EXECUTIVE SUMMARY
- MNI BRIEF: Fed Rates Need To Stay Restrictive - Daly
- MNI INTERVIEW: US Tariffs To Hit Growth, Prompt Fed Cuts-Wang
- MNI BRIEF: Big Disinflation Risk From China -ECB's Cipollone
- US DATA: Tariff Threats Curb Homebuilder Enthusiasm, Empire State Manufacturing
- CANADA DATA: Canada Jan CPI +1.9% YOY On Gasoline, Core Measures Accelerate
US TSYS: Steadily Weaker As Fed Rate Cut Optimism Dims Again
Treasury futures weakened Tuesday, completing the reversal from last Friday's highs.
- Since the Globex re-open Monday evening, Treasuries have been under mild but steady pressure: Mar 10-Yr futures (TY) are last down 17/32 at 108-25 (L: 108-25 / H: 109-11) - above immediate support at 108-04/00 (the post-CPI low on Feb 12 / Low Jan 16).
- That leaves front TYs 22 ticks below Friday's high and back at levels seen just after last Thursday's seemingly benign PPI report.
- Seemingly the dovish implications of Friday's weak retail sales report are being faded, with Fed Gov Waller late Monday expressing less optimism than usual over the prospect of near-term rate cuts. That helped pare end-2025 implied Fed rate cuts by 3bp, last 3.96% (or, one-and-a-half 25bp cuts).
- Data was mixed, with Empire State manufacturing beating and NAHB sentiment missing - but both reports suggested private sector concern over the growth and inflationary impact of tariffs, with New York State manufacturers expecting increasing price pressures over the next half-year.
- Cash Treasuries bear steepened in the return to trade after Monday's Sifma-recommended holiday: the 2-Yr yield is up 4bps at 4.2992%, 5-Yr is up 7.1bps at 4.3986%, 10-Yr is up 7.6bps at 4.5523%, and 30-Yr is up 7.5bps at 4.7717%.
- Treasury supply resumes Wednesday with $16B 20Y Bond auction, while we also get January housing starts/permits data and the January FOMC meeting minutes (followed by an appearance by Fed VC Jefferson).
NEWS
FED (MNI BRIEF): U.S. monetary policy needs to stay restrictive until inflation slows to 2% and that progress has been slow and bumpy, Federal Reserve Bank of San Francisco President Mary Daly said Tuesday, signaling rates are likely to stay higher for longer for now. "Policy needs to remain restrictive until I see that we're really continuing to make progress on inflation," she told a community bankers meeting in Phoenix, Arizona. "Now we want to be careful before we make the next adjustment so we're getting this right."
FED (MNI INTERVIEW): Sweeping tariffs from the Trump administration are set to harm growth while having an ambiguous impact on inflation and will ultimately induce more rate cuts from the Federal Reserve, Joseph Wang, former senior trader on the New York Fed's open market desk, told MNI.
ECB (MNI BRIEF): The eurozone faces both upside and downside inflation risks, but the risk which should most worry the European Central Bank is a potential diversion of Chinese exports as a result of U.S. tariffs, ECB Executive Board member Piero Cipollone told an MNI Connect livestreamed event. "They [the Chinese] have to sell their goods somewhere,” he said.
ECB (MNI BRIEF): The European Central Bank needs to ensure that factors in the tightening effect of its balance sheet reduction “when calibrating our rate cuts to achieve our inflation aim”, as it approaches to neutral level, ECB executive board member Piero Cipollone in an MNI Connect livestreamed event.
EU (MNI BRIEF): The European Commission will present a concrete proposal for the use of national escape clauses from the bloc's fiscal rules to allow increased defence spending within the "coming weeks", Economy Commissioner Valdis Dombrovskis said on Tuesday. EU finance ministers will discuss Commission proposals at their next meeting in March and hope at their May meeting to finalise details of any exemption from the rules, which Dombrovskis said would probably need to be in place for "several years".
OVERNIGHT DATA
MNI: US NAHB HOUSING MARKET INDEX 42 IN FEB
- MNI: US NAHB HOUSING MARKET INDEX 42 IN FEB
- US NAHB FEB SINGLE FAMILY SALES INDEX 46; NEXT 6-MO 46
US DATA: Tariff Threats Curb Homebuilder Enthusiasm
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell more than expected in February's survey, to 42 (46 expected, 47 prior), a 5-month low. And future sales expectations (6-months ahead) dropped 13 points to 46, to a 14-month low, after having surged post-election to a 32-month high 66 in December. Present sales pulled back to 46 from January's 9-month high 50, with prospective buyer traffic likewise dropping to 29 from 32 prior, both marking 5-month lows.
