Highlights:
- European defence stocks get shot in the arm on European re-arming prospects
- Tariff deadline looming, with markets wary of another last minute reprieve
- Higher core yields helping pressure JPY against all others
US TSYS: 2Y Yields Holding Close To 4% After First 3% Handle Since Oct
- Treasuries have pared Friday’s gains, in possibly some reversal of month-end flows but also clear spillover from EGBs today. They opened lower on expectations for European defense spending (following weekend sources pieces from both Reuters and MNI) and extended the move more recently.
- Today’s focus is on any last-minute tariff concessions ahead of tonight’s deadline plus potential highlights from US manufacturing surveys and hawkish Fedspeak.
- Cash yields are 3.7-4.4bp higher on the day, led by 10s, but are still low by recent standards.
- For example, 2Y yields at 4.026% have only lifted modestly after Friday’s low of 3.98% saw the first sub-4% handle since October.
- TYM5 trades at 110-29 (-06), having remained within Friday’s range throughout on solid cumulative volumes of 515k.
- It eases back from Friday’s 111-09+, which forms initial resistance before 111-13 (Dec 10 high). The trend structure remains bullish but there is also some air above support at 110-00 (Feb 7 high and recent breakout point) should growth metrics in today’s business surveys surprise stronger.
- Tariffs: Previously delayed tariffs on Canada and Mexico set to come into effect 0001ET on Tuesday.
- Data: S&P Global US PMI Feb final (0945ET), ISM mfg Feb (1000ET)
- Fedspeak: Musalem (1235ET)
- Bill issuance: US Tsy to sell $76bn 13-week, $68bn 26-week (1130ET)
STIR: Fed Rates See Sizeable Paring Of Friday’s Rally But Dovish End Of Ranges
- Fed Funds implied rates have seen a sizeable paring of Friday’s rally, driven overnight by European FI pressure on higher defense spending expectations.
- Pricing remains firmly at the dovish end of recent ranges though after last week’s swathe of releases saw a softer growth outlook dominate signs of renewed inflationary pressures (see the MNI US Macro Weekly here). The 63bp of cuts for 2025 is off from 70bp seen Friday but still compares to the 50bp median dot in the Dec SEP.
- Cumulative cuts from 4.33% effective: 1bp Mar, 7.5bp May, 23bp Jun, 32bp Jul and 63bp Dec.
- Today's sole Fedspeak sees St Louis Fed’s Musalem (’25 voter, hawk) speak on the US economy and monetary policy at 1235ET (text + Q&A).
- He last spoke on Feb 20 in some detail, only wanting to see gradual rate cuts once inflation convergence is assured, with policy staying “modestly restrictive” until then. He wants to see inflation making downward progress “consistently” and sees the risk that inflation stalls as greater than that from the job market weakening. He also favors communicating through forecast scenarios.
EUROPE ISSUANCE UPDATE
Belgium Long 15-year Jun-42 OLO mandate:
- We had been flagging the possibility of a Belgian syndication this week, but we thought it was more likely that we would see a 30-year OLO launched in March rather than the long 15-year announced today.
- We pencil in a transaction tomorrow with a E4-6bln size expectation.
US TSY FUTURES: CFTC Shows Asset Managers & Funds Continuing To Trim Exposure
The latest CFTC CoT revealed continued cover of existing exposure for both asset managers and leveraged funds, with the former trimming their net long exposure (remaining net long across all contracts) and the latter trimming their net short exposure (remaining net short across all contracts).
- Meanwhile, non-commercial positioning saw all existing net shorts trimmed in the latest week, while the cohort’s only outstanding net long across the curve (US futures) was also trimmed (details in image below).
