Highlights:
- ECB's Cipollone speak to MNI, Canadian CPI mark key releases
- AUD outperforms as RBA signal aggressive easing unlikely despite first cut in 5 years
- UK pay growth proves resilient, argues against swift BoE easing
- Treasuries sit lower across the curve today in catch-up from yesterday’s cash closure and early close for futures for Presidents’ Day.
- The downward pressure primarily reflects spillover from EGBs and raised defense spending expectations.
- Cash yields are 1.5-3bp higher from Friday’s close, with the front end lagging increases despite Waller’s more hawkish comments overnight - see STIR bullet for more commentary.
- 2s10s at 23.5bp (+1.5bp) sits within recent ranges.
- TYH5 trades at 109-02 (-08) close to earlier lows of 109-01. Moving average studies highlight a dominant downtrend whilst support isn’t seen until 108-04 (Feb 12 low) before 108-00 (Jan 16 low).
- Data: Empire mfg Feb (0830ET), NAHB housing index Feb (1000ET), TIC flows Dec (1600ET)
- Fedspeak: Daly (1020ET, text + Q&A), Barr (1300ET, text + Q&A).
- Bill issuance: US Tsy sells $80bn 13-wk bills, $70bn 26-wk bills (1130ET), $80bn 6-wk bills, $48bn 52-wk bills (1300ET)
STIR: Fed Rates Hold More Hawkish Waller Impact, Daly Next Up
- Fed Funds implied rates have been buoyed overnight by Fed Governor Waller (permanent voter) late yesterday saying recent economic data support keeping rates on hold, but if inflation behaves as it did in 2024, policymakers can get back to cutting “at some point this year.”
- That’s a hawkish turn compared to his Jan 16 comments which drew a notably dovish reaction with three or four rate cuts are possible in 2025 if the data cooperates.
- Talking on CPI seasonality: “If this wintertime lull in progress is temporary, as it was last year, then further policy easing will be appropriate. But until that is clear, I favor holding the policy rate steady.”
- Cumulative cuts from 4.33% effective: 0.5bp Mar, 5.5bp May, 14.5bp Jun, 19.5bp Jul, 29bp Sep and 40bp Dec.
- Today's monetary policy focus is likely on SF Fed’s Daly (non-voter) at the American Bankers Association at 1020ET (text + Q&A). She said Feb 4 (pre payrolls and CPI) that the Fed is in a good position to wait and see when setting policy and we have to make sure we get inflation down. She doesn’t want to take pre-emptive action on Trump’s policies.
TODAY: Livestreamed MNI Connect with ECB Cipollone At 1400GMT
You are invited to listen to a Livestreamed MNI Connect Video Conference with ECB Executive Board Member, Piero Cipollone.
Details below:
- TOPIC OF DISCUSSION: The ECB's balance sheet and its implications for monetary policy
- DATE: Tuesday 18 February
- TIME: 14:00 - 15:00 London time
- This event will be run as a Zoom Webinar and is a public, on-the-record event.
To register please go to: MNI Webcast Registration
GLOBAL POLITICAL RISK: US-Russia Talks Underway As UK PM Proposes US 'Backstop'
Talks are underway in the Saudi capital Riyadh between delegations from the US and Russia in what could prove the first step towards peace talks to end the war in Ukraine. The US has painted the discussions as preliminary talks to infer whether Russia is serious about holding eventual ceasefire negotiations. Russia, on the other hand, has said the talks will cover "the entire complex of Russian-American relations”, preparations for peace talks, and planning for a meeting between Presidents Putin and Trump.
- Much of the meeting set to be behind closed doors, so headlines could come out sporadically or may be restricted to official pressers or readouts.
- No Ukrainian delegation is taking part in these discussions, with the US claiming that as they are not peace negotiations Ukrainian representation is not needed at this stage. Speaking in the UAE on 17 Feb, Ukrainian President Volodymyr Zelenskyy said "We cannot recognise [peace] agreements...without us,".
- Some of Ukraine's European allies met in Paris on 17 Feb. UK PM Sir Keir Starmer's proposals for UK and US troops to serve in Ukraine as peacekeepers have exposed cracks within the alliance. Politico: "German Chancellor Olaf Scholz seemed quietly furious when he told reporters he was a “little irritated” by the talk, which he called “completely premature” and “highly inappropriate.” Polish PM Donald Tusk made clear he doesn’t want his army to contribute, while the FT reported that Italian leader and Trump pal Giorgia Meloni [...] told leaders that sending troops was “the most complex [option] and least likely to be effective."
ISRAEL: Hamas To Speed Up Hostage Releases To Begin 2nd Phase Negotiations
Ariel Oseran at Israel's i24 posts on X: "Hamas-aligned Quds Network reports six living Israeli hostages will be released on Saturday as the two remaining releases of the first phase are merged. In exchange, heavy machinery and caravans will enter Gaza and negotiations over the second phase will commence."
