Highlights:
- Treasury curve nears flattest levels of the year
- US-Ukraine strike minerals deal, Zelenskyy to head to the White House
- Speaker Johnson scores major win in Budget proceedings
US TSYS: Curve Approaches Flattest Since Dec FOMC Ahead Of Lighter Docket
- Treasuries have pared yesterday’s further rally since House Republicans narrowly passed a budget blueprint, moving away from recent highs that had been boosted by a disappointing consumer survey from the Conference Board.
- It’s a quieter docket today ahead of backloaded week for US data, giving greater prominence to 7Y supply (after a solid 2Y Mon and a fourth consecutive stop in the 5Y on Tue) before Nvidia results after the close.
- Cash yields are 1-3bp higher on the day, led by 5s.
- The bear flattening sees 2s10s at 19.4bps (-0.8bp) for some of its lowest levels since the Dec 18 hawkish FOMC.
- TYM5 takes the front contract with the quarterly roll well advanced, and at 110-12+ (-05+) has pulled back off yesterday’s high of 110-21.
- The bull cycle is seen remaining in play from a technical angle, with resistance at that 110-21 before 110-31 (Fibo projection of Jan 13 – Feb 7 – Feb 12 price swing).
- Data: MBA mortgage data (0700ET), New home sales Jan (1000ET)
- Fedspeak: Barkin (0830ET), Bostic (1200ET) – see STIR bullet.
- Coupon issuance: $28B 2Y FRN Note auction (1130ET), US Tsy $44B 7Y Note auction - 91282CMR9 (1300ET)
- Bill issuance: US Tsy $60B 17W bill (1130ET)
STIR: Modest Further Pullback From Dovish Extremes
- House Republicans narrowly passing a budget blueprint, enabling potential extension of Trump's 2017 tax cuts with $4.5t in tax reductions and a $4t debt limit increase, has seen Fed Funds implied rates pare the latest decline seen yesterday on soft Conference Board consumer confidence.
- Trump’s latest tariff threat, this time focused on copper, had little immediate impact but could also be factoring at the margin behind the overnight uplift.
- Rates are still towards dovish extremes despite the overnight push higher, with 54bp of cuts for 2025 off Tuesday’s high of 60bp but still close to the most cuts priced since the hawkish FOMC on Dec 18.
- Cumulative cuts from 4.33% effective: 0.5bp Mar, 6.5bp May, 19bp Jun, 27.5bp Jul and 54bp Dec.
- The median FOMC member envisaged 50bp of cuts for 2025 back in the December SEP.
- Today’s scheduled Fedspeak shouldn’t have much impact, with Barkin and Bostic both having spoken recently.
- 0830ET – Barkin (non-voter) repeats a speech on inflation (text). He said yesterday that he favors “modestly restrictive” monetary policy as he’s waiting for more confidence that inflation is returning to 2%. Long-run economic trends point to inflation headwinds and Fed policy may need to “lean against” those headwinds.
- 1200ET – Bostic (non-voter) speaks on the economic outlook and housing (Q&A only). He said Feb 20 that he still sees two cuts in 2025 as his base case but uncertainty around this projection has increased. He thinks policy is “moderately restrictive” with neutral “somewhere from 3% and 3.5%.”
STIR: Net Short Cover In Most SOFR Futures On Tuesday
OI data points to net short cover across most SOFR futures on Tuesday.
- The major exception to the theme came via apparent net long setting in SFRH5, which provided the largest net OI swing on the day and tilted net positioning in the white pack towards long setting on the day.
