EXECUTIVE SUMMARY
- MNI GERMANY: Election Exit Polls Leave Some Uncertainty On Coalition Possibilities
- MNI US-CHINA: Treasury Sec Bessent And Chinese Vice Premier He Hold 'In Depth' Call
- MNI US DATA: Final UMich Shows Jump In L-R Inflation Expectations (And Partisanship)
- MNI US DATA: Existing Home Sale Price Inflation Resilient To Supply Normalization
- MNI US DATA: Services PMI Slides Below 50, Softest Services Inflation In Five Years
US
MNI The Week Ahead: 2nd Q4 GDP and January PCE Reports
- The upcoming US economic calendar is backloaded, with the second release for Q4 national accounts on Thursday before the January PCE report on Friday. Real GDP growth is seen confirming what was at the time a softer than expected 2.3% annualized in Q4, whilst there will also be a first estimate for real GDI growth after 2.1% in Q3.
- Much of the relative GDP weakness in Q4 after two quarters averaging 3.0% came from a large drag from inventories. It should continue to show signs of robust domestic demand after personal consumption increased 4.2% annualized in the advance release.
- However, January’s monthly report is likely to show consumption got off to a much weaker start of 2025. Recall that retail sales were far weaker than expected in January as they slid -0.9% M/M (cons -0.2) along with an even larger miss for the control group at -0.8% M/M (cons 0.3) to more than unwind the previously strong 0.8% M/M increase in December. Early days for the Bloomberg consensus currently see real personal spending growth of -0.1% M/M in Jan after 0.4% in Dec.
- As for inflation, Governor Waller cited estimates for core PCE inflation of around 0.25% M/M and it likely rounding to 2.6% Y/Y with some help from modest upward revisions.
- Base effects will have helped it drop from the 2.8% Y/Y averaged in Q4 whilst recent run rates should look a little more favorable (2.1% and 2.4% annualized over three and six months assuming no revisions). Note that revisions will go back to Q4, reflecting the new seasonal adjustment factors for both CPI and PPI, but longer dated revisions will have to wait for the comprehensive national account revisions due in September.
NEWS
MNI GERMANY: Election Exit Polls Leave Some Uncertainty On Coalition Possibilities
Exit polls on the German election so far leave some uncertainty on potential coalition outcomes, while the possibility of debt brake reform apperas likely as of now.
- Exit poll results stand at: CDU/CSU 28.9% (24.1% 2021), SPD 16.2% (25.1% '21), Greens 13.0% (14.8% '21), FDP 4.9% (11.5% '21), The Left 8.5% (4.9% '21), AfD 19.9% (10.3% '21), BSW 4.8% (new).
- Both FDP and BSW remain with some chances of gaining above 5% of votes ultimately - and would not get any Bundestag seats if they fail to do so as per a constitutional threshold.
- The "Grand Coalition" of centre-right CDU/CSU and centre-left SPD (which was seen as the most likely ahead of the election) would only have a Bundetag majority if both FDP and BSW will remain below named threshold. Current polls tilt towards that but leave some uncertainty.
- If pro-business FDP were to make it into Bundestag, that would make a "Germany" coalition (consisting of CDU/CSU, SPD and FDP) the most probable. Such a three-party coalition outcome would be seen to bring less stability to the government. Another option in that case would be the "Kenya" coalition (CDU/CSU, SPD and Greens) - which apperas rather unlikely, though, as CSU and Greens have partially opposing views.
- From a debt brake point of view, a 2/3rds Bundestag majority in favour of parties open for reform seems likely from current polls. However, the Left will likely be needed for such reform, and might push for some concessions from the governing parties then, complicating negotiations.
- More clear results are expected overnight.
MNI US: UKRAINE: Kellogg Had 'Positive' Discussions With Zelenskyy
US President Donald Trump's Special Envoy to Ukraine and Russia, Keith Kellogg, has issued a short statement on X claiming he had "positive" discussions with Ukrainian President Volodymyr Zelenskyy in Kyiv yesterday. Kellogg: "A long and intense day with the senior leadership of Ukraine. Extensive and positive discussions with [Zelenskyy], the embattled and courageous leader of a nation at war and his talented national security team."