- Just as the promise of "pro-development policies, particularly for regulatory reform" (per NAHB) boosted confidence in late 2024, "policy uncertainty and cost factors created a reset for 2025 expectations in the most recent HMI". Namely: tariffs.
- The NAHB notes that "builder responses collected prior to a pause for the proposed tariffs on goods from Canada and Mexico yielded a lower HMI reading of 38, while those collected after the announced one-month pause produced a score of 44", with softwood lumber and applicances named specifically.
- The report also cited "elevated mortgage rates" and "high housing costs" as factors.
- Though not singled out by the NAHB as a factor, the West of the country which includes fire-stricken California saw a 7 point drop to a 14-month low (35), though all regions saw lower readings, with the pullback in the Northeast (17 points to 48, a 6-month low) marking the biggest monthly drop since February 2021.
- The NAHB's index tends to be a good leading indicator of building permits and thus residential investment, which is seen contributing to overall GDP growth in Q1 albeit much less than in Q4 2024.
- As such, the "soft" data so far is pointing to policy uncertainty potentially dampening activity in residential construction, though ultimately the "hard" results will be impacted by the policies that are implemented.
MNI: US NY FED EMPIRE STATE MFG INDEX 5.7 FEB
- MNI: US NY FED EMPIRE STATE MFG INDEX 5.7 FEB
- US NY FED EMPIRE MFG NEW ORDERS 11.4 FEB
- US NY FED EMPIRE MFG EMPLOYMENT INDEX -3.6 FEB
- US NY FED EMPIRE MFG PRICES PAID INDEX 40.2 FEB
US DATA: Empire State's Jump In Inflation, Drop In Optimism Look Tariff-Related
The Empire State Manufacturing Survey's index of general business conditions came in stronger than expected in February at 5.7 (a 3-month high, vs 0.0 expected, -12.6 prior). But the volatilty and details of the report raise the question of whether the Trump administration's threat of tariffs on New York State-neighboring Canada (implementation postponed to Mar 1 from Feb 1) and accompanying retaliatory tariffs, which rose to prominent attention ahead of the February survey dates (Feb 3-11), had something to do with the results.
- The 6-month ahead business outlook - which jumped 9.8 points in January to 36.7, the highest since Dec 2021 - pulled back 14.5 points in February to 22.2. That was the lowest since May 2024. The NY Fed didn't comment on the reasons for the pullback, merely saying in the report that "optimism about the outlook dropped noticeably".
- Adding to the theory that the survey shows a tariff impact, prices indices soared: current prices paid rose to 1 23-month high 40.2 (29.1 prior), with the 6-month expected prices paid up to a 32-month high. Current prices received jumped to 19.6 (9.3 prior), a 17-month high, though 6-month ahead prices received actually ticked lower to 42.4 (43.0 the month prior was a 25-month high).
- Contrary to the tariff thesis, New Orders, which fell to a 3-month low -8.6 in January (from positive 4.3 in Dec and a post-Dec 2021 high 20.7 in Nov), bounced strongly to 11.4 - back to a 3-month high and the 2nd strongest since mid-2023, so the "hard" data doesn't quite square with the concerns seen over the 6-month-ahead period.
- The Employment Index, which shifted positive in January for just the 2nd time in 15 months (1.2), fell back into negative territory in February (-3.6).
US DATA: Dallas Fed Survey Finds Strong Increases In Loan Demand
- The timely Dallas Fed’s banking conditions survey, collected Feb 4-12, noted that “loan volume continued increasing at a rapid pace in February while loan demand accelerated further.”
- Whilst only a snapshot for one region, it's nevertheless of note with some disagreement on the FOMC as to the level of restrictiveness currently exerted by monetary policy.
- The current period loan demand balance of +30 is up from +11 in the late Dec survey for its highest since May 2022, whilst future loan demand only dipped 3pts to a still elevated +16.
- A net share continue to see tighter credit standards, but with a balance of -10.4 (after -12.5 in late Dec), it poked below the -10.5 in Oct for technically its least since Apr 2022.
- The press release notes that “Loan nonperformance rose across all loan types, while growth in general business activity slowed”. However, we note that the current period NPL ratio at +16 is within recent ranges, which included the Jan 2025 high of +25. What’s more, the balance expecting higher NPLs in the future at +14 was up from two particularly low reports at 4-5 but is stil far lower than the +50 balances seen in 2023.
