Highlights:
- Sterling weakness remains the focus for G10 currency markets on Thursday.
- Gilts off early session lows, mounting fiscal worry applied pressure at open.
- Fed’s Harker, Barkin, Schmid and Bowman are all due to speak today.
US TSYS: Outperforming on Day of Mourning-Shortened Session
- Treasuries trade bull flatter, outperforming a further slide in EGBs and Gilts in particular, with long end Treasury yields pulling back from multi-month recent highs.
- It comes ahead of today’s Fedspeak-centric docket (other releases pulled forward due to the National Day of Mourning) before nonfarm payrolls tomorrow.
- Cash yields are 1.7-3.3bp lower on the day, with declines led by the long end.
- 2s10s at 40bps (-1bp) gently extends yesterday’s pullback off fresh recent steeps of 43.5bps.
- TYH5 at 108-10 (05+) remains within overnight ranges, following modest cumulative volumes of 290k.
- Resistance is seen at 109-01+ (20-day EMA) whilst a bearish trend sequence remains, with support at 107-28+ (Jan 8 low).
- Data: Challenger jobs data Dec (0730ET)
- Fedspeak: Harker (0900ET), Collins (0905ET), Barkin (1200ET), Schmid (1330ET), Bowman (1335ET) – see STIR bullet
- Bill issuance: US Tsy $95B 4W & $90B 8W bill auctions (1130ET)
- Trading hours: The CME Group has coordinated market openings and closings. INTEREST RATES: Open outcry and CME Globex trading session for interest rate products will have an early close of 1300 ET and 1315ET, respectively on January 9, 2025. All transactions submitted on CME ClearPort will have normal hours. Settlement prices will be derived at 1300ET.
US TSY FUTURES: Short Setting in the Long End Dominated on Wednesday
OI data suggests that short setting in the long end dominated on Wednesday, with TY through WN subjected to net short setting.
- Further forward, TU futures saw fresh net longs set and FV saw modest net short cover, but DV01 equivalent swings were much smaller than what was seen further out the curve (in cumulative terms).
| 08-Jan-25 | 07-Jan-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,297,407 | 4,275,342 | +22,065 | +850,457 |
FV | 6,175,444 | 6,177,901 | -2,457 | -102,786 |
TY | 4,693,523 | 4,640,732 | +52,791 | +3,380,731 |
UXY | 2,204,903 | 2,203,499 | +1,404 | +121,927 |
US | 1,936,355 | 1,925,928 | +10,427 | +1,282,141 |
WN | 1,777,591 | 1,773,457 | +4,134 | +758,922 |
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| Total | +88,364 | +6,291,391 |
STIR: Schmid, Bowman and Harker the Pick of Upcoming Fedspeak
- Fed Funds implied rates have softened slightly overnight, falling 0.5-1bp ahead of multiple Fed appearances and of course payrolls tomorrow.
- Cumulative cuts from 4.33% effective: 1.5bp Jan, 11bp Mar, 16bp May, 25.5bp Jun, 29bp Jul and 40bp Dec.
- Boston Fed’s Collins (’25 voter) told Bloomberg News last yesterday that she favors fewer rate cuts in 2025 than she had anticipated just a few months ago, following strong employment data and lingering inflation. She emphasized the need for patience and aligned herself with the median dot from the December SEP.
- Some of the main quotes from the Dec FOMC minutes were taken verbatim from Powell's press conference, and aren't really any more hawkish than the rate path portrayed by the December Dot Plot. "A substantial majority" saw that with the policy stance "still meaningfully restrictive", but also well positioned for patience.
- Of today’s speakers, we put most weight on a hawkish Schmid and Bowman for near-term considerations, whilst Harker, a ’26 voter, is also of interest.
- 0900ET – Harker (’26) on economic outlook (text + Q&A). These are long-awaited remarks having last touched on mon pol in September.
- 0905ET – Collins (’25) on economy (text + Q&A)
- 1200ET – Barkin (non-voter) again repeats a speech, followed by Q&A
- 1330ET – Schmid (’25) on economic outlook (text tbd, Q&A). One of the more hawkish FOMC members, he said Nov 19 that now is the time to dial back restrictiveness of policy but that short-term rates aren’t overly restrictive, only somewhat. The Fed will wait to react to fiscal policy rather than pre-empting it.
- 1335ET – Bowman (perm. voter) reflects on 2024 (text + Q&A), talking on mon pol, economic performance and banking regulation lessons. Some might consider this a public job interview for one of the most hawkish FOMC members. Newswires have reported Bowman is being considered by the incoming Trump administration as the next VC for Supervision with Barr stepping down next month or (seemingly less likely) that she could be on a list of candidates to replace Powell as Chair in May 2026.