MNI US-CHINA: Treasury Sec Bessent And Chinese Vice Premier He Hold 'In Depth' Call
Chinese state media reporting that US Treasury Secretary Scott Bessent and his Chinese counterpart Vice Premier He Lifeng have concluded a call to discuss the US-China economic relationship. The call is the first reported communication between the pair since Bessent assumed the top Treasury job in President Donald Trump's administration.
MNI RUSSIA: Kremlin-No Comment On Reuters' US-Russia Talks In Switzerland Report
State media reporting comments from Kremlin spox Dmitry Peskov. Says that "there is the understanding of the need for a Trump-Putin meeting" but that there are "no concrete details yet." Says that on the upcoming third anniversary of the full-scale invasion of Ukraine, the "special military operation continues, and its goals will be achieved." Peskov: "We have goals related to our security and we are ready to achieve this through negotiations."
MNI SECURITY: EU-Half A Billion To Go On Cable Defences As Baltic Incidents Continue
Wires reporting comments from European Commission Exec VP for Tech Sovereignty, Security and Democracy Henna Virkkunen regarding the investigation by Swedish police of suspected sabotage of a telecoms cable in the Baltic Sea. Virkkunen says "We have been informed about the new cable breach and are following the investigation", adding the EU "will not accept these hybrid actions against us...Our submarine cable action plan is not only for the Baltic Sea area, it's for all of Europe."
MNI US TSYS: Late Risk-Off Lends to Weak Data Support
- Treasuries look to finish near session highs Friday, second half support spurred by risk-off sentiment as wires recirculated report of a new Covid strain out of China with "pandemic potential" (SCMP).
- Tsy Mar'25 10Y futures climbed to 109-24 high (+18.5), still shy of initial technical resistance at 110-00 (High Feb 7 and the bull trigger); 10Y yield fell to 4.4042% low; curves mixed: 2s10s -1.123 at 22.205, 5s30s +.956 at 40.929. Heavy volumes (TYH over 3.3M tied to quarterly roll action, June takes lead next Friday).
- Early Treasury support triggered by weaker than expected data: flash S&P PMIs w/ composite at 50.4 (cons 53.2) after 52.7 in Jan, services (49.7 vs cons 53.0, after 52.9); and existing home sales were softer than expected in January at 4.08m (cons 4.13m) after an upward revised 4.29m (initial 4.24m). UofM data showed a worrying rise in long-term inflation expectations alongside a deterioration in consumer sentiment.
- US stocks fell hard, DJIA back to January 21 levels while SPX Eminis and Nasdaq withdrew to last Thursday lows. Trading desks also cited today's call weighted option expiration that has historically leaned toward bearish price action in the week after.
- Late weekend focus on German elections take focus over the weekend, before New Zealand retail sales and German IFO data cross. There is a public holiday in Japan Monday.
OVERNIGHT DATA
MNI US DATA: Services PMI Slides Below 50, Softest Services Inflation In Five Years
- The preliminary February PMIs were much weaker than expected with the composite at 50.4 (cons 53.2) after 52.7 in Jan.
- It was driven by services (49.7 vs cons 53.0, after 52.9) whilst manufacturing was actually a little better than expected (51.6 vs cons 51.4, after 51.2).
- This was the first sub-50 reading for the services PMI since Jan 2023. Th turnaround is abrupt having run consistently stronger than ISM services since mid-2024, averaging 55.6 through June-Dec. The ISM services index was at 52.8 in January.
- The press release notes “New order growth also weakened sharply and business expectations for the year ahead slumped amid growing concerns and uncertainty related to federal government policies.”
- Further, “The upturn in manufacturing output was also in part linked to the front-running of tariffs, hinting at merely a temporary boost.”
- The inflation elements were also notable, with input costs spiking but pricing power limited:
- "Input cost pressures meanwhile spiked higher, notably in manufacturing as suppliers passed on tariff-related price hikes and wage pressures persisted."
- "However, intensifying competition helped limit the pass through of selling prices in the services sector, where inflation sank to a near five-year low."