MNI: CANADA JAN CPI INFLATION +0.1% M/M, +1.9% YY
- MNI: CANADA JAN CPI INFLATION +0.1% M/M, +1.9% YY
CANADA DATA: Core CPI Latest Trends
A reminder that CPIxFE will be impacted by the GST/HST holiday whereas median, trim and CPIX allow for indirect tax changes.
- Core CPI (median & trim av - BoC focus):
- % M/M: 0.23 in Jan'25 after 0.26 in Dec'24
- % 3mth ar: 3 in Jan'25 after 3.5 in Dec'24
- % 6mth ar: 3.1 in Jan'25 after 2.8 in Dec'24
- % Y/Y: 2.7 in Jan'25 after 2.55 in Dec'24
- CPI xFE (ex food & energy):
- % M/M: 0.13 in Jan'25 after 0.33 in Dec'24
- % 3mth ar: 2.1 in Jan'25 after 2.7 in Dec'24
- % 6mth ar: 2 in Jan'25 after 2.1 in Dec'24
- CPIX (ex 8 most volatile & indirect taxes):
- % M/M: 0.32 in Jan'25 after 0.32 in Dec'24
- % 3mth ar: 3.1 in Jan'25 after 2.9 in Dec'24
- % 6mth ar: 2.7 in Jan'25 after 2.3 in Dec'24
Source: Bloomberg, MNI
CANADA DATA: Canada Jan CPI +1.9% YOY On Gasoline, Core Measures Accelerate
- Canada Jan CPI +1.9% YOY from +1.8% in Dec despite the price drag from the 2-month tax holiday which started on Dec 14.
- Jan CPI +0.1% MOM vs prior -0.4%.
- BoC preferred core measures, which exclude the impact of indirect taxes, accelerated. Core median +2.7% from prior +2.6% and core trim +2.7% from +2.5%.
- Headline acceleration led by mortgage interest costs (+10% YOY) and gasoline (+8.6%). Prices for new passenger vehicles +2.3% YOY in January vs +0.9% in Dec.
- The tax holiday lowered inflation for some components. Food -0.6% YOY in Jan, the first yearly decline since May 2017 with food prices from restaurants a record -5.1%. Toys also -6.8%.
- Excluding effect of the tax holiday, StatsCan said CPI would have been +2.7% YOY.
- StatsCan said CPI for any tariffs will require no adjustments because their effect would be embedded in final prices the agency collects.
- This is the last CPI report before BoC's interest rate decision meeting on March 12. Investors were split on whether the policy rate would be cut a seventh time in a row.
MARKETS SNAPSHOT
Below gives key levels of markets in afternoon NY trade:
- DJIA down 77.06 points (-0.17%) at 44473.06
- S&P E-Mini Future down 0.75 points (-0.01%) at 6132
- Nasdaq down 66 points (-0.3%) at 19964.12
- US 10-Yr yield is up 7.6 bps at 4.5523%
- US Mar 10-Yr futures (TY) are down 17.5/32 at 108-24.5
- EURUSD down 0.0038 (-0.36%) at 1.0446
- USDJPY up 0.53 (0.35%) at 152.04
- WTI Crude Oil (front-month) up $1.03 (1.46%) at $71.77
- Gold is up $37.63 (1.3%) at $2934.16
Prior European bourses closing levels:
- EuroStoxx 50 up 14.01 points (0.25%) at 5533.84
- FTSE 100 down 1.28 points (-0.01%) at 8766.73
- German DAX up 46.41 points (0.2%) at 22844.5
- French CAC 40 up 17.43 points (0.21%) at 8206.56
US TREASURY FUTURES CLOSE
Current futures levels:
Mar 2-Yr futures (TU) down 2.5/32 at 102-21.875 (L: 102-21.8 / H: 102-25.1)
Mar 5-Yr futures (FV) down 9.25/32 at 106-7 (L: 106-7 / H: 106-17.3)
Mar 10-Yr futures (TY) down 17.5/32 at 108-24.5 (L: 108-24.5 / H: 109-11)
Mar 30-Yr futures (US) down 34/32 at 114-15 (L: 114-15 / H: 115-19)
Mar Ultra futures (WN) down 50/32 at 119-4 (L: 119-3 / H: 120-25)
US 10YR FUTURE TECHS: (H5) MA Studies Highlight A Dominant Downtrend
- RES 4: 110-25 High Dec 12
- RES 3: 110-19 76.4% retracement of the Dec 6 - Jan 13 bear leg
- RES 2: 110-14 High Dec 14
- RES 1: 110-00 High Feb 7 and the bull trigger
- PRICE: 108-30+ @ 16:56 GMT Feb 18
- SUP 1: 108-04/00 Low Feb 12 / Low Jan 16
- SUP 2: 107-06 Low Jan 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 remain above the Feb 12 low, but have faded off highs. A continuation higher would expose key resistance and bull trigger at 110-00, the Feb 7 high. For bears, recent weakness resulted in a break of 108-20+, the Feb 4 low, signalling the end of the correction between Jan 13 - Feb 7. Moving average studies highlight a dominant downtrend. A resumption of weakness would open 108-00, Jan 16 low, and expose 107-06, Jan 13 low and bear trigger.
