Highlights:
- EUR/USD crests at new YTD high as USD dip follows fresh tariff threat
- Quiet data day, WEF in Davos raises headline risk
- Equity strength pervades, with FTSE-100, Stoxx600 hitting a new record high
US TSYS: Back Little Changed Awaiting Next (Political?) Driver
- Treasuries have lifted off overnight lows for back little changed on the day. It’s ahead of a light docket, which could give a little more attention on today’s earnings covering JnJ (announced, adj EPS $2.04 vs est $1.99), Procter& Gamble, Abbott Laboratories, and GE Vernova. MNI EARNINGS CALENDAR. Political headlines are likely in the driving seat though.
- Cash yields 0.3bp higher (3s) to 0.9bp lower (20s) as they broadly consolidate yesterday’s flattening.
- 2s10s at 30.2bps (-0.2bp) compares to yesterday’s low of 28.4bps for lows since Dec 31.
- TYH5 sits at 108-24+ (+01) having lifted off an overnight low of 108-19 but it’s remained well within the week’s range, book-ended by a low of 108-08+ and high of 109-04. Cumulative volumes are modest at 285k.
- The medium-term trend condition remains bearish, with support at 108-00 (Jan 16 low) before a bear trigger at 107-06 (Jan 13 low). To the upside, initial resistance is seen at that 109-04 before 109-06 (Dec 31 high).
- Data: MBA mortgage applications (0700ET), Leading index Dec (1000ET)
- Coupon issuance: US Tsy $13B 20Y Bond re-open - 912810UF3 (1300ET)
- Bill issuance: US Tsy $64B 17W bill & $65B 33D CMB auctions (1130ET)
STIR: Next Fed Cut Still Seen Around June Or July
- Fed Funds implied rates range from unchanged to 1bp lower overnight, broadly consolidating yesterday’s intraday push higher.
- It leaves a familiar path, with a next 25bp cut seen at one of the June or July meetings along with circa 40bp of cumulative cuts for 2025.
- Today sees another light macro docket and the FOMC of course in media blackout, leaving political headlines likely in the driving seat. Trump yesterday afternoon said his threats to impose 25% tariffs on Mexico and Canada and 10% on China on Feb. 1 have nothing to do with renegotiating the USMCA treaty, but instead it's about the flow of fentanyl into the US. He also said the EU will be in for tariffs.
- Cumulative cuts from 4.33% effective: 0.5bp Jan, 6.5bp Mar, 12.5bp May, 23bp Jun, 26.5bp Jul and 39.5bp Dec.
US TSY FUTURES: Long Setting In FV Through UXY Noted Over Last Two Sessions
Net long setting across TY, UXY and US futures dominated between Friday and Tuesday settlements, as markets remained sensitive to headlines surrounding Trump’s tariff plans.
- Net long cover in TU futures provided the only other net positioning move of note.
| 21-Jan-25 | 17-Jan-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,155,072 | 4,183,844 | -28,772 | -1,090,113 |
FV | 6,158,658 | 6,181,136 | -22,478 | -935,950 |
TY | 4,743,305 | 4,694,593 | +48,712 | +3,126,548 |
UXY | 2,270,826 | 2,266,718 | +4,108 | +359,336 |
US | 1,917,054 | 1,908,965 | +8,089 | +1,010,919 |
WN | 1,792,716 | 1,794,375 | -1,659 | -313,362 |
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| Total | +8,000 | +2,157,378 |
STIR: Mix Of Positioning Swings In SOFR Futures Early This Week
OI data points to two distinct groups of positioning swings between Friday and Tuesday settlement, as the SOFR futures strip twist flattened.
- A mix of net long cover and short setting out to SFRH6.
