Russian flows to the region across Ukraine will halt on Wednesday, after a transit deal expires."
MNI US TSYS: Tsy Curves Look To Finish 2024 at June'22 Highs
- Treasuries look to finish the last trading session of 2024 lower after reversing Tuesday morning support. Markets closed Wednesday for New Years day, resume full trade Thursday.
- The Mar'25 10Y contract trades 108-25.5 (-5.5) late in the day, 10Y yield near session high of 4.5871%. Curves bounced off flatter levels, 2s10s climbing to 34.344 -- the highest level since June 2022.
- Short end support, in turn, helped projected rate cuts into early 2025 gain momentum vs. late Monday levels (*) as follows: Jan'25 steady at -2.8bp, Mar'25 -14.6bp (-13.6bp), May'25 -20.6bp (-19.5bp), Jun'25 -29.8bp (-28.8bp).
- No substantive reaction to this morning's housing and regional Dallas Fed services activity data. Looking ahead to Thursday data (prior, est): Initial Jobless (219k, 221k) and Continuing Claims (1.910M, 1.890M) at 0830ET; S&P Global US Manufacturing PMI (48.3, 48.3) at 0945ET; Construction Spending MoM (0.4%, 0.3%) at 1000ET.
- Treasury supply: $85B 4- & $80B 8W bill auctions at 1130ET, $64B 17W bill auction at 1300ET.
OVERNIGHT DATA
MNI US DATA: Dallas Fed Survey Affirms Slowly Firming National Services Activity
The Dallas Fed's monthly Texas Service Sector survey showed the diffusion index for general business activity remained fairly steady at 9.6 in December, vs 9.8 in November.
- That figure was bolstered by stronger revenue and company outlook readings and lower outlook uncertainty, however employment/hours worked and capex weakened even as input and selling prices increased.
- Looking ahead, per the report, "Other future service sector activity indexes such as employment and capital expenditures remained in positive territory, reflecting expectations for sustained growth in the next six months.". Indeed the 6-month ahead reading hovered around November's 36-month high, possibly a byproduct of post-election business optimism but also in line with the broader trend of improvement since mid-2022. For what it's worth, the anecdotal commentary in the Services survey pointed to concerns over shifts in tariff and immigration policy negatively impacting their business/sector/the broader economy.
- The regional Fed services surveys have each shown softer activity vs November, with the Philly Fed's declining 0.1 point to -6.0, and the NY Fed's dropping 4.7 points to -5.2. The month-to-month Fed regional readings don't translate cleanly into the broader national ISM non-manufacturing reading, though the pullback in November to 52.1 (56.0 prior) looks better-supported by the regional evidence than does the S&P Global Services PMI's December flash reading showing an improvement to a multi-year high 58.5 (56.1).
- Overall, though, services appear to me moving in a firming rather than a deteriorating direction. The regional surveys do broadly affirm a continued divergence between manufacturing steady at a slow pace, and services showing some improvement.
MNI US DATA: House Prices Continue To Rise, But High Rates To Maintain Headwinds
House prices rose a little more strongly than expected in October, though overall gains remained fairly steady from a longer-term perspective.
- The S&P CoreLogic/Shiller 20-city home price index rose by 0.3% M/M (0.2% expected/prior), putting the Y/y measure at 4.22% (4.1% expected, 4.6% prior). The broader FHFA house price index rose by 0.4% M/M as expected, vs 0.7% prior.
- By most measures, housing valuations remain stretched (vs affordability/rates, rental yields), though this has not translated into softer prices. Recent momentum is mixed: on a 3M/3M annualized basis, FHFA prices were up 5.1% in October (highest since April), though S&P 20-city softened to a 17-month low 3.8%. Those are fairly typical figures for pre-pandemic house price trends.
- Prices have remained supported amid historically low turnover in the housing market, exacerbated by high mortgage rates.
- At some point the standoff between buyers and sellers will end, potentially when unemployment increases and/or mortgage rates drop. As it stands, expectations are for housing market activity to pick up in 2025 (existing home sales are seen at a 3-year high with new home sales at a 4-year high), with building permits/starts at the highest in 2 years. That's alongside a very modest softening in the labor market (4.3% unemployment), with long-end rates falling (10Y Treasury yields 4.1%).
- Economic solidity and solid household balance sheets (in part due to elevated house prices) should prevent too severe a deterioration in the housing market next year, though optimism over residential construction activity and home sales looks misplaced given higher rates.