Source: MNI - Market News/CFTC/Bloomberg
STIR: Mix Of Long Setting & Short Cover In SOFR Futures On Friday
OI data points to net long setting across most white & red SOFR futures on Friday, before net short cover came to the fore further out the strip.
| 28-Feb-25 | 27-Feb-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,037,405 | 1,034,881 | +2,524 | Whites | +4,107 |
SFRH5 | 1,291,556 | 1,286,919 | +4,637 | Reds | +17,666 |
SFRM5 | 1,132,494 | 1,146,177 | -13,683 | Greens | -22,583 |
SFRU5 | 886,528 | 875,899 | +10,629 | Blues | -12,888 |
SFRZ5 | 1,025,508 | 1,006,171 | +19,337 |
|
|
SFRH6 | 641,642 | 631,975 | +9,667 |
|
|
SFRM6 | 596,604 | 611,931 | -15,327 |
|
|
SFRU6 | 567,774 | 563,785 | +3,989 |
|
|
SFRZ6 | 762,667 | 779,653 | -16,986 |
|
|
SFRH7 | 439,244 | 436,638 | +2,606 |
|
|
SFRM7 | 450,373 | 452,607 | -2,234 |
|
|
SFRU7 | 318,073 | 324,042 | -5,969 |
|
|
SFRZ7 | 363,627 | 370,142 | -6,515 |
|
|
SFRH8 | 224,306 | 226,421 | -2,115 |
|
|
SFRM8 | 182,230 | 185,152 | -2,922 |
|
|
SFRU8 | 130,070 | 131,406 | -1,336 |
|
|
HKD: BYD Share Sale Could Raise HKD Cash Demand, Distort Fwd Market
Worth noting for HKD cash demand: China's BYD to offer 118mln shares for their Hong Kong listing (ticker is 1211 HK), seeking to raise equivalent of $5.2bln in HKD.
- Sizeable demand for securities (e.g. IPOs and other share sales) can help narrow the HKD forward discount,
which has proved sensitive in recent years to a pick-up in capital markets activity, as the uptick in cash demand in turns adds upward pressure to HIBOR. - The $5.2bln raise is of decent size - not the largest share sale in recent years, but is comfortably the biggest capital raise of 2025 so far. Adds to the expected pipeline that also includes the long-awaited Chery Automobile IPO - seen raising as much as $14bln at some point this year.
- The HKD 12m forward discount narrowed to 300 points in October last year, but has drifted since - any narrowing could prove stickier should further fundraising headlines cross in the near-term.
FOREX: Dollar Drifting Ahead of Revived Tariff Deadline
- EUR/USD edges to a new intraday high on the back of that EZ HICP print, but the pair was bid into the release already, with the USD further softer against all others in G10. EUR/JPY also trades well through the release, briefly showing above the Friday high.
- The impact has spilled over into new intraday highs for GBP/USD, which accelerates on the break of last Friday's high at 1.2622, but the mid-week highs and major resistance are still out of reach for now at 1.2716.
- No specific headlines or newsflow behind the USD drift, but markets likely well aware of the looming deadline for Canada/Mexico/China tariffs - due Tuesday at 0501GMT/0001ET - meaning markets will be on watch today for any signals of a last-minute extension, as was the case in February.
- Outside of Monday trade, the week is fraught with event risk - Tuesday marks the final deadline for additional trade levies on Canada, Mexico and China. The additional tariffs kick in at 0501GMT/0001ET on Tuesday - meaning markets will be on watch today for any signals of a last-minute extension, as was the case in February.
- ISM Manufacturing data for February is the data highlight, with sentiment in the spotlight this month thanks to growing signals in regional Fed releases that businesses are increasingly uncertain over tariffs and price pressures. Friday's MNI Chicago Business Barometer showed prices paid lurching higher, marking the largest one-month increase since July 1957.
EURJPY: Cross Posts Sharp 1% Rally Off Lows
As mentioned above, yields across the US and Germany are inching to the session's best levels, and the pre-Eurozone CPI fade in the USD Index is sticking. As a result, USD/JPY is nearing the overnight highs - but more consequentially EUR/JPY is ripping to show above Y157.50, amounting to a 1% rally off lows.