STIR: OI Points to Mix of Positioning Swings in SOFR Futures on Wednesday
OI data indicates that short cover dominated in SFRM5 & U5 futures on Wednesday.
- Long setting was then more prominent in the reds, before a mix of short and long cover was seen further out the strip.
| 08-Jan-25 | 07-Jan-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,111,700 | 1,120,489 | -8,789 | Whites | -41,384 |
SFRH5 | 1,156,190 | 1,160,386 | -4,196 | Reds | +21,564 |
SFRM5 | 1,007,651 | 1,018,339 | -10,688 | Greens | -4,291 |
SFRU5 | 797,504 | 815,215 | -17,711 | Blues | -5,794 |
SFRZ5 | 960,814 | 943,953 | +16,861 |
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SFRH6 | 608,000 | 597,966 | +10,034 |
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SFRM6 | 642,489 | 651,896 | -9,407 |
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SFRU6 | 629,083 | 625,007 | +4,076 |
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SFRZ6 | 714,776 | 735,982 | -21,206 |
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SFRH7 | 483,933 | 479,861 | +4,072 |
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SFRM7 | 389,434 | 382,124 | +7,310 |
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SFRU7 | 298,385 | 292,852 | +5,533 |
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SFRZ7 | 294,394 | 298,925 | -4,531 |
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SFRH8 | 225,311 | 225,332 | -21 |
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SFRM8 | 172,497 | 170,127 | +2,370 |
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SFRU8 | 107,383 | 110,995 | -3,612 |
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MNI US PAYROLLS PREVIEW: Test for Fading Rate Cut Expectations
- Nonfarm payrolls growth is seen at circa 160k in December as some recent distortions from hurricanes and strikes are increasingly in the rear-view mirror, and with a relatively narrow range to analyst estimates.
- The initial response rate to the establishment payroll survey increased notably back last month but we don’t rule out further large two-month downward revisions.
- The unemployment rate is broadly seen holding at 4.2%, although at an unrounded 4.246% in November it wouldn’t surprise if it rounded to 4.3%. A ‘high’ 4.3% would still be notable, though, for a fresh recent high.
- This release will also see annual seasonal adjustment factor revisions for the household survey. They’re typically modest but we nevertheless watch them for any changes in recent trends.
- These revisions only affect the household survey, i.e. not payrolls figures from the establishment survey, although the latter will have more significant annual revisions in next month’s release.
- The next 25bp cut from the FOMC is only just fully priced for the June meeting whilst the USD index is at recent highs with the real exchange rate particularly elevated on a historical basis. We feel market sensitivity would be greatest in event of a report with broad dovish implications.
- See our full preview of Friday's employment report here.
US: GOP No Closer to Agreement on Reconciliation Strategy
The GOP is no closer to agreeing on 2025 legislative strategy, following a meeting between President-elect Donald Trump and Republican Senators yesterday.
- Trump said ahead of the Capitol Hill meeting: “We’re looking at the one bill versus two bills, and whatever it is, it doesn’t matter.”
- Trumpexited the meeting with the same message: “One bill, two bills, doesn’t matter,” signalling that House and Senate Republicans must resolve their conflict independently of Trump.
- Two prominent conservatives in the Senate, Ron Johnson (R-WI) and Rand Paul (R-KY), indicated momentum, and Trump's backing, is leaning towards one huge reconciliation bill, but such a strategy risks dropping support from House conservatives who will baulk at approving what could be the biggest legislative package in American history.
- The lack of a coherent strategy is a warning the GOP’s razor-thin majority in the House will make legislation far more fraught than Trump’s first term when a robust majority outnumbered the hardline House conservative bloc.
- As a further complication, Congress must legislate FY2025 spending bills before government funding expires in just over two months and address the federal debt ceiling before a summer default risk emerges.
- Including a debt ceiling hike in reconciliation will test the loyalty of deficit hawks who have never voted to raise the debt limit. As a reminder, just two or three lawmakers have the power to torpedo the entire Republican agenda.
- Trump will meet House Republican factions, including the House Freedom Caucus, the pragmatic Main Street Caucus, and SALT-focused blue-state Republicans, on the weekend.
SECURITY: Austin Touts New UKR Package, Meloni Expects Trump to Remain Engaged
US Defense Secretary Lloyd Austin has announced, at the final meeting of the Ukraine Contact Group at the Ramstein air base in Germany, the US will provide Ukraine with another 'Presidential Drawdown Authority' package, “valued at approximately $500 million,” including air defense munitions and equipment to support Ukraine's F-16 fleet.
- The Kyiv Independent notes: “Around $3.8 billion remains allocated under the presidential drawdown authority (PDA), leaving it uncertain whether [US President-elect Donald] Trump will continue using this tool to funnel arms to Ukraine.”