MNI: US REDBOOK: DEC STORE SALES +5.5% V YR AGO MO
- US REDBOOK: STORE SALES +7.1% WK ENDED DEC 28 V YR AGO WK
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA down 123.69 points (-0.29%) at 42446.62
S&P E-Mini Future down 35.5 points (-0.6%) at 5922.25
Nasdaq down 183.8 points (-0.9%) at 19300.14
US 10-Yr yield is up 3.6 bps at 4.569%
US Mar 10-Yr futures are down 5/32 at 108-26
EURUSD down 0.0051 (-0.49%) at 1.0356
USDJPY up 0.42 (0.27%) at 157.26
WTI Crude Oil (front-month) up $0.8 (1.13%) at $71.78
Gold is up $17.51 (0.67%) at $2623.98
European bourses closing levels:
EuroStoxx 50 up 26.7 points (0.55%) at 4895.98
FTSE 100 up 52.01 points (0.64%) at 8173.02
French CAC 40 up 67.18 points (0.92%) at 7380.74
US TREASURY FUTURES CLOSE
3M10Y -0.246, 24.164 (L: 16.441 / H: 25.576)
2Y10Y +3.646, 32.529 (L: 26.72 / H: 34.344)
2Y30Y +3.683, 54.065 (L: 47.88 / H: 55.702)
5Y30Y +1.052, 39.927 (L: 36.732 / H: 40.585)
Current futures levels:
Mar 2-Yr futures up 0.375/32 at 102-26.375 (L: 102-25.25 / H: 102-28.25)
Mar 5-Yr futures down 1.25/32 at 106-11.5 (L: 106-08.75 / H: 106-16.75)
Mar 10-Yr futures down 5/32 at 108-26 (L: 108-22.5 / H: 109-06)
Mar 30-Yr futures down 8/32 at 113-27 (L: 113-19 / H: 114-23)
Mar Ultra futures down 15/32 at 118-28 (L: 118-18 / H: 120-07)
MNI US 10YR FUTURE TECHS: (H5) Trend Needle Points South
- RES 4: 112-02 Low Oct 14
- RES 3: 111-20+ High 6 and the bull trigger
- RES 2: 110-28 50-day EMA
- RES 1: 110-03+ 20-day EMA
- PRICE: 109-03 @ 0950 ET Dec 30
- SUP 1: 108-12 Low Dec 30
- SUP 2: 108-00 1.500 proj of the Oct 1 - 14 - 16 price swing
- SUP 3: 107-27+ 1.0% 10-dma envelope
- SUP 4: 107-19+ 1.618 proj of the Oct 1 - 14 - 16 price swing
The trend condition in Treasury futures remains bearish despite the intraday rally into the Monday close. These short-term gains are considered corrective below the 110-03+ 20-day EMA. Last week’s sell-off reinforces the current bear cycle. The contract has traded through key short-term support and the bear trigger at 109-02+, the Nov 15 low. The breach confirms a resumption of the downtrend and opens 108+12+, a Fibonacci projection.
SOFR FUTURES CLOSE
Mar 25 +0.005 at 95.830
Jun 25 steady00 at 95.960
Sep 25 steady00 at 96.030
Dec 25 +0.005 at 96.065
Red Pack (Mar 26-Dec 26) steadysteady0 to +0.005
Green Pack (Mar 27-Dec 27) -0.02 to -0.005
Blue Pack (Mar 28-Dec 28) -0.03 to -0.025
Gold Pack (Mar 29-Dec 29) -0.035 to -0.03
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00249 to 4.33249 (-0.02246/wk)
- 3M -0.00534 to 4.30510 (-0.02368/wk)
- 6M -0.01229 to 4.25001 (-0.03492/wk)
- 12M -0.03184 to 4.17500 (-0.06431/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.37% (-0.09), volume: $2.290T
- Broad General Collateral Rate (BGCR): 4.35% (-0.10), volume: $844B
- Tri-Party General Collateral Rate (TGCR): 4.35% (-0.10), volume: $798B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $108B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $250B
FED Reverse Repo Year-End Operation Usage Jumps to Late June Level
RRP usage surged to the highest level since June 28 into year end: $473.460B this afternoon from $260.743B Monday. Compares to $98.356B on Friday, December 20 - the lowest level since mid-April 2021. The number of counterparties jumped to 80 from 57 prior.
PIPELINE
No new issuance since December 12, $43.15B (likely) total issuance for December - better than December 2023 total of $28.1B.
MNI FOREX: Dollar Index Consolidating 6.8% Advance This Year
- We have seen some constructive price action for the greenback to finish the year, with the USD index shrugging off the early session declines to now trade in the green. The DXY has spent late December consolidating the post-election advance, up ~6.8% on the year.
- In most recent trade, EURUSD has slipped to the worst level of the session at 1.0378, just ahead of yesterday’s 1.0372 low. The trend condition continues to highlight scope for a test of key support at 1.0335, the Nov 22 low and a bear trigger. However, it is worth noting that some option expiries around the 1.0400 mark might limit the chance of a meaningful breakout this week. For reference, we have 1.59bn rolling off at 1.0400 on Thursday.
- USDJPY has also recovered well, rallying over 100 pips from the overnight lows, with spot now consolidating at the 157.00 handle. Officials at the BOJ fear that the real neutral rate of interest could be even lower than the previously-estimated range, MNI understands.
- Aussie and Kiwi are the clear underperformers to end the year, with both AUDUSD and NZDUSD sitting at cycle lows and the lowest levels since October 2022, around 0.62 and 0.56 respectively. For AUDUSD, scope is seen for an extension towards 0.6158 next, a Fibonacci projection.
THURSDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 02/01/2025 | 2200/0900 | ** |  AU | S&P Global Manufacturing PMI (f) |
| 02/01/2025 | 0145/0945 | ** |  CN | S&P Global Final China Manufacturing PMI |
| 02/01/2025 | 0815/0915 | ** |  ES | S&P Global Manufacturing PMI (f) |
| 02/01/2025 | 0845/0945 | ** |  IT | S&P Global Manufacturing PMI (f) |
| 02/01/2025 | 0850/0950 | ** |  FR | S&P Global Manufacturing PMI (f) |
| 02/01/2025 | 0855/0955 | ** |  DE | S&P Global Manufacturing PMI (f) |
| 02/01/2025 | 0900/1000 | ** |  EU | M3 |
| 02/01/2025 | 0900/1000 | ** | EU | S&P Global Manufacturing PMI (f) |
| 02/01/2025 | 0930/0930 | ** |  GB | S&P Global Manufacturing PMI (Final) |
| 02/01/2025 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 02/01/2025 | 1330/0830 | *** | US | Jobless Claims |
| 02/01/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 02/01/2025 | 1445/0945 | *** | US | S&P Global Manufacturing Index (final) |
| 02/01/2025 | 1500/1000 | * | US | Construction Spending |
| 02/01/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 02/01/2025 | 1600/1100 | ** | US | DOE Weekly Crude Oil Stocks |