Highlights:
- FX focus remains firmly on JPY volatility, GBP underperforms following growth data.
- US retail sales and initial jobless claims are due later today.
- Treasury Secretary Nominee Scott Bessent faces his Senate confirmation hearing.
US TSYS: Broad Consolidation of CPI Rally, Bessent Hearing an Added Risk Factor
- Treasuries trade bear flatter but broadly consolidate yesterday’s dovish reaction to the December US CPI report.
- It comes ahead of a heavy session with some important data releases such as retail sales and jobless claims plus Fedspeak and Tsy Sec nominee Bessent’s Senate confirmation hearing at 1030ET. Further bank earnings can also have an impact at the margin.
- Cash yields are 2bp lower (23s) to unchanged (30s).
- 2s10s sits at 38bps (-1.3bps) as it holds the flattening away from recent highs of 43-43.5bps.
- TYH5 trades at 108-07 (-03+) as it holds most of yesterday’s post-CPI push to 108-13, under reasonable cumulative overnight volumes of 320k.
- The push higher stopped short of resistance at 108-16+ (20-day EMA) after which lies 109-06 (Dec 31 high). The trend condition remains bearish though with recent gains deemed corrective from a technical angle and support at 107-06 (Jan 13 low).
- Data: Retail sales Dec (0830ET), Jobless claims (0830ET), Import prices Dec (0830ET), Philly Fed Jan (0830ET), NY Fed services Jan (0830ET), Business inventories Nov (1000ET), NAHB housing Jan (1000ET)
- Fedspeak: Waller on CNBC (~1000ET)
- Treasury: Tsy Sec nominee Bessent Senate Confirmation Hearing (1030ET)
- Bill issuance: US Tsy $95B 4W & $90B 8W bill auctions
US TSY FUTURES: Mix of Long Setting & Short Cover Seen Wednesday
OI data points to a mix of net long setting and short cover in Tsy futures on Wednesday, as participants reacted to the softer-than-expected U.S. & UK CPI data.
- Net long setting was concentrated in TY & UXY futures, with net short cover seen elsewhere.
- Net short setting was slightly more prominent in curve-wide DV01 equivalent terms, but there wasn’t much in it.
| 15-Jan-25 | 14-Jan-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,268,406 | 4,302,379 | -33,973 | -1,296,919 |
FV | 6,118,688 | 6,120,234 | -1,546 | -64,362 |
TY | 4,735,122 | 4,701,356 | +33,766 | +2,156,387 |
UXY | 2,234,752 | 2,219,556 | +15,196 | +1,317,940 |
US | 1,918,710 | 1,937,305 | -18,595 | -2,289,005 |
WN | 1,796,323 | 1,799,635 | -3,312 | -612,850 |
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| Total | -8,464 | -788,808 |
STIR: Dovish CPI Reports Still Weighs, Important Data and Appearances Ahead
- Fed Funds implied rates have pulled a little further away from yesterday’s post-CPI lows but the dovish report continues to weigh.
- Today sees a heavy docket, with important data releases including retail sales, jobless claims and import prices plus Gov. Waller on CNBC at ~1000ET before Tsy Sec nominee Bessent’s confirmation hearing at 1030ET.
- Cumulative cuts from 4.33% effective: 0.5bp Jan, 7bp Mar, 12.5bp May, 22bp Jun, 25.5bp Jul, 38bp Dec.
- Speaking on Jan 8, i.e. prior to December nonfarm payrolls, Gov. Waller (permanent voter) gave a speech that was largely in line with Chair Powell’s post-Dec press conference: further rate cuts are expected if the economy unfolds as expected. However, Waller was more forceful on the outlook for cuts than Powell, and apparently more dovish than the median FOMC voter who sees just 50bp of cuts in 2024.
- He believed that “inflation will continue to make progress toward our 2% goal over the medium term and that further reductions will be appropriate”, something that is likely to be reiterated today.
- One major takeaway was that Waller doesn't see tariffs as being inflationary ("If, as I expect, tariffs do not have a significant or persistent effect on inflation, they are unlikely to affect my view of appropriate monetary policy.")
STIR: Net Short Cover Dominated on SOFR Strip Following CPI
OI data points to meaningful net short cover across much of the SOFR futures strip after U.S. CPI data triggered dovish flows on Wednesday.