- Ukraine President Volodymyr Zelenskyy said, hinting at the prospect of Trump’s presidency eroding support for Kyiv: "We've come such a long way that it would honestly be crazy to drop the ball now and not keep building on the defense coalitions we've created,"
- Separately, Italian Prime Minister Giorgia Meloni, speaking at her end-of-year presser, said Rome is, “ready to support any decision made by Ukraine regarding war with Russia," noting she expects Trump, “to balance diplomacy and deterrence in Ukraine,” not to “disengage from Ukraine.”
- Meloni added that, “security guarantees for Ukraine are needed to avoid another Russian invasion,” but declined to elaborate on Italy’s position regarding future NATO membership for Kyiv.
- Zelenskyy suggested that the US allowing the licensing of US air defence systems production in Ukraine could, “become significant part of our security guarantees." Zelenskyy also advocated for allies to invest more in Ukrainian drone production, arguing that Kyiv is best positioned to develop Europe’s drone technology.
FRANCE: Socialist Leader-Discussions w/Gov't On Budget 'Moving Forward'
First secretary of the opposition centre-left Socialist Party (PS) Olivier Faure has told TF1 that talks are advancing with the gov't of PM Francois Bayrou on finalising a state budget for 2025. Following meetings on 8 Jan Faure said “It’s moving forward...We’re seeking paths toward a compromise even if it’s hard to find.” The PS met with gov't officials alongside two other opposition groups, the environmentalist Greens and the left-wing Communist Party. Faure: “There has to be a budget at some point, and that’s what we’re seeking. But we’re looking to do it in the best conditions for the French people.”
- One major sticking point for parties of the left has been the pension reforms pushed through by President Emmanuel Macron in 2023. Bloomberg reports "Faure said that there had been a shift in the government’s stance on a 2023 law that raised the minimum retirement age to 64, with no outright refusal to consider potential changes. “I understood one simple thing, namely that there’s no veto, which is already a change,” Faure said."
- Changes to the pension reforms could ensure the continuation of the Bayrou gov't, but would be a major blow to the legacy of Macron who has argued the changes are required to protect French public finances.
- The gov't remains in a precarious position ahead of the 14 Jan general policy speech from Bayrou. It is unlikely that the PM will call a confidence vote after his address (historically this has been precedent with majority gov'ts, but recent minority administrations have avoided such a vote).
FOREX: GBP Selloff Deepens, Weak Retail Sales Weighs on AUD
- Sterling weakness remains the focus for G10 currency markets on Thursday, with early moves prompting GBPUSD to print at 1.2239 - its lowest level since November 2023. Moves have stabilised since, however, GBP remains weaker across the board. The likes of GBPJPY and EURGBP are seeing similar size adjustments as fiscal worries continue to permeate.
- EURGBP has also extended its recovery, printing a two-month high above 0.8400. Recall on Wednesday, we had a firm break above 50-day EMA resistance, which intersected at 0.8311. Today’s continued strength undermines the recent bearish theme and suggests scope for a stronger short-term recovery. Note too that 0.8376, the Nov 19 high and a key resistance, has also been cleared. This opens 0.8424 initially, a Fibonacci retracement, and 0.8448, the Oct 31 high and reversal trigger.
- AUDUSD is trading back below 0.6200, and has printed fresh cycle lows of 0.6172. We had retail sales slightly below expectations (+0.80%, versus +1.0% forecast), while the trade surplus was higher than forecast. Market pricing for an RBA cut at the Feb meeting is just over 70%, supported after yesterday's slower core CPI print and retail sales today.
- The USD index is close to unchanged, but has been consolidating above 109.00 amid the US federal holiday. All attention for the greenback will be on tomorrow’s US employment report, however we do have the Fed’s Harker, Barkin, Schmid and Bowman due to speak today.
EUROPEAN ISSUANCE UPDATE
Portugal 10-year syndication: Launched
- E4bln (MNI expected E3-4bln) of the new Jun-35 OT (ISIN: PTOTEAO005). Spread set earlier at MS+55bp (guidance was MS+57bps area), Books closed in excess of E25bln.
Spain/France auction results:
- Both the Spanish and French auctions have passed smoothly this morning. Spain sold E6.222bln of nominals (the top half of its E5.5-6.5bln target) while France sold E12.997bln of LT OATs (top of the target range and the largest auction since March).
- The 2.40% May-28 Bono was a new 3-year issue with the rest of the bonds sold today all saw the low price at auction exceed the pre-auction mid-prices.
- Bid-to-covers have also been healthy across all issues sold today, too.