- Earlier, Israeli Foreign Minister Gideon Sa'ar said that the gov't is willing to begin discussions on phase two of a ceasefire agreement with Qatar, Egypt and the US acting as mediators once again.
- Reuters reports that according to two Egyptian security sources, Egypt's President Abdel Fattah El-Sisi will travel to Riyadh, Saudi Arabia on 20 February to discuss an Arab plan for Gaza after the war. Earlier Sa'ar said Israel was aware that discussions on the topic were taking place within the Arab world. He also claimed the Israeli gov't rejected any planned transfer of civilian control of Gaza from Hamas to the Fatah-run Palestinian Authority.
- After meeting with US Secretary of State Marco Rubio on 17 Feb, PM Benjamin Netanyahu reiterated that he sees merit in US President Donald Trump's controversial plan for Gaza of resettling Palestinians outside of the strip and the US taking over its re-constructions.
UK DATA: HMRC Payrolls Data Shows Huge Revision - and Changes its Narrative
- There have been some big revisions again to the HMRC RTI payrolls data. Rather than showing the downtrend picking up speed, they appear to show a more consistent downtrend in payrolls data. And the 12-month change no longer shows that there has been a net loss of jobs over the past year (of 7k), but a 49k increase (or 45k if looking at the comparable 2024 calendar year).
- The pace of decline seems to remain fairly consistent since the summer of 2022, and is now only showing very tentative signs of deteriorating at a faster pace. See the top chart below.
- Prior to today's revisions the December flash print showed the fastest pace of monthly payroll reduction since November 2020 (-47k), but the revised data only falls -14k (with an upward revision to November from -32k to -26k too and a +13k cumulative revision to the remainder of 2024.
- In recent months we have seen warning signs of large falls in April (which on the latest data is actually positive but the flash was -85k), August (originally -59k, now estimated at -25k) as well as December. See the bottom chart below.
- This does make us question the value of the flash data. This is of course still experimental data rather than an official statistic, but the data has "cried wolf" three times in the past ten releases. The ONS notes that the flash data is made up of 85% of the final data with the next release generally having 98-99% of the final data - but we think any future outliers in the data will need to be looked at with a handful of salt.
SWEDEN: January Inflation Details Underscore Market Pricing For A March Pause
Although basket re-weighting effects played a role in pushing Swedish January CPIF ex-energy above consensus and Riksbank forecasts, there was enough strength in underlying price pressures to support market pricing, which assigns a ~25% implied probability of a 25bp cut in March (according to latest estimates from SEB).
- On a seasonally adjusted basis using the X-13 methodology (and data going back to 1995), CPIF-ex energy prices rose 0.71% M/M, the highest reading since February 2023. Sequential strength was more pronounced in goods ex-food (0.98% M/M) than services (0.71% M/M).
- 3m/3m seasonally adjusted CPIF-ex energy inflation momentum rose to 3.11% (vs 2.50% prior).
- Meanwhile, the proportion of sub-components with annual inflation rates between 1-3% fell to 17% from 21% in December.
- Basket re-weighting effects pushed up the January CPIF ex-energy monthly reading by 0.21pp (above consensus estimates), while the annual rate is expected to be pushed up by 0.31pp on average across 2025.
- The Riksbank have been cognizant of increases in expected prices and PPI in recent months. The January CPI report may be an early indication of feedthrough into consumer prices.
- However, we don’t expect the Board to overreact to one month of data. In a recent speech, Deputy Governor Per Jansson said that “if confidence in the inflation target is high, it is also possible to allow slightly larger and slightly longer deviations from the target without monetary policy having to react fast and forcefully”. Inflation expectations data due tomorrow is expected to reaffirm medium-term confidence in the target.
FOREX: AUD Outperforming, AUDNZD Presses Towards November Highs
- Despite the dollar index firming on Tuesday, and European equity indices slipping from their best levels, the Australian dollar is notably outperforming. This comes despite the RBA’s first rate cut since November 2020, and more clearly reflects the hawkish tilt to the accompanying rhetoric.
- Governor Michele Bullock framed the reduction as a cautious move that retraced the November 2023 hike as she sought to temper market expectations for further easing. During a press conference following the unanimous decision, Bullock stressed repeatedly that the RBA had not hiked as high as peer central banks and that the Reserve wanted to maintain a restrictive stance.
- Amid the weakening greenback in recent sessions, we have argued that AUDUSD might be primed for a short-term bullish extension, and today’s relative outperformance supports this theory. The pair remains in close proximity of 2-month highs at 0.6374, printed during yesterday’s session.
- Above here, 0.6384 (Dec 13 high) and 0.6429 (Dec 12 high) remain the most notable short-term targets for the move and a stronger rally would open 0.6471, the Dec 9 high.
- The AUDNZD cross has advanced 0.58% 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.