STIR: Less-Dovish Waller And Daly Set Tone For Less Implied 2025 Easing
The implied Fed rate path shows a little less easing Tuesday, with end-2025 futures pricing a 3.96% funds rate, up 3bp vs Monday.
- That's still below the 4.05% closing peak after last Wednesday's CPI data, but less-dovish-leaning comments by Gov Waller overnight (eyeing rate cuts "at some point this year" vs his musing last month of cuts earlier than markets expected) set the tone. SF's Daly, usually dovish leaning, noted Tuesday that "policy needs to remain restrictive until, from my vantage point, until I see that we are really continuing to make progress on inflation.”
- The first full cut is still only priced for September (around 27bp), with another :"half-cut" implied by year-end.
- Wednesday's schedule includes the January FOMC minutes (MNI's preview will be out later today).
| Meeting | Current FF Implieds (%), LH | Cumulative Change From Current Rate (bp) | Incremental Chg (bp) | Prior Session (Feb 17) | Chg Since Then (bp) | End of Last Week (Feb 14) | Chg (bp) |
| Mar 19 2025 | 4.32 | -0.6 | -0.6 | 4.32 | 0.0 | 4.32 | 0.0 |
| May 07 2025 | 4.29 | -4.0 | -3.4 | 4.27 | 1.6 | 4.28 | 1.3 |
| Jun 18 2025 | 4.20 | -12.9 | -8.9 | 4.18 | 2.6 | 4.18 | 1.8 |
| Jul 30 2025 | 4.15 | -17.7 | -4.8 | 4.12 | 3.0 | 4.13 | 2.0 |
| Sep 17 2025 | 4.06 | -26.7 | -9.0 | 4.03 | 3.5 | 4.04 | 2.0 |
| Oct 29 2025 | 4.02 | -30.7 | -4.0 | 3.98 | 4.0 | 3.99 | 3.0 |
| Dec 10 2025 | 3.96 | -36.6 | -5.9 | 3.93 | 3.4 | 3.93 | 3.1 |
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
US TSYS/OVERNIGHT REPO: Repo Rates Set To Pick Up Slightly Early This Week
Repo reference rates softened slightly overall on Friday Feb 14, the most recent session for which we have data owing to Monday's holiday.
- While SOFR was unchanged at 4.33%, BGCR and TGCR saw 1bp dips to 4.31% each.
- Secured rates are seen picking up moderately this week, particularly today as it marks the month's Treasury refunding auctions settlement.
- Though of course, the main pressure is expected to come at end-month as usual, especially given unusually large auction settlements at the end of the month.
- Effective Fed funds as usual was unchanged at 4.33%.
REPO REFERENCE RATES (rate, change from prev. day, volume):
* Secured Overnight Financing Rate (SOFR): 4.33%, no change, $2319B
* Broad General Collateral Rate (BGCR): 4.31%, -0.01%, $932B
* Tri-Party General Collateral Rate (TGCR): 4.31%, -0.01%, $913B
New York Fed EFFR for prior session (rate, chg from prev day):
* Daily Effective Fed Funds Rate: 4.33%, no change, volume: $91B
* Daily Overnight Bank Funding Rate: 4.33%, no change, volume: $268B
US TSYS/OVERNIGHT REPO: ON RRP Takeup Bounces Sharply From Multiyear Lows
Overnight reverse repo facility takeup bounced sharply Tuesday, rising $19.0B (most since Jan 31) vs Friday to $77.8B.
- That's the highest level since Feb 10 and for the moment brings takeup above the post-April 2021 lows set last week ($58.8B on Friday).
- Takeup is expected to remain steady from here/head higher toward end-month.