- SFRM5 & Z5 saw the largest net OI changes on the day, with both contracts subjected to net short cover.
| 15-Jan-25 | 14-Jan-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,079,794 | 1,081,734 | -1,940 | Whites | -58,889 |
SFRH5 | 1,189,753 | 1,200,626 | -10,873 | Reds | -53,666 |
SFRM5 | 1,033,927 | 1,075,226 | -41,299 | Greens | -25,255 |
SFRU5 | 822,981 | 827,758 | -4,777 | Blues | -4,379 |
SFRZ5 | 1,007,328 | 1,040,013 | -32,685 |
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SFRH6 | 647,667 | 653,378 | -5,711 |
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SFRM6 | 645,264 | 651,829 | -6,565 |
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SFRU6 | 617,711 | 626,416 | -8,705 |
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SFRZ6 | 716,997 | 743,636 | -26,639 |
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SFRH7 | 495,302 | 495,454 | -152 |
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SFRM7 | 403,284 | 402,650 | +634 |
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SFRU7 | 292,656 | 291,754 | +902 |
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SFRZ7 | 269,673 | 274,471 | -4,798 |
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SFRH8 | 214,793 | 214,427 | +366 |
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SFRM8 | 176,666 | 178,425 | -1,759 |
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SFRU8 | 111,503 | 109,691 | +1,812 |
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FED: Beige Book: Better Activity/Employment, Inflation Still "Modest"
January's Beige Book portrayed a stronger economy versus November's update, with anecdotal evidence pointing to continued solidity in demand with mixed sectoral dynamics, an uptick in labor market strength, but no change to "modest" inflation dynamics. Note that this is the second consecutive Beige Book (Nov, Jan) that has suggested improving economic activity vs the prior edition, with employment appearing to pick up as well since September's edition - but no appreciable increase in inflation concerns (albeit contrasting with September's when inflation was still "moderating"). With this report appearing to confirm that downside risks to the labor market are dissipating, it will bolster expectations for a near-term Fed hold, but inflation doesn't appear to be of great concern outside of potential tariff risks.
- Economic activity: The description of economic activity shifted to suggest a stronger assessment from Fed contacts, though sectorally it was mixed with consumer demand looking strong ("most Districts reporting strong holiday sales that exceeded expectations") and solid leisure and hospitality and air travel, but with construction, manufacturing, residential real estate, truck freight volumes, and agriculture flat/soft. Additionally energy activity and nonfinancial services overall were mixed.
- Labor Markets: The January Beige Book points to a slight tightening in labor markets versus November's report, with some strength in "several service industries, notably healthcare" and construction, with flat manufacturing sector hiring. Turnover remained low, while in a sign of softness, "contacts in some Districts expressed greater uncertainty about their future staffing needs." Wage growth appears to have accelerated though, with some exceptions: "wage growth picked up to a moderate pace in most Districts, though there were some reports that wage pressures had eased."
- Prices: Inflation appeared to be of limited concern to regional respondents, with price increases described as "modest". It also notes "there were instances of flat or decreasing prices as well, particularly in the retail and manufacturing sectors", with flat/lower input costs ("particularly for fuel"), though some input prices were up ("particularly for health insurance"). As for expectations, "contacts expected prices to continue to rise in 2025, with some noting the potential for higher tariffs to contribute to price increases."
ISRAEL: PM Claims Hamas Reneging on Gaza Deal Points, Cabinet Meeting Delayed
Times of Israel reporting comments attributed to the office of Israeli PM Benjamin Netanyahu claiming that Hamas is “reneging on the understandings and creating a last-minute crisis that is preventing an agreement,” with regards to the Gaza ceasefire-for-hostages deal announced on 15 Jan. The PM's office claims “The Israeli cabinet will not convene until the mediators notify Israel that Hamas has accepted all elements of the agreement.”
- The smaller security cabinet was due to meet on the ceasefire deal, with the entire cabinet convening after that. Israel's N12 reports "but due to the ongoing talks [in Doha] and the fact that the heads of the Qatari security establishment need to attend, it is expected to be delayed until at least the late afternoon, possibly even the evening."
- PM's office says that “Hamas is demanding that it determine the identity of the terrorists to be released". It is believed that under the terms of the deal, Israel would have veto power.
- There is also a wait for Netanyahu to see whether the ultranationalist Religious Zionism party of Finance Minister Bezalel Smotrich resigns from gov't in protest to the deal. RZ Knesset member Zvi Sukkot told Kan Radio that “In all likelihood, we will resign from the government,”.
- The loss of RZ would leave the gov't with 61 of 120 seats, a majority of one. All eyes would then be on the six MKs from the ultranationalist Otzama Yehudit. If they also withdrew from gov't it could see the fall of the Netanyahu administration.