- There was also a bias to net long setting in the blues.
| 25-Feb-25 | 24-Feb-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,034,485 | 1,046,175 | -11,690 | Whites | +27,975 |
SFRH5 | 1,279,288 | 1,233,395 | +45,893 | Reds | -70,897 |
SFRM5 | 1,169,403 | 1,171,651 | -2,248 | Greens | -29,153 |
SFRU5 | 855,568 | 859,548 | -3,980 | Blues | +14,815 |
SFRZ5 | 982,424 | 1,001,959 | -19,535 |
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SFRH6 | 621,038 | 624,244 | -3,206 |
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SFRM6 | 625,562 | 658,229 | -32,667 |
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SFRU6 | 559,713 | 575,202 | -15,489 |
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SFRZ6 | 789,028 | 804,621 | -15,593 |
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SFRH7 | 433,236 | 445,635 | -12,399 |
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SFRM7 | 438,038 | 438,886 | -848 |
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SFRU7 | 305,697 | 306,010 | -313 |
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SFRZ7 | 350,400 | 347,648 | +2,752 |
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SFRH8 | 224,922 | 217,898 | +7,024 |
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SFRM8 | 187,924 | 188,505 | -581 |
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SFRU8 | 132,644 | 127,024 | +5,620 |
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BUNDS: /SWAPS: Long End ASWs Above Cycle Lows
German ASW spreads (vs. 3-month Euribor) within 0.5bp of yesterday’s closing levels.
- Schatz and Bobl spreads a touch narrower, while Bund and Buxl spreads are a little wider.
- This goes against the recent trend and could simply reflect some profit taking given short positioning in long end ASWs (both outright and vs. Schatz).
- The bid in core global FI is also supporting spreads.
- Headline flow over the last couple of days points to special fund deployment geared towards defence spending as the most likely source of German fiscal support in the immediate term, with many lawmakers seemingly keen to push this through before the new Bundestag sits in late March (a tight timeline, but doable).
- Debt brake reform is set to present a more testing point of negotiation given the incoming Bundestag composition and differing views on appropriate uses of fiscal spending amongst the political parties. Expect discussions surrounding this matter to drag out over a few months, at a minimum.
- Fundamentals continue to screen bearish for long end spreads, but we caution that crowded positioning near cycle/all-time lows in ASWs and the potential tensions in debt brake discussions present risks to this idea.
UKRAINE: Zelenskyy To Visit White House After Minerals Deal Agreed
Widely reported overnight that President Volodymyr Zelenskyy will visit the White House on Friday 28 Feb to meet with US President Donald Trump and sign a deal with the US with regard to providing mineral access rights to US firms in Ukraine. On 25 Feb, asked on the possible visit Trump said “I hear that [Zelenskyy is] coming on Friday. Certainly it’s OK with me if he’d like to.” The meeting will be the first since a war of words between the two leaders, with Trump calling Zelenskyy a "dictator", after which Zelenskyy accused Trump of being taken in by Russian disinformation.
- The FT reports "Although the text lacks explicit security guarantees, the officials argued they had negotiated far more favourable terms and depicted the deal as a way of broadening the relationship with the US to shore up Ukraine’s prospects after three years of war. [...] [The final agreement] would establish a fund into which Ukraine would contribute 50 per cent of proceeds from the “future monetisation” of state-owned mineral resources, including oil and gas, and associated logistics. The fund would also be able to invest in projects in Ukraine."
- A number of key questions remain. One being whether the deal would result in any US security guarantees (expected to be pushed by UK PM Sir Keir Starmer in his 27 Feb White House visit). On the minerals deal itself, the size of the US stake and the terms of 'joint ownership' are yet to be confirmed.
US: Johnson Scores Major Win w/Budget Vote, Challenging Negotiations Ahead (1/2)
House Speaker Mike Johnson (R-LA) scored a major win yesterday, with the House voting 215-213 to pass a budget resolution that will underpin a mammoth reconciliation bill covering the bulk of President Donald Trump’s agenda.
- A flurry of last-minute talks, including direct calls between Trump and GOP holdouts, was enough to overcome opposition from a disparate group of moderates and deficit hawks. Rep Thomas Massie (R-KY) was the only GOP 'no' on the final roll call.