- Short cover then dominated in SFRH7 through SFRU7, as well as in SFRH8.
| 21-Jan-25 | 17-Jan-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,074,245 | 1,081,078 | -6,833 | Whites | -23,878 |
SFRH5 | 1,171,685 | 1,169,577 | +2,108 | Reds | +71,578 |
SFRM5 | 1,013,084 | 1,001,937 | +11,147 | Greens | -9,020 |
SFRU5 | 785,951 | 816,251 | -30,300 | Blues | -1,247 |
SFRZ5 | 993,979 | 980,033 | +13,946 |
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SFRH6 | 685,917 | 640,434 | +45,483 |
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SFRM6 | 659,503 | 650,621 | +8,882 |
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SFRU6 | 616,484 | 613,217 | +3,267 |
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SFRZ6 | 708,189 | 706,589 | +1,600 |
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SFRH7 | 488,348 | 494,931 | -6,583 |
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SFRM7 | 405,083 | 407,024 | -1,941 |
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SFRU7 | 294,429 | 296,525 | -2,096 |
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SFRZ7 | 268,748 | 267,835 | +913 |
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SFRH8 | 208,702 | 217,539 | -8,837 |
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SFRM8 | 175,026 | 171,574 | +3,452 |
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SFRU8 | 113,306 | 110,081 | +3,225 |
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FOREX: USD Dips as Risk Backdrop Shrugs Off Fresh China Tariff Threat
- Datapoints are few and far between Tuesday, keeping focus on political uncertainty and the first few full days of the Trump White House. The slew of executive orders and memorandums across the past few days remain a background concern for markets, particularly following the downside in Chinese and Hong Kong equities overnight, which were sold on the back of Trump's threat to engage with 10% tariffs on imports from both China and the European Union.
- Despite the weakness in Chinese stocks, risk sentiment has improved across European hours, evident in the strength across AUD/USD, which is again testing the weekly high. Any rally through $0.6302 would be a bullish signal, exposing the 50-dma of 0.6332 for direction.
- The USD has traded on the backfoot across the European morning, helping EUR/USD through the week's highs of 1.0435 to narrow the gap with the 50-day EMA upside level of 1.0460. Moves came alongside firm equity demand from the cash open, which has seen both the FTSE-100 and Stoxx600 crest at another all-time high. US earnings season continues, with today the busiest session for the S&P 500. Proctor & Gamble, Halliburton and Johnson & Johnson are the highlights.
- Central bank speak is defined by the busy ECB schedule today, at which speeches from Knot, Rehn, Lagarde and Nagel are due from the ongoing WEF in Davos. Lagarde has already hit the wires this morning - disclosing little new on policy, as she continues to stress the downside risks to policy.
SWITZERLAND: SNB President Schlegel Reaffirms Discontent With Negative Rates
- SNB President is overall sticking to common themes in his interview at the sidelines of the World Economic Forum today. The following headlines have crossed from an interview with Bloomberg TV in Davos:
- SNB Doesn't Like Negative Rates But Can Use Them
- We're Not Uncomfortable On Inflation Right Now
- SNB Is Ready To Intervene In Fx Market If Needed
- SNB Isn't Discussing New Franc Cap At The Moment
- The comment on negative interest rates compares to Schlegel's Dec 12 statement in the aftermath of the last policy meeting of "SNB Doesn't Like Negative Rates But They Do Work". Also, note that while the SNB has surprised in the past on changes in their FX intervention policy, their FX holdings data indeed points towards comparatively little movement here in recent months and in real, trade-weighted terms, CHF has depreciated recently and remains well below its highs.
- The Swiss Franc saw little movement on the headlines and remains a touch stronger on Wednesday, underpinned by strong domestic equity performance and CH government bonds underperforming against their EGB peers.
- USDCHF has extended its pullback from cycle highs to ~1.7%, with weakness extending on a break of the 20-day EMA earlier this week. Spot remains well above firm support at 0.8972, the 50-day EMA.
OPTIONS: Expiries for Jan22 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0345-50(E3.1bln), $1.0375(E826mln), $1.0400(E1.0bln), $1.0500(E1.1bln)
- USD/JPY: Y154.50-60($1.1bln), Y155.50($1.3bln), Y156.45($555mln)
- AUD/USD: $0.6210(A$2.1bln)
- USD/CAD: C$1.4500($829mln)
EQUITIES: Eurostoxx 50 Futures Build on Recent Gains
- A bull cycle in the Eurostoxx 50 futures contract remains intact and the contract is trading at its highs. Last week’s climb resulted in a breach of 5054.00, the Jan 8 high, to confirm a resumption of the uptrend. The focus is on a climb towards 5215.87, a Fibonacci projection point. Key short-term support has been defined at 4931.00, the Jan 13 low. Initial firm support lies at 5035.87, the 20-day EMA.
