Highlights:
- DeepSeek success undermines confidence in AI-driven US equity rally
- JPY, CHF benefit from risk-off feel as NASDAQ futures shed 3%, NVIDIA shares lower by as much as 8%
- Central banks inside pre-meeting media blackout, leaving Fed, ECB comms quiet
US TSYS: Only Marginal Paring Of Risk-Off Rally, Double Supply Could Still Weigh
- Treasuries display all the hallmarks of a sizeable risk-off move in the US tech sell-off prompted by the success of China’s DeepSeek, with only a modest paring of gains so far as US desks filter in.
- Cash yields are 8.5-12bp lower from Friday’s close, with declines led by 7s.
- TYH5 trades at 109-08+ (+ 26+) off a recent high of 109-12 on extremely strong volumes of 885k.
- It’s a bullish short-term cycle with the earlier high having tested the 50-day EMA at 109-12+ after which lies 109-31 (Dec 18 high). A clear break is required here to strengthen a bullish theme.
- The medium-term trend remains lower however, with support at 108-00 (Jan 16 low).
- Today’s docket is headlined by double coupon issuance with both 2s and 5s. Last month’s auctions saw 2s on the screws whilst 5s stopped through (just, by 0.2bp) for a second consecutive month. Indirect takes increased for both, with a particularly notable climb for 2s.
- Data: Chicago Fed national account Dec (0830ET), New home sales Dec (1000ET), Dallas Fed mfg (1030ET)
- Coupon issuance: US Tsy $69B 2Y note 91282CMH1 (1130ET), US Tsy $72B 5Y note - 91282CMG3 (1300ET)
- Bill issuance: US Tsy $72B 26W bill auctions (1130ET), $84B 13W bill auctions (1300ET)
- Looking ahead to Wednesday's FOMC decision, see the MNI Fed Preview here, with the analyst addendum to follow today.
STIR: Tech-Led Risk-Off Sees End-2025 Rates Back At Median FOMC Dot
- Fed Funds implied rates are sharply lower from Friday’s close on broad risk-off on the back of the tech-led equity sell-off.
- This week’s decision is still seen as a lock-in for a pause, but a 25bp cut in March is starting to be seen as closer to 50/50 call with 10bp priced. June is still the next meeting with a 25bp cut fully priced though.
- Fed Funds last priced >50bp of cuts for 2025 briefly before the hawkish Dec 18 FOMC decision and before that Dec 13. It leaves the end-2025 point back in line with the median FOMC dot from that decision, having climbed from the 32bp priced before CPI less than two weeks ago.
- Cumulative cuts from 4.33% effective: 0.5bp Jan, 10bp Mar, 18.5bp May, 31bp Jun, 35.5bp Jul and 51bp Dec.
EQUITIES: Deepseek - Why is This App Undermining Markets?
- Deepseek is making a strong showing in Appstore download rankings this weekend - tracking over 1mln downloads on Google's Play store and over 3k reviews. No challenge (yet) for ChatGPT's market-leading position: >100mln downloads and 7mln reviews, but the momentum is clearly concerning markets.
- Why is Deepseek different? Deepseek is free, unlimited and open source - dragging in realtime information from the Internet to produce results. This contrasts with ChatGPT, which has a more restricted offering even in their premium paid-for service.
- Why does this matter? Deepseek's open-source, free-to-play approach twinned with highly regarded efficiency and accuracy undermines not only the revenue-generating capacity of models produced by OpenAI, Alphabet, Meta and others - but also the significant levels of investment in AI from US firms over the past five years. It also shows the ability of Chinese firms to skirt chip sanctions targeted at limiting their AI capacity.
- Pre-market US equity trade opens imminently - worth watching the likes of NVIDIA for the immediate impact. Similarly Microsoft and Meta shares will be a focus having invested capex of over $65bln to AI efforts in 2025.
US TSY FUTURES: CFTC CoT Sees H Funds Trim Net Short, A Managers Add To Net Long
No particular cross-investor cohort themes within the latest CFTC CoT report:
- Leveraged funds added to existing net shorts in both TY & UXY futures, while they trimmed net shorts across the remainder of the curve. The net short cover element was more prominent in DV01 equivalent terms. They remain net short across all contracts.
- Meanwhile, asset managers added to existing net longs in TY, UXY and WN futures, while trimming net longs across the remainder of the curve. The net long setting element was slightly more prominent in DV01 equivalent terms. They remain net long across all contracts.
- Non-commercial investors added to net shorts in FV, TY & UXY futures, while adding to net longs in US futures and trimming net shorts in TU & WN futures. They remain net short in all contracts outside of US.
Source: MNI - Market News/Bloomberg
US TSY FUTURES: Net Longs Added In Most Contracts On Friday
OI data points to net long setting in all contracts outside of UXY (which saw modest net short cover) during Friday’s rally.