- Full release here: https://www.pmi.spglobal.com/Public/Home/PressRelease/c3a10cc3461d4d8aa1758082292e7358
MNI US DATA: Existing Home Sale Price Inflation Resilient To Supply Normalization
- Existing home sales were softer than expected in January at 4.08m (cons 4.13m) after an upward revised 4.29m (initial 4.24m).
- It left sales growth at -4.9% M/M to eat into three solid monthly increases, suggesting a slowing in what had appeared a nascent recovery.
- This is against a backdrop of mortgage activity remaining extremely subdued, with few signs of life in the last 2 years outside of a brief rise in refinancings in September as Treasury yields fell in anticipation of the Fed rate cut cycle starting.
- Back to the January data, months of supply saw a sizeable increase, up to 3.5 for this January vs 3.0 in 2024 and 2.9 in 2023 to broadly close the gap to pre-pandemic levels having averaged 3.6 through 2017-19. It's a continuation of the normalization seen through 2H24.
- Median price growth remains impressively robust considering this normalization in relative supply, at 4.8% Y/Y.
MNI US DATA: Final UMich Shows Jump In L-R Inflation Expectations (And Partisanship)
The final University of Michigan consumer survey for February showed a worrying rise in long-term inflation expectations alongside a deterioration in consumer sentiment, but we continue to highlight that partisan political identification has driven a divergence that make the report difficult to cleanly interpret.
- Overall consumer sentiment fell to 64.7 in February from 71.1 prior (and down from 67.8 in the prelim report) - but Republicans remained confident (86.7 for a 2nd consecutive month, vs 49.7 in September, prior to the Republican sweep at the November election) while Democrats' confidence continued to deteriorate (51.3 vs 65.0 in January, and 92.6 in September).
- The rise in long-term expectations to 3.5% in the final report (from 3.3% prelim, 3.2% Jan) was notable (1-year ahead was confirmed at a post-Nov 2023 high 4.3%, vs 3.3% in Jan).
- This is a fairly stunning long-term figure - it's the highest since the mid-1990s and the biggest one-month jump since May 2021, and for its flaws, this indicator definitely has the attention of policymakers (2025 FOMC voter and St Louis Fed Pres Musalem said yesterday that he had noted some indicators of inflation expectations rising, specifically noting that "the University of Michigan survey shows some firming of longer-term consumer inflation expectations").
- But as we noted with the prelim report, inflation expectations are also muddied by partisanship, with Republicans now expecting no inflation in the next year and <2% over the 5-10 year horizon, but Democrats seeing 5.1% 1Y inflation and 4.2% longer-run.
- That said, the drop in sentiment "was unanimous across groups by age, income, and wealth. All five index components deteriorated this month, led by a 19% plunge in buying conditions for durables, in large part due to fears that tariff induced price increases are imminent", per the report - and the increases in inflation expectations were "widespread". So there may yet be more signal than noise from the trends in the survey.
MNI CANADA DATA: Jan Retail Sales Cool After Biggest Gain In Two Years In Q4
- Canadians had a post-holiday letdown in retail sales, -0.4% in Jan after Dec +2.5% that was fastest gain since May 2022.Readings are distorted by a two-month partial federal sales tax break that took effect in mid-December. December sales gains were across all major categories and led by products like food and alcohol that were part of the tax break.
- Q4 sales +2.4%, most since Q2 2022. It was the second quarterly increase, in line with BOC interest-rate cuts that began in June. StatsCan will report Q4 GDP on Feb 28, ahead of the Mar 12 BOC rate decision.
- What's unclear is whether the Jan decline is related to a holiday shopping hangover or weaker confidence amid threats of a U.S. trade war and some households who are refinancing mortgages at higher costs.