- E2.596bln of the 2.40% May-28 Bono. Avg yield 2.586% (bid-to-cover 1.50x).
- E2.6bln of the 3.10% Jul-31 Obli. Avg yield 2.897% (bid-to-cover 1.59x).
- E1.026bln of the 2.90% Oct-46 Obli. Avg yield 3.71% (bid-to-cover 2.18x).
- E515mln of the 2.05% Nov-39 Obli-Ei. Avg yield 1.536% (bid-to-cover 1.99x).
- E7.059bln of the 3.00% Nov-34 OAT. Avg yield 3.4% (bid-to-cover 1.98x).
- E1.84bln of the 1.25% May-36 OAT. Avg yield 3.49% (bid-to-cover 2.85x).
- E1.945bln of the 2.50% May-43 OAT. Avg yield 3.77% (bid-to-cover 2.92x).
- E2.153bln of the 3.25% May-55 OAT. Avg yield 3.93% (bid-to-cover 2.37x).
EQUITIES: Eurostoxx 50 Futures Remain Close to Recent Highs
- A bull cycle in the Eurostoxx 50 futures contract remains intact. This week’s strong rally highlights a reversal of the recent corrective pullback. Resistance at 5040.00, the Dec 9 high, has been pierced. A clear break of this hurdle would confirm a resumption of the bull cycle that started on Nov 21 last year and open 5068.13, a Fibonacci projection. On the downside, initial firm support lies at 4929.18, the 50-day EMA.
- A bear threat in the S&P E-Minis contract remains present. The reversal lower from the Dec 26 high, highlights the end of the Dec 20 - 26 correction. Attention is on 5866.00, Dec 20 low and a key short-term support. Clearance of this level would strengthen a bearish theme. Initial firm resistance is 6107.50, the Dec 26 high. A breach of this hurdle would highlight a bull reversal and open key resistance at 6178.75, the Dec 6 high.
COMMODITIES: Trend Structure in WTI Futures Remains Bullish
- The trend structure in WTI futures remains bullish and the contract traded to a fresh cycle high again, yesterday. A stronger reversal to the upside has exposed key short-term resistance at $76.41, the Oct 8 high. A firm resistance at $71.97, the Nov 7 high, has been breached, strengthening a bullish theme. On the downside, a reversal lower would expose support at the 20-day EMA, at $71.32. This average is seen as a key short-term support.
- Recent gains in Gold appear corrective - for now. A bear threat remains present. The yellow metal traded sharply lower on Dec 18 and the move undermines a recent bull theme. A resumption of weakness would open key support at $2536.9, the Nov 14 low. The first firm support to watch is $2583.6, the Dec 19 low. On the upside, a stronger climb would instead signal scope for gains towards resistance at $2726.2, the Dec 12 high.
| Date | GMT/Local | Impact | Country | Event |
| 09/01/2025 | 1400/0900 |  US | Philly Fed's Pat Hrker | |
| 09/01/2025 | 1405/0905 | US | Fed's Collins | |
| 09/01/2025 | 1600/1600 |  GB | BOE's Breeden Speech at University of Edinburgh | |
| 09/01/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 09/01/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 09/01/2025 | 1745/1245 | US | Fed's Barkin | |
| 09/01/2025 | 1830/1330 | US | Fed's Schmid | |
| 09/01/2025 | 1835/1335 | US | Fed Gov Bowman | |
| 10/01/2025 | 2330/0830 | ** |  JP | Household spending |
| 10/01/2025 | 0645/0745 | ** |  CH | Unemployment |
| 10/01/2025 | 0700/0800 | *** |  NO | CPI Norway |
| 10/01/2025 | 0700/0800 | ** |  SE | Private Sector Production m/m |
| 10/01/2025 | 0745/0845 | * |  FR | Industrial Production |
| 10/01/2025 | 0745/0845 | ** | FR | Consumer Spending |
| 10/01/2025 | 0800/0900 | ** |  ES | Industrial Production |
| 10/01/2025 | 0900/1000 | * |  IT | Retail Sales |
| 10/01/2025 | 1330/0830 | * |  CA | Building Permits |
| 10/01/2025 | 1330/0830 | *** | CA | Labour Force Survey |
| 10/01/2025 | 1330/0830 | *** | US | Employment Report |
| 10/01/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 10/01/2025 | 1500/1000 | ** | US | U. Mich. Survey of Consumers |
| 10/01/2025 | 1700/1200 | *** | US | USDA Crop Estimates - WASDE |
| 10/01/2025 | 1700/1200 | ** | US | USDA GrainStock - NASS |
| 10/01/2025 | 1700/1200 | *** | US | USDA Winter Wheat |
| 10/01/2025 | 1900/1400 | ** | US | Treasury Budget |
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