- The largest DV01 equivalent moves came in TY & US futures, with a net ~$8mn of DV01 equivalent exposure added across the curve.
| 24-Jan-25 | 23-Jan-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,221,630 | 4,203,828 | +17,802 | +656,461 |
FV | 6,253,662 | 6,216,042 | +37,620 | +1,568,566 |
TY | 4,818,301 | 4,765,056 | +53,245 | +3,429,365 |
UXY | 2,281,021 | 2,285,725 | -4,704 | -413,296 |
US | 1,953,502 | 1,932,318 | +21,184 | +2,670,724 |
WN | 1,783,162 | 1,782,445 | +717 | +136,628 |
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| Total | +125,864 | +8,048,450 |
STIR: Mix Of Modest Long Setting & Short Cover In SOFR Futures On Friday
OI data points to a mix of modest net long setting & short cover as most SOFR futures ticked higher on Friday.
- Net long setting in SFRH8 through SFRU8 stands out a in percentage of OI terms, with little else of note seen elsewhere.
| 24-Jan-25 | 23-Jan-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,057,493 | 1,062,983 | -5,490 | Whites | -14,166 |
SFRH5 | 1,198,289 | 1,203,506 | -5,217 | Reds | +14,807 |
SFRM5 | 1,038,150 | 1,039,580 | -1,430 | Greens | -10,348 |
SFRU5 | 786,287 | 788,316 | -2,029 | Blues | +15,104 |
SFRZ5 | 1,027,911 | 1,017,952 | +9,959 |
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SFRH6 | 689,139 | 694,579 | -5,440 |
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SFRM6 | 672,660 | 662,840 | +9,820 |
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SFRU6 | 624,264 | 623,796 | +468 |
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SFRZ6 | 720,952 | 720,689 | +263 |
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SFRH7 | 486,186 | 489,579 | -3,393 |
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SFRM7 | 399,895 | 403,562 | -3,667 |
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SFRU7 | 292,532 | 296,083 | -3,551 |
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SFRZ7 | 277,016 | 277,903 | -887 |
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SFRH8 | 213,396 | 207,954 | +5,442 |
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SFRM8 | 183,807 | 175,061 | +8,746 |
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SFRU8 | 116,171 | 114,368 | +1,803 |
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EQUITIES: 32% of The S&P 500 Set to Report This Week
Executive Summary:
- 31.6% of the S&P 500's market cap set to report earnings this week
- Highlights this week include Microsoft, Meta Platforms, Tesla Apple and Visa
- Tech names in particular focus given their exposure to AI spending, and Monday's equity price weakness
Full schedule including EPS, revenue expectations and timings here: MNIUSEARNINGS270125.pdf
FOREX: Deepseek Equity Slippage Boosts JPY, Hinders AUD, NZD
- The assumption that US firms will remain market-leaders in artificial intelligence was challenged this weekend with the rise and rise of China's Deepseek - a product demonstrating that not only can AI be rolled out extremely cheaply and effectively, but also that the US' targeted chips sanctions are failing to contain China's tech industry.
- The sharp Deepseek-triggered slide in equity futures (Nvidia's pre-market trade has wiped out near $300bln in market cap) is helping underpin haven currencies this morning, tipping USD/JPY to new YTD lows. 2025 range in GBP/JPY has been defined by the upleg posted off late November lows - with markets finding both the 76.4% retracement of the fade off highs as a decent support mid-January and 194.81, the 38.2% Fib, as a solid inflection point to cap last week's rally.
- As a result, AUD and NZD are among the poorest performers, with the effect compounded by Trump's tariff sabre-rattling toward Colombia over the weekend. The USD Index is near last week's lows, holding close to the lowest levels of 2025. The Fed decision mid-week looks key here - as Powell's messaging on rates across this year is set to steer price action.
- Focus for the Monday session remains on the ebb and flow of risk sentiment, with fragility in market-leading US tech stocks driving both headlines indices as well as broader price action. US new home sales, Chicago Fed national activity and Dallas Fed manufacturing activity data are the schedule highlights. Central bank comms are set to be quiet, with both the Fed and ECB inside their pre-decision media blackout periods.
OPTIONS: Expiries for Jan27 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0500(E729mln)
- USD/JPY: Y155.95-00($1.6bln)
- EUR/JPY: Y163.00(E565mln)
- AUD/USD: $0.6300(A$778mln)
- USD/CAD: C$1.4275($600mln)
- USD/CNY: Cny7.6000($2.1bln)
COMMODITIES: Trend Conditions in Gold Bullish Following Last Week's Climb
The trend structure in WTI futures is bullish despite the recent pullback. The move down appears corrective and is allowing an overbought trend reading to unwind. The 20-day EMA, at $74.28, has been pierced. A clear break of it would signal scope for a deeper retracement and expose the 50-day EMA, at $72.11. A reversal higher would highlight the end of the correction and refocus attention on $79.48, the Apr 12 ‘24 high and a key resistance. Gold traded higher last week. A bull cycle remains in play and the recent breach of resistance at 2726.2, the Dec 12 high, reinforces current conditions. Sights are on $2790.1, the Oct 31 all-time high. A break of this hurdle would confirm a resumption of the primary uptrend. On the downside, the first key support to watch is $2668.8, the 50-day EMA. A reversal lower and a breach of this average would reinstate a bearish threat.