- S&P E-Minis are trading higher this week, marking an extension of last week’s bull phase. Gains undermine a recent bearish theme. The contract has traded through the 50-day EMA and attention is on resistance at 6107.50, the Dec 26 high. Clearance of this level would strengthen a bullish theme. Key support has been defined at 5809.00, the Jan 13 low. A reversal lower and a breach of this level would reinstate a bear theme.
COMMODITIES: WTI Futures Trend Remains Bullish Despite Moderate Pullback
The trend structure in WTI futures remains bullish despite the latest pullback. The move down is allowing an overbought trend reading to unwind. The latest strong impulsive climb resulted in a breach of $75.91, the Oct 8 high. Attention is on $79.48, the Apr 12 ‘24 high. A clear break of this hurdle would strengthen the bullish theme and open 80.63, a 3.236 projection of the Nov 18 - 22 - Dec 6 price swing. Support to watch is the 20-day EMA, at $74.07. Gold is trading higher this week. The yellow metal has breached resistance at 2726.2, the Dec 12 high and a key short-term resistance. The clear break of this hurdle strengthens a bullish theme and signals scope for an extension higher near-term. Sights are on $2790.1, the Oct 31 all-time high. On the downside, the first key support to watch is $2675.0, the 50-day EMA. A reversal lower and a breach of this average would reinstate a bearish threat.
GLOBAL POLITICAL RISK: WEF Speakers Inc. ECB Pres, Spanish PM, German Econ Min
The World Economic Forum annual meeting continues in Davos, Switzerland. Notable speakers today include Malaysian PM Anwar Ibrahim (0415ET/0915GMT/1015CET), UN Secretary-General Antonio Guterres (0530ET/1030GMT/1130CET), Dutch PM Dick Schoof (0715ET/1215GMT/1315CET), Iranian Vice-President for Strategic Affairs Javad Zarif (0730ET/1230GMT/1330CET), Spanish PM Pedro Sanchez (0945ET/1445GMT/1545CET), and ECB President Christina Lagarde and German Economy Minister Robert Habeck (1015ET/1515GMT/1615CET).
| Date | GMT/Local | Impact | Country | Event |
| 22/01/2025 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 22/01/2025 | 1330/0830 | * |  CA | Industrial Product and Raw Material Price Index |
| 22/01/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 22/01/2025 | 1515/1615 |  EU | ECB's Lagarde in dialogue on Unlocking Europes potential | |
| 22/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 22/01/2025 | 1800/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |
| 23/01/2025 | 2350/0850 | ** |  JP | Trade |
| 23/01/2025 | - |  NO | NorgesBank Meeting | |
| 23/01/2025 | - | JP | Bank of Japan Meeting | |
| 23/01/2025 | 0745/0845 | ** |  FR | Manufacturing Sentiment |
| 23/01/2025 | 0900/1000 | *** | NO | Norges Bank Rate Decision |
| 23/01/2025 | 1000/1000 | ** |  GB | Gilt Outright Auction Result |
| 23/01/2025 | 1100/0600 | *** |  TR | Turkey Benchmark Rate |
| 23/01/2025 | 1100/1100 | ** | GB | CBI Industrial Trends |
| 23/01/2025 | 1330/0830 | ** | CA | Retail Trade |
| 23/01/2025 | 1330/0830 | *** | US | Jobless Claims |
| 23/01/2025 | 1500/1600 | ** | EU | Consumer Confidence Indicator (p) |
| 23/01/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 23/01/2025 | 1600/1100 | ** | US | DOE Weekly Crude Oil Stocks |
| 23/01/2025 | 1600/1100 | ** | US | Kansas City Fed Manufacturing Index |
| 23/01/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 23/01/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 23/01/2025 | 1800/1300 | ** | US | US Treasury Auction Result for TIPS 10 Year Note |
| 24/01/2025 | 2200/0900 | *** |  AU | Judo Bank Flash Australia PMI |
| 24/01/2025 | 2330/0830 | *** | JP | CPI |