- The blueprint provides the House Ways and Means Committee USD$4.5 trillion to write up a tax reform package, including the extension of Trump’s 2017 Tax and Jobs Cuts Act (TJCA), and new proposals such as exempting tipped earnings from federal taxation and raising the State and Local Tax (SALT) deduction cap.
- The budget blueprint sets a floor of USD$2 trillion in spending cuts across a range of federal government departments, including USD$880 billion under the purview of the Department of Commerce – likely to necessitate deep cuts to Medicaid and other safety net programmes like Food Stamps.
- The budget also raises the US debt limit by USD$4 trillion, averting the possibility of a debt limit standoff in the summer and increases defence spending by USD$300 billion.
- Passage of the resolution, with the endorsement of Trump, puts the House firmly in the driving seat with the Senate, who passed a narrower border security, defence, and energy budget blueprint last week. The two chambers must now enter into negotiations and adopt an identical budget resolution to open the reconciliation process.
US: Johnson Scores Major Win w/Budget Vote, Challenging Negotiations Ahead (2/2)
The House of Representatives vote will ease some concerns from the Senate about the House’s ability to move legislation but there are still major obstacles to a final package. Senate leadership, including Senate Majority Leader John Thune (R-SD) and Finance Committee Chair Mike Crapo (R-ID), and key administration officials including Treasury Secretary Scott Bessenthave argued that a tax package must make the TCJA permanent.
- Thune, Crapo, and other senior GOP Senators wrote in a letter to Speaker Johnson and Ways and Means Chair Jason Smith (R-MO) earlier this month: "...we will not support a tax package that only provides temporary relief from tax hikes."
- As there is insufficient fiscal space within the House resolution for permanence, lawmakers are exploring when the TCJA could be addressed under ‘current policy’ rather than ‘current law’, effectively setting the cost of extending the TCJA at $0 rather than ~$4.5 trillion over 10 years.
- If lawmakers attempt to use a ‘current policy’ baseline it could set up a showdown with the Congressional Budget Office or the Senate Parliamentarian, an independent officer who determines if legislation conforms with the reconciliation process.
- The Senate could overrule the Parliamentarian but that would risk permanently weakening the Senate filibuster. Thune said in January, when asked if he could overrule the Parliamentarian: “…that’s totally akin to killing the filibuster. We can’t go there. People need to understand that.”
FOREX: USD Holds APAC Demand, CAD Left Isolated
- The greenback trades stronger headed into the NY crossover, holding the bulk of a phase of dollar demand through the Asia-Pac session - although European trade so far has been considerably more subdued. EURUSD highs over the past two sessions at 1.0525 and 1.0528 have fallen just shy of key resistance, building the significance of 1.0533, the Jan 27 high and an important reversal trigger.
- In contrast with the general stability in G10 FX through the open, USD/CAD remains well within range of the overnight highs, keeping the pair on track to post four consecutive sessions of gains and five consecutive sessions of higher lows.
- The significantly calmer MXN market shows it's Canada that markets see as the risk here - with Sheinbaum's frequent public commentary and several meetings between ministers clearly soothing any tensions and showing through in currency risk premia. Resistance to watch remains 1.4380, the Feb 10 high. A move above this hurdle would highlight an early reversal signal and would be a key consideration on prolonged uncertainty.
- US New Home Sales data is the scheduled data highlight Wednesday, with appearances from Fed's Barkin & Bostic and BoE's Dhingra - ahead of a slew of appearances for the RBA, as Hauser, Jones and McPhee all testify in front of lawmakers. The G20 finance ministers meeting is set to kick off in South Africa, at which Trump's approach to both global military security and global trade is the key focus. Any signs of discord here are unlikely to be received well by the White House - meaning any communique will draw market attention.
CAD: Markets Isolate CAD, Not MXN, as Key Tariff Risk
- In contrast with the general stability in G10 FX through the open, USD/CAD remains well within range of the overnight highs, keeping the pair on track to post four consecutive sessions of gains and five consecutive sessions of higher lows.