- WTI Crude up $0.18 or +0.24% at $74.75
- Natural Gas down $0.26 or -6.56% at $3.763
- Gold spot down $7.52 or -0.27% at $2763.68
- Copper down $5 or -1.16% at $427
- Silver down $0.11 or -0.37% at $30.473
- Platinum down $6.09 or -0.64% at $945.48
EQUITIES: E-Mini S&P Starts the Week on a Bearish Note
A bull cycle in the Eurostoxx 50 futures contract remains intact and the move lower from Friday’s high is considered corrective. The move down is allowing an overbought trend condition to unwind. Moving average studies are in a bull-mode set-up that highlights a dominant uptrend. The first important support to watch is 5086.38, the 20-day EMA. A resumption of the uptrend would open 5298.50, a Fibonacci projection. The S&P E-Minis contract is starting the week on a bearish note, extending the pullback from Friday’s high. Key short-term support to watch lies at 5961.75, the Jan 16 low. For now, the move down appears corrective, however, a breach of 5961.75 would strengthen a bearish threat and signal scope for a deeper retracement. This would open 5943.94, a Fibonacci retracement. Key resistance is unchanged at 6178.75, the Dec 6 high.
- Japan's NIKKEI closed lower by 366.18 pts or -0.92% at 39565.8 and the TOPIX ended 7.03 pts higher or +0.26% at 2758.07.
- Elsewhere, in China the SHANGHAI closed lower by 2.025 pts or -0.06% at 3250.601 and the HANG SENG ended 131.58 pts higher or +0.66% at 20197.77.
- Across Europe, Germany's DAX trades lower by 224.91 pts or -1.05% at 21169.14, FTSE 100 lower by 14.67 pts or -0.17% at 8487.68, CAC 40 down 61.52 pts or -0.78% at 7865.18 and Euro Stoxx 50 down 70.38 pts or -1.35% at 5148.9.
- Dow Jones mini down 364 pts or -0.82% at 44238, S&P 500 mini down 113 pts or -1.84% at 6020.75, NASDAQ mini down 670 pts or -3.06% at 21240.5.
| Date | GMT/Local | Impact | Country | Event |
| 27/01/2025 | 0130/0930 | *** |  CN | CFLP Manufacturing PMI |
| 27/01/2025 | 0130/0930 | ** | CN | CFLP Non-Manufacturing PMI |
| 27/01/2025 | 0810/0910 |  EU | ECB's Lagarde Pre-Recorded lecture organised by Hungarian central bank | |
| 27/01/2025 | 0900/1000 | *** |  DE | IFO Business Climate Index |
| 27/01/2025 | 1400/1500 | ** |  BE | BNB Business Confidence |
| 27/01/2025 | 1500/1000 | *** |  US | New Home Sales |
| 27/01/2025 | 1530/1030 | ** | US | Dallas Fed manufacturing survey |
| 27/01/2025 | 1535/1635 | EU | ECB's Lagarde remarks at IHRD occasion | |
| 27/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 27/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 2 Year Note |
| 27/01/2025 | 1800/1300 | * | US | US Treasury Auction Result for 5 Year Note |
| 27/01/2025 | 1800/1300 | * | US | US Treasury Auction Result for 13 Week Bill |
| 27/01/2025 | - | US | FOMC Meeting | |
| 28/01/2025 | 0001/0001 | * |  GB | BRC Monthly Shop Price Index |
| 28/01/2025 | 0745/0845 | ** |  FR | Consumer Sentiment |
| 28/01/2025 | 0900/1000 | ** | EU | ECB Bank Lending Survey |
| 28/01/2025 | 1000/1000 | * | GB | Index Linked Gilt Outright Auction Result |
| 28/01/2025 | 1330/0830 | ** | US | Durable Goods New Orders |
| 28/01/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 28/01/2025 | 1400/0900 | ** | US | S&P Case-Shiller Home Price Index |
| 28/01/2025 | 1400/0900 | ** | US | FHFA Home Price Index |
| 28/01/2025 | 1400/0900 | ** | US | FHFA Home Price Index |
| 28/01/2025 | 1430/1530 | EU | ECB's Cipollone in panel on future of markets | |
| 28/01/2025 | 1500/1000 | *** | US | Conference Board Consumer Confidence |
| 28/01/2025 | 1500/1000 | ** | US | Richmond Fed Survey |
| 28/01/2025 | 1530/1030 | ** | US | Dallas Fed Services Survey |
| 28/01/2025 | 1630/1130 | ** | US | US Treasury Auction Result for 2 Year Floating Rate Note |
| 28/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 28/01/2025 | 1700/1800 | EU | ECB's Lagarde to mee t with Ursula von der Leyen | |
| 28/01/2025 | 1800/1300 | ** | US | US Treasury Auction Result for 7 Year Note |