MARKETS SNAPSHOT
- Key market levels of markets in late NY trade:
- DJIA down 718.67 points (-1.63%) at 43459.16
- S&P E-Mini Future down 100.5 points (-1.64%) at 6035.75
- Nasdaq down 420.4 points (-2.1%) at 19541.85
- US 10-Yr yield is down 8.8 bps at 4.4178%
- US Mar 10-Yr futures are up 16.5/32 at 109-22
- EURUSD down 0.004 (-0.38%) at 1.0461
- USDJPY down 0.58 (-0.39%) at 149.06
- Gold is down $2.79 (-0.09%) at $2936.11
- European bourses closing levels:
- EuroStoxx 50 up 13.82 points (0.25%) at 5474.85
- FTSE 100 down 3.6 points (-0.04%) at 8659.37
- German DAX down 27.09 points (-0.12%) at 22287.56
- French CAC 40 up 31.93 points (0.39%) at 8154.51
US TREASURY FUTURES CLOSE
- 3M10Y -7.566, 11.058 (L: 9.187 / H: 18.697)
- 2Y10Y -0.929, 22.399 (L: 19.925 / H: 23.558)
- 2Y30Y -0.173, 47.301 (L: 43.195 / H: 47.766)
- 5Y30Y +0.7, 40.673 (L: 37.815 / H: 41.345)
- Current futures levels:
- Mar 2-Yr futures up 4.375/32 at 102-28.375 (L: 102-23.375 / H: 102-28.75)
- Mar 5-Yr futures up 10.75/32 at 106-26 (L: 106-14 / H: 106-27.5)
- Mar 10-Yr futures up 16.5/32 at 109-22 (L: 109-03.5 / H: 109-24)
- Mar 30-Yr futures up 1-02/32 at 116-3 (L: 114-27 / H: 116-10)
- Mar Ultra futures up 1-14/32 at 121-10 (L: 119-18 / H: 121-19)
MNI US 10YR FUTURE TECHS: (H5) Narrowing Gap With Last Week’s High
- 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: 109-22 @ 1515 ET Feb 21
- 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 recovered well off the intraday low of 108-21+ posted Wednesday, keeping the price clear of any test on 108-04 support. As such, markets are narrowing the gap with last week’s highs and may post a strong weekly candle at the close. Any further gains here would expose key resistance and the 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.
SOFR FUTURES CLOSE
- Mar 25 +0.013 at 95.705
- Jun 25 +0.050 at 95.865
- Sep 25 +0.085 at 96.015
- Dec 25 +0.10 at 96.10
- Red Pack (Mar 26-Dec 26) +0.10 to +0.110
- Green Pack (Mar 27-Dec 27) +0.090 to +0.095
- Blue Pack (Mar 28-Dec 28) +0.085 to +0.085
- Gold Pack (Mar 29-Dec 29) +0.080 to +0.085
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00302 to 4.31930 (+0.00565/wk)
- 3M -0.00706 to 4.32153 (-0.00146/wk)
- 6M -0.01425 to 4.29076 (-0.02023/wk)
- 12M -0.02100 to 4.22342 (-0.05145/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.33% (-0.02), volume: $2.403T
- Broad General Collateral Rate (BGCR): 4.31% (-0.02), volume: $934B
- Tri-Party General Collateral Rate (TCR): 4.31% (-0.02), volume: $914B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $98B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $283B
FED Reverse Repo Operation
RRP usage inches up to $68.983B this afternoon from $63.207B on Thursday. Compares to last Friday's $58.770B - the lowest level since mid-April 2021. The number of counterparties at 24 from 23 prior.
MNI PIPELINE: Corporate/Supra Sovereign US$ Bond Issuance Roundup
$3.6B Corporate/supra-sovereign bonds priced Thursday, $48.9B running total for the week:
- Date $MM Issuer (Priced *, Launch #)
- 02/20 $3B *Qatar $1B 3Y +30, $2B 10Y +45
- 02/20 $1.75B *Raizen Fuels Finance $1B 12Y +225, $750M 30Y +250
- 02/20 $750M *Westpac New Zealand 5Y +60
- 02/20 $600M *PACCAR Financial 3Y +30
- 02/20 $500M *Amsted Ind 8NC3 6.375%
MNI BONDS: EGBs-GILTS CASH CLOSE: Bunds Outperform Headed Into Election
European yields fell Friday, with Bunds outperforming Gilts ahead of this weekend's German election.