- The higher close yesterday cemented a S/T bullish theme, with markets finding very little confidence in Navarro's denial of an FT story that the Trump admin are considering ejecting Canada from the intelligence-sharing agreement Five Eyes. While markets didn't take the threat at face value (the logistics and practicalities of removing Canada from Five Eyes would not be straightforward, to say the least), the report goes to show that the Trump admin are considering the harshest of measures through which to assert pressure on the government as the tariff deadline on March 4th edges even nearer.
- Front-end vols are suitably bid, with one-week implied nearing 10 points (doubling in a week!) as the contract captures next week's deadline. Nonetheless, this remains shy of the end-Jan highs - meaning markets may still see a high probability of a last minute breakthrough in negotiations.
- The significantly calmer MXN market shows it's Canada that markets see as the risk here - with Sheinbaum's frequent public commentary and several meetings between ministers clearly soothing any tensions and showing through in currency risk premia.
- Resistance to watch remains 1.4380, the Feb 10 high. A move above this hurdle would highlight an early reversal signal and would be a key consideration on prolonged uncertainty.
FOREX: AUDUSD Weakness Standing Out, Extends Pullback from 0.6400
- Despite a more stable tone for major equity benchmarks on Wednesday, AUD and NZD weakness is standing out, with both currencies roughly half a percent weaker on the session against the dollar. A moderate uptick for US yields might be assisting the greenback, with some analysts pointing to the softer Australian data overnight providing an additional AUD headwind.
- January headline CPI inflation printed slightly lower than expected at 2.5% y/y, in line with December. However, the underlying trimmed mean rose 0.1pp to 2.8%, but still below the top of the RBA’s 2-3% band. As a reminder, the first month of the quarter has limited updates for services inflation.
- Another possible contributor - Australia is planning to review the fallout on Southeast Asia and the Pacific of President Donald Trump’s planned cuts to USAID. The government’s latest foreign policy assessment warned of an “increasingly unpredictable” global strategic outlook, potentially limiting the optimism for higher beta currencies at this juncture.
- For AUDUSD, 0.6400 has proved a significant pivot on a closing basis over the last 10 months, and latest weakness extends the pullback from last week’s high (0.6409) to around 1.5%. Spot is currently testing 50-day EMA support, crossing at 0.6316 and further weakness would refocus attention on 0.6231, the Feb 10 low.
OPTIONS: Expiries for Feb26 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0400(E1.1bln), $1.0420-35(E2.6bln), $1.0440-50(E2.8bln), $1.0460-75(E1.6bln), $1.0495-00(E1.6bln), $1.0510-30(E5.0bln), $1.0550(E1.4bln)
- USD/JPY: Y149.00($956mln), Y150.00($833mln), Y150.20-25($780mln), Y151.00($1.4bln), Y151.95($1.0bln)
- EUR/JPY: Y155.00(E927mln)
- GBP/USD: $1.2675(Gbp619mln)
- AUD/USD: $0.6400(A$817mln)
- USD/CAD: C$1.3500($1.2bln), C$1.4300($784mln), C$1.4390-00($1.4bln)
- USD/CNY: Cny7.3500($1.2bln)
EQUITIES: Recent Weakness in Eurostoxx 50 Futures Considered Corrective
- The trend needle in the Eurostoxx 50 futures contract continues to point north and short-term weakness is considered corrective. Note too that moving average studies are in a bull-mode set-up, highlighting a dominant uptrend and positive market sentiment. Sights are on 5574.57 next, a Fibonacci projection. Initial firm support to watch is 5393.82, the 20-day EMA. A clear break of the EMA would signal scope for a deeper retracement.
- The move down this week in S&P E-Minis appears corrective, however, price has breached support at 6014.00, the Feb 10 low. This exposed a key support at 5935.50, the Feb 3 low, that was pierced yesterday, a clear break would allow for a deeper retracement. MA studies remain in a bull-mode condition that suggests the trend direction remains up. A resumption of gains would refocus attention on key resistance at 6178.75, the Dec 6 ‘24 high.