MIDEAST: Shipping World Watches for Houthi Reaction to Gaza Ceasefire
The emerging Gaza ceasefire-for-hostages deal - yet to be confirmed by the Israeli gov't - will not only be watched in the context of security in Israel and the Palestinian territories, but also for the potential impact on global shipping flows, supply chains, and inflationary pressures. Since the outbreak of the conflict following the Hamas attacks of 7 Oct 2023, the Houthi rebels in Yemen have engaged in a significant campaign of attacks on commercial shipping in and around the Red Sea and Gulf of Aden. The Houthis, backed by Iran as part of its 'axis of resistance', have previously said the attacks would continue as long as Israeli forces remain in Gaza.
- The impact on shipping and commercial supply chains has been significant, with cargoes forced to travel via the Cape of Good Hope rather than the Suez Canal, adding weeks to transit. This has pushed up costs and contributed to stubbornly high inflationary pressures.
- Shipping news outlet gCaptain reports comments from a Houthi spox stating that the group's attacks will only halt when "all military operations by the IDF are stopped, the siege on Gaza is lifted, humanitarian aid is allowed to flow freely, occupied territories in the Gaza Strip are withdrawn, and all military actions by the UK, US, and Israel in Yemen are ended.”
- While there have been no attacks on Red Sea shipping in 2025 so far, it is unlikely that operators will send vessels back to these waters in significant numbers until the ceasefire is well established (potentially into the second or third phases of the deal).
UK DATA: UK Economy Sees Lacklustre Post-Budget Bounce
UK GDP grew 0.1% in November, snapping a run of two consecutive months of contraction, with the upside driven largely by growth in the services sector, the Office for National Statistics said Thursday.
- However, the ONS estimated the economy saw no growth in the three months to November, compared with the three months to August 2024, underlining the challenges facing the government still attempting to get its growth agenda on track. “The economy continues to be broadly flat, having grown slightly in November following two small falls in the previous months," ONS Director of Economic Statistics Liz McKeown said.
- The economy needs to grow by 0.37% or more in December, assuming no revisions, to ensure a positive Q4 GDP outcome, the ONS said.
- The data will come as little surprise to policymakers at the Bank of England and will do little to shift the current thinging of MPC members, with a February rate cut now very much in play.
FOREX: Yen Outperforming as January BOJ Meeting Nears
- While G10 currencies trade mixed amid an unchanged Dollar index on Thursday, the focus remains firmly on the Japanese Yen and the significant market moves overnight. Assisting the prior session’s direction of travel, Bloomberg headlines crossed overnight, reiterating that the BoJ sees a good chance to hike rates next week absent a US shock.
- The report sends the strongest signal yet that the BoJ is preparing for a rate hike next week, bolstering the signals sent by BOJ Governor Ueda and Deputy Governor Himino earlier this week. The Japanese Yen rallied sharply during APAC hours, with USDJPY sinking from around 156.50 to a 155.21 low before recovering.
- While the latest move lower is considered technically corrective for now, the pair has traded through the 20-day EMA and the overnight extension narrowed the gap substantially to 154.90, the 50-day EMA.
- EURJPY (-0.45%) and GBPJPY (-0.77%) are notably pressuring the psychological pivots of 160.00 and 190.00 respectively, developing the bearish threats for both crosses.
- GBP is underperforming following the slightly weaker-than-expected UK activity data, which could marginally underpin growth concerns bolstering the Sterling bear trend. Cable briefly slipped back below 1.22, while EURGBP has advanced 0.3% to 0.8430 at typing. We highlight a bullish outlook for the cross, and see resistance at 0.8463 and 0.8494, the Aug 26 high.
- USDMXN stands out in emerging markets, rising 0.75% to 20.60 as the overnight equity gains and softer US CPI have been shrugged off. Focus turns to US retail sales, initial jobless claims and Treasury Secretary Nominee Scott Bessent faces his Senate confirmation hearing.
GBP: Sterling Trend Indicators Pointing South
- GBP is underperforming Thursday following the weaker-than-expected UK activity data, which could marginally underpin growth concerns bolstering the most recent sterling bear trend. GBPUSD briefly slipped back below 1.22 in early European trade and remains weaker ahead of the NY crossover, while EURGBP has advanced 0.3% to 0.8430 at typing.
- For Cable, moving average studies are in a bear-mode position, highlighting a dominant bear trend. Sights are on 1.2087 next, a Fibonacci projection. Initial firm resistance moves down to 1.2414, the 20-day EMA.