FOREX: ECB's Cipollone and Canadian CPI Forms Tuesday Focus
- AUD trades well, with AUD/USD making another test on the year's high and first resistance at 0.6373. Moves follow the RBA rate decision overnight, at which the Bank lowered the cash rate to 4.10%. While the easing step was the first in nearly five years, the RBA's language pushed markets away from one-directional bets on policy ahead, warning that an overly aggressive approach to easing could result in disinflation stalling. Technically, the breach of resistance in the pair highlights a stronger reversal and paves the way for gains towards 0.6414, a Fibonacci retracement.
- The AUDNZD cross has advanced 0.58% 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.
- The single currency trades more mixed, with EUR/GBP recovering just off the fresh February low of 0.8290 posted overnight. Near-term focus shifts to an appearance from ECB's Cipollone - who speaks with MNI on the topic of the ECB balance sheet and monetary policy.
- Canadian inflation data for January takes focus ahead, with CPI expected to pick up slightly in the month, evident in consensus looking for +2.6% for core Trim Y/Y from +2.5% previously. US Empire Manufacturing is also due, as well as appearances from Fed's Daly and Barr.
EQUITIES: Bullish Trend Structure in Eurostoxx 50 Futures Remains in Play
The trend condition in Eurostoxx 50 futures remains bullish. The move higher last week confirmed once again, a resumption of the uptrend that started on Nov 21 ‘24. Moving average studies are in a bull mode set-up too, highlighting a dominant uptrend. A major resistance at 5525.00, the March 2000 all-time high (cont), has been pierced. A clear break of it would highlight a key bullish technical breach. Support to watch is 5325.83, the 20-day EMA. S&P E-Minis continue to climb and the contract maintains a firmer tone. Attention is on resistance at 6162.25, the Jan 24 high. Clearance of this level would expose the key resistance at 6178.75, the Dec 6 ‘24 high. A move above this hurdle would resume the primary uptrend.On the downside, initial key support has been defined at 6014.00, the Feb 10 low. A break would highlight a bearish development.
- Japan's NIKKEI closed higher by 96.15 pts or +0.25% at 39270.4 and the TOPIX ended 8.61 pts higher or +0.31% at 2775.51.
- Elsewhere, in China the SHANGHAI closed lower by 31.34 pts or -0.93% at 3324.49 and the HANG SENG ended 360.58 pts higher or +1.59% at 22976.81.
- Across Europe, Germany's DAX trades lower by 72.66 pts or -0.32% at 22726.07, FTSE 100 lower by 8.26 pts or -0.09% at 8759.9, CAC 40 down 24.22 pts or -0.3% at 8164.53 and Euro Stoxx 50 down 11.34 pts or -0.21% at 5508.37.
- Dow Jones mini up 21 pts or +0.05% at 44656, S&P 500 mini up 16.75 pts or +0.27% at 6148.75, NASDAQ mini up 83 pts or +0.37% at 22279.5.
COMMODITIES: Gold Holding Onto Bulk of Recent Gains, Bull Cycle Intact
WTI futures have pulled back from last week’s high and price has again traded below the 50-day EMA - at $71.62. Attention is on $70.20 (pierced), the Feb 6 low. A clear break of it would undermine a bullish theme and confirm a breach of the 50-day EMA. This would strengthen a bearish threat and open $67.75, the Dec 20 ‘24 low. Key S/T resistance has been defined at $74.06, the Feb 3 high. A move above this level would reinstate a bull theme. A bull cycle in Gold remains in play and the yellow metal continues to hold on to the bulk of its recent gains. Fresh highs once again confirm a resumption of the uptrend and maintain the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull mode position too, highlighting a dominant uptrend. Sights are on the $2962.2, a Fibonacci projection. The first key support to watch is $2833.2, the 20-day EMA.
- WTI Crude up $1.13 or +1.6% at $71.89
- Natural Gas down $0.15 or -3.89% at $3.581
- Gold spot up $15.61 or +0.54% at $2912.21
- Copper down $6.75 or -1.43% at $464.55
- Silver up $0.16 or +0.49% at $32.4995
- Platinum up $2.86 or +0.29% at $987.92
| Date | GMT/Local | Impact | Country | Event |
| 18/02/2025 | - |  EU | ECB's De Guindos in ECOFIN meeting | |
| 18/02/2025 | 1330/0830 | *** |  CA | CPI |
| 18/02/2025 | 1330/0830 | ** |  US | Empire State Manufacturing Survey |
| 18/02/2025 | 1400/0900 | * | CA | CREA Existing Home Sales |
| 18/02/2025 | 1400/1500 | EU | ECB's Cipollone in MNI Connect conference on Balance Sheet | |
| 18/02/2025 | 1500/1000 | ** | US | NAHB Home Builder Index |
| 18/02/2025 | 1520/1020 | US | San Francisco Fed's Mary Daly | |
| 18/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 18/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 18/02/2025 | 1800/1300 | ** | US | US Treasury Auction Result for 52 Week Bill |
| 18/02/2025 | 1800/1300 | US | Fed Governor Michael Barr | |
| 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 |