COMMODITIES: Tuesday's Sell-Off in WTI Futures Reinforces Bearish Conditions
- A bearish theme in WTI futures remains intact and Tuesday’s sell-off reinforces current conditions. The move lower has resulted in a clear breach of support at $70.20, the Feb 6 low. This confirms a resumption of the downtrend that started on Jan 15 and paves the way for an extension towards $67.75, the Dec 20 ‘24 low. Key short-term resistance has been defined at $74.06, Feb 3 high.
- Despite Tuesday’s pullback, a bull cycle in Gold remains in play. Recent fresh cycle 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 and positive market sentiment. Sights are on the $2962.2, a Fibonacci projection. The first key support to watch is $2879.0, the 20-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 26/02/2025 | - |  EU | ECB's Lagarde and Cipollone in G20 FMs and CB Governors meeting | |
| 26/02/2025 | 1330/0830 | * |  CA | Capital and repair expenditure survey |
| 26/02/2025 | 1330/0830 |  US | Richmond Fed's Tom Barkin | |
| 26/02/2025 | 1500/1000 | *** | US | New Home Sales |
| 26/02/2025 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 26/02/2025 | 1630/1630 |  GB | BOE's Dhingra lecture on Trade fragmentation and monetary policy | |
| 26/02/2025 | 1630/1130 | ** | US | US Treasury Auction Result for 2 Year Floating Rate Note |
| 26/02/2025 | 1700/1200 | US | Atlanta Fed's Raphael Bostic | |
| 26/02/2025 | 1800/1300 | ** | US | US Treasury Auction Result for 7 Year Note |
| 27/02/2025 | 0030/1130 | * |  AU | Private New Capex and Expected Expenditure |
| 27/02/2025 | 0745/0845 | ** |  FR | PPI |
| 27/02/2025 | 0800/0900 | ** |  SE | Economic Tendency Indicator |
| 27/02/2025 | 0800/0900 | *** |  ES | HICP (p) |
| 27/02/2025 | 0800/0900 | *** |  CH | GDP |
| 27/02/2025 | 0900/1000 | ** | EU | M3 |
| 27/02/2025 | 0900/1000 | ** |  IT | ISTAT Consumer Confidence |
| 27/02/2025 | 0900/1000 | ** | IT | ISTAT Business Confidence |
| 27/02/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 27/02/2025 | 1000/1100 | * | EU | Consumer Confidence, Industrial Sentiment |
| 27/02/2025 | 1230/1330 | EU | Publication of MonPol Meeting Account | |
| 27/02/2025 | 1330/0830 | * | CA | Current account |
| 27/02/2025 | 1330/0830 | * | CA | Payroll employment |
| 27/02/2025 | 1330/0830 | *** | US | Jobless Claims |
| 27/02/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 27/02/2025 | 1330/0830 | ** | US | Durable Goods New Orders |
| 27/02/2025 | 1330/0830 | *** | US | GDP |
| 27/02/2025 | 1415/0915 | US | Kansas City Fed's Jeff Schmid | |
| 27/02/2025 | 1500/1000 | ** | US | NAR Pending Home Sales |
| 27/02/2025 | 1500/1000 | US | Fed Governor Michael Barr | |
| 27/02/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 27/02/2025 | 1600/1100 | ** | US | Kansas City Fed Manufacturing Index |
| 27/02/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 27/02/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 27/02/2025 | 1645/1145 | US | Fed Governor Michelle Bowman | |
| 27/02/2025 | 1815/1315 | US | Cleveland Fed's Beth Hammack | |
| 27/02/2025 | 2015/1515 | US | Philly Fed's Pat Harker | |
| 28/02/2025 | 2330/0830 | ** |  JP | Tokyo CPI |
| 28/02/2025 | 2350/0850 | ** | JP | Industrial Production |
| 28/02/2025 | 2350/0850 | * | JP | Retail Sales (p) |
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