- Today's price action extends a phase of S/T volatility for the cross: one-week realised vols for EURJPY are now just below the early February highs that coincided with the first wave of CA/MX tariff threats from the White House.
- As a result, EUR/JPY is nearing 157.99, the 50% retracement for the downleg posted off the mid-February highs - clearance above which opens the 157.97 and 159.65 20-day/50-day EMAs and key short-term resistance.
FX OPTIONS: Expiries for Mar03 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0245-50(E1.9bln), $1.0275-85(E658mln), $1.0470-75(E1.6bln)
- USD/JPY: Y150.79-00($1.1bln)
- AUD/USD: $0.6350-60($777mln)
- USD/CAD: C$1.4300($1.6bln), C$1.4350($1.1bln), C$1.4400($1.5bln), C$1.4425-40($1.9bln)
EQUITIES: Trend Condition in Eurostoxx 50 Futures Remains Bullish, For Now
- The trend condition in the Eurostoxx 50 futures contract remains bullish and - for now - the latest shallow retracement appears corrective. The contract has pierced support at the 20-day EMA, at 5417.56. A clear break of this average would signal scope for a deeper retracement - note that the 50-day EMA lies at 5266.18. The EMA represents a key area of support. For bulls, a resumption of gains would open 5574.57 next, a Fibonacci projection.
- Recent weakness in the S&P E-Minis contract has resulted in a breach of a number of important supports; 6014.00, the Feb 10 low, and 5935.50, the Feb 3 low. The sharp move down signals scope for a deeper retracement and has exposed the next key support at 5809.00, the Jan 13 low. Clearance of this level would highlight a stronger reversal. On the upside, initial firm resistance to watch is 6038.96, the 50-day EMA.
COMMODITIES: Recent Weakness Bolsters Bearish Outlook for WTI Futures
- The current bearish trend condition WTI futures remains intact and last week’s sell-off reinforces a bear theme. 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 $73.33, the Feb 11 high.
- A corrective phase in Gold remains in play and the yellow metal traded lower last week. Price has breached the 20-day EMA, at $2879.8. This signals scope for a deeper short-term retracement, possibly towards the next important support around the 50-day EMA, at $2804.6. For bulls, a resumption of gains would refocus attention on the next objective at $2962.2, a Fibonacci projection. This would also open the $3000.0 handle.
| Date | GMT/Local | Impact | Country | Event |
| 03/03/2025 | - | *** |  US | Domestic-Made Vehicle Sales |
| 03/03/2025 | 1445/0945 | *** | US | S&P Global Manufacturing Index (final) |
| 03/03/2025 | 1500/1000 | *** | US | ISM Manufacturing Index |
| 03/03/2025 | 1500/1000 | * | US | Construction Spending |
| 03/03/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 03/03/2025 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 03/03/2025 | 1735/1235 | US | St. Louis Fed's Alberto Musalem | |
| 04/03/2025 | 2330/0830 | * |  JP | Labor Force Survey |
| 04/03/2025 | 0001/0001 | * |  GB | BRC Monthly Shop Price Index |
| 04/03/2025 | 0030/1130 |  AU | RBA Meeting Minutes | |
| 04/03/2025 | 0030/1130 | AU | Balance of Payments: Current Account | |
| 04/03/2025 | 0030/1130 | ** | AU | Retail Trade |
| 04/03/2025 | 0700/1500 |  CN | Chinese People's Political Consultative Conference | |
| 04/03/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 04/03/2025 | 1000/1100 | ** |  EU | Unemployment |
| 04/03/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 04/03/2025 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 04/03/2025 | 1920/1420 | US | New York Fed's John Williams | |
| 05/03/2025 | 2200/0900 | * | AU | S&P Global Final Australia Services PMI |
| 05/03/2025 | 2200/0900 | ** | AU | S&P Global Final Australia Composite PMI |