SOFR FIX - Source BBG/CME
- 1M 4.31180 -0.00185
- 3M 4.32192 -0.00107
- 6M 4.29580 -0.01519
- 12M 4.23157 -0.0433
EGBs-GILTS CASH CLOSE: Gilts Underperform Ahead Of UK Inflation Data
Gilts underperformed Bunds Tuesday, fully unwinding Monday's outperformance.
- UK labour market data early in the session set the tone: the implications of stronger-than-expected signals from the quantity side were weighed against broadly in-line pay growth.
- Gov Bailey said later that the labour market data did not fundamentally change the outlook.
- ECB's Cipollone said at an MNI event that he believes the move away from scarce collateral conditions is not yet having a major impact on Eurozone money markets.
- The UK curve bear flattened on the day, while the German curve leaned steeper though was mixed throughout.
- Periphery/semi-core EGB spreads tightened moderately, with European equities gaining.
- Wednesday's schedule is highlighted by UK inflation data - MNI's preview is here.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 0.8bps at 2.132%, 5-Yr is unchanged at 2.267%, 10-Yr is up 0.4bps at 2.493%, and 30-Yr is down 0.1bps at 2.745%.
- UK: The 2-Yr yield is up 3.9bps at 4.243%, 5-Yr is up 3.3bps at 4.253%, 10-Yr is up 3.1bps at 4.558%, and 30-Yr is up 2.8bps at 5.146%.
- Italian BTP spread down 0.4bps at 105.4bps / French OAT down 1.6bps at 71.2bps
FOREX: USD Index Trades on Firmer Footing, Assisted by Higher Yields
- Higher treasury yields have helped the US dollar recoup some of its recent losses on Tuesday, with pressure on equity markets providing an additional tailwind for the greenback.
- G10 declines have been led by the risk sensitive New Zealand dollar, notably underperforming its Antipodean counterpart following the hawkish cut from the RBA. As such, The AUDNZD cross has advanced 0.52% on the session, close to recent highs of 1.1149. Late 2024 highs represent the most notable level on the topside at 1.1180, a breach of which would place the cross at the highest level since late 2022.
- Fixed income market dynamics have weighed on the Japanese yen, and USDJPY stands comfortably above the overnight lows around the 152.00 mark. The pair remains in a technical bear cycle, and the focus remains on the bear trigger at 150.93, the Feb 7 low. Clearance of this level would resume the bear cycle that started on Jan 10, and would target 149.69 (Dec 9 low) and 148.65, the Dec 3 low and a key support.
- The firmer dollar has worked against the single currency, with EURUSD sliding 0.4% to 1.0440. Given a short-term bullish theme dominates, technical support is not seen until 1.0280, the Feb 10 low.
- Wednesday’s APAC session is headlined by the RBNZ, expected to cut the official cash rate by 50bp to 3.75%, before the focus then turns to UK CPI. In the US, the FOMC minutes have the spotlight. Details surrounding the most recent adjustments to the January statement, as well as any discussion or analysis regarding the potential impact of the new presidential administration's policy shifts will be scrutinised.
DATA/EVENTS CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 18/02/2025 | 2100/1600 | ** |  US | TICS |
| 19/02/2025 | 2350/0850 | ** |  JP | Trade |
| 19/02/2025 | 2350/0850 | * | JP | Machinery orders |
| 19/02/2025 | - |  NZ | Reserve Bank of New Zealand Meeting | |
| 19/02/2025 | 0001/0001 | * |  GB | Brightmine pay deals for whole economy |
| 19/02/2025 | 0030/1130 | *** |  AU | Quarterly wage price index |
| 19/02/2025 | 0100/1400 | *** | NZ | RBNZ official cash rate decision |
| 19/02/2025 | 0700/0700 | *** | GB | Consumer inflation report |
| 19/02/2025 | 0700/0700 | *** | GB | Producer Prices |
| 19/02/2025 | 0900/1000 | ** |  EU | EZ Current Account |
| 19/02/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 19/02/2025 | 1000/1100 | * | EU | labour costs |
| 19/02/2025 | 1200/0700 | ** | US | MBA Weekly Applications Index |
| 19/02/2025 | 1330/0830 | *** | US | Housing Starts |
| 19/02/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 19/02/2025 | 1800/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |
| 19/02/2025 | 1900/1400 | US | FOMC Minutes | |
| 19/02/2025 | 1900/1400 | *** | US | FOMC Minutes |
| 19/02/2025 | 2200/1700 | US | Fed Vice Chair Philip Jefferson | |
| 20/02/2025 | 0030/1130 | *** | AU | Labor Force Survey |