- Flash February PMI data dictated direction for most of the session. The morning saw weaker-than-expected French and UK PMI reports with an in-line German reading, which was overall taken dovishly.
- A surprise contractionary reading in US Services PMI saw the core rally extend in afternoon trade.
- And once again, US-Ukraine relations saw a risk-off bid for core FI, with periphery EGB spreads widening amid a Bund rally after Pres Trump said that it is not important for Ukraine to attend peace talks.
- The German curve bull flattened, with the UK belly outperforming.
- Periphery spreads closed wider, while OATs underperformed overall after the weak French PMI.
- The German election will be watched closely Sunday (MNI Preview here) - MNI’s core scenario for the sees a moderate ‘grand coalition’ being formed after the election between the Union parties and the SPD, with CDU leader Merz becoming chancellor at the expense of Olaf Scholz.
- Next week's highlights include ECB Q4 Negotiated Wages and French/German/Italian February Flash inflation data.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 4.8bps at 2.105%, 5-Yr is down 6.2bps at 2.241%, 10-Yr is down 6.4bps at 2.47%, and 30-Yr is down 6.8bps at 2.721%.
- UK: The 2-Yr yield is down 3.8bps at 4.227%, 5-Yr is down 4.3bps at 4.253%, 10-Yr is down 3.6bps at 4.571%, and 30-Yr is down 3.5bps at 5.165%.
- Italian BTP spread up 0.2bps at 108.4bps / French OAT up 2.1bps at 75.4bps
MNI FOREX: AUDJPY Extends Declines to 1.00%, EURJPY Tests Below 156.00
- Friday’s session has been a tale of two halves for EURJPY. Initial comments from BOJ Governor Ueda sparked an impressive relief rally for Cross/JPY, as he told parliament the Bank would buy bonds nimbly should yields rise sharply. EURJPY rose sharply higher in tandem, reaching an intra-day high of 158.22.
- However, a multitude of factors have prompted a sharp turnaround, with the cross now testing below the 156.00 mark ahead of the weekend close. The weaker-than-expected French services PMI set the tone for the single currency, and the late weakness for major US equity benchmarks has underpinned the souring risk sentiment, weighing specifically on EURJPY. Price action has been exacerbated by the lower US yields following the soft US data, President Trump proclaiming that it is not important for Zelenskiy to be at the peace talks, and desks citing late reports of “new” coronavirus concerns all adding pressure.
- As such, USDJPY has also slipped to a fresh session low below 149.00, keeping the bearish sentiment for the pair in focus. Price action this week has seen spot narrow the gap substantially to 148.65, a key support.
- Broad risk off is weighing on the likes of AUD, NZD and CAD, all exhibiting losses of around 0.5% and underperforming the more moderate declines for EUR and GBP. AUDJPY losses are now totalling 1% on the session. Risk-off in emerging market FX has been less evident, with the lower treasury yields likely offsetting somewhat.
- German elections take focus over the weekend, before New Zealand retail sales and German IFO data cross. There is a public holiday in Japan Monday.
MONDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 24/02/2025 | 0900/1000 | *** |  DE | IFO Business Climate Index |
| 24/02/2025 | 0900/0900 |  GB | BOE's Lombardelli remarks at BOE BEAR Conference | |
| 24/02/2025 | 1000/1100 | *** |  EU | HICP (f) |
| 24/02/2025 | 1315/0815 |  CA | BOC Deputy Gravelle speaks on BOE panel at "The Future of the Central Bank Balance Sheet" conference | |
| 24/02/2025 | 1315/1315 | GB | BOE's Ramsden and Saporta panellist on CB Balance sheet during QT | |
| 24/02/2025 | 1330/0830 | * | CA | Quarterly financial statistics for enterprises |
| 24/02/2025 | 1400/1500 | ** |  BE | BNB Business Confidence |
| 24/02/2025 | 1530/1030 | ** |  US | Dallas Fed manufacturing survey |
| 24/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 24/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 24/02/2025 | 1800/1800 | GB | BOE's Dhingra speech on state of the UK monetary policies | |
| 24/02/2025 | 1800/1300 | * | US | US Treasury Auction Result for 2 Year Note |