- Additionally, we highlight the latest recovery for EURGBP as undermining the recent bearish theme, suggesting scope for stronger short-term gains. Resistance for the cross is seen at 0.8463 and 0.8494, the Aug 26 high. Support at the 50-day EMA is at 0.8328.
EUROPEAN ISSUANCE UPDATE
Ireland syndication: Books open
- E3bln WNG of the new Oct-55 IGB. Spread set at MS+84bp (guidance was MS +85bps area), Books in excess of E30bln.
Spain auction results
- Top of the E5.0-6.0bln range sold at today’s Bono/Obli auction, with E2.493bln allocated to the on-the-run 2.70% Jan-30 Bono.
- The 2.70% Jan-30 Bono saw a bid-to-cover ratio of 1.52x, below the 2.04x seen at the December 2024 re-opening. However, only E1.311bln was sold at the December re-opening.
- Bid-to-covers on the off-the-run lines were broadly in line with previous outings.
- Stop prices exceeded pre-auction mid-prices across the three lines on offer.
- Overall, the auction has been reasonably well digested.
- E2.493bln of the 2.70% Jan-30 Bono. Avg yield 2.763% (bid-to-cover 1.52x).
- E2.146bln of the 0.85% Jul-37 Obli. Avg yield 3.452% (bid-to-cover 1.48x).
- E1.351bln of the 1.00% Oct-50 Obli. Avg yield 3.727% (bid-to-cover 1.74x).
EQUITIES: E-Mini S&P Remains Above 50-Day EMA Following Wednesday's Rally
- A bull cycle in the Eurostoxx 50 futures contract remains intact and the latest pullback has proved to be corrective. Yesterday’s climb resulted in a breach of 5054.00, the Jan 8 high, to confirm a resumption of the uptrend. Today’s move higher reinforces current conditions. The focus is on a climb towards 5097.00, the Oct 14 high. On the downside, key short-term support has been defined at 4931.00, a break would be bearish.
- A bear threat in the S&P E-Minis contract remains present. However, yesterday’s gains resulted in a print above resistance at 5987.49, the 50-day EMA. The average marks an important short-term pivot level and a clear break of it would signal a possible reversal. This would open 6107.50, the Dec 26 high. Key short-term support has been defined at 5809.00, the Jan 13 low. A breach of this level would confirm a resumption of the downtrend.
COMMODITIES: This Week's Gains Reinforce Bullish Trend Structure in WTI Futures
- The trend structure in WTI futures remains bullish and Wednesday's rally reinforces current conditions. The recent strong impulsive rally has resulted in a breach of $76.41, the Oct 8 high. Note too that $80.14, the Apr 12 ‘24 high has been pierced, strengthening the bullish theme. Sights are on $81.69, a Fibonacci projection. On the downside, a reversal lower would expose the 20-day EMA, at $73.81, a key short-term support.
- Recent gains in Gold appear corrective - for now. However, the yellow metal continues to hold on to its latest gains and scope is seen for a continuation higher near-term. A stronger recovery would open $2726.2, the Dec 12 high and an important resistance. Clearance of this level would be a bullish development. On the downside, a reversal lower would expose $2583.6, the Dec 19 low. Initial support is at $2646.3, the 50-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 16/01/2025 | 1230/1330 |  EU | Account of Dec 2024 ECB Monetary Policy Meeting | |
| 16/01/2025 | 1315/0815 | ** |  CA | CMHC Housing Starts |
| 16/01/2025 | 1330/0830 | *** |  US | Jobless Claims |
| 16/01/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 16/01/2025 | 1330/0830 | *** | US | Retail Sales |
| 16/01/2025 | 1330/0830 | ** | US | Import/Export Price Index |
| 16/01/2025 | 1330/0830 | ** | US | Philadelphia Fed Manufacturing Index |
| 16/01/2025 | 1500/1000 | * | US | Business Inventories |
| 16/01/2025 | 1500/1000 | ** | US | NAHB Home Builder Index |
| 16/01/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 16/01/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 16/01/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 16/01/2025 | 1730/1230 | CA | BOC Deputy Gravelle speech to women in markets group. | |
| 17/01/2025 | 0200/1000 | *** |  CN | Fixed-Asset Investment |
| 17/01/2025 | 0200/1000 | *** | CN | Retail Sales |
| 17/01/2025 | 0200/1000 | *** | CN | Industrial Output |
| 17/01/2025 | 0200/1000 | *** | CN | GDP |
| 17/01/2025 | 0200/1000 | ** | CN | Surveyed Unemployment Rate M/M |
| 17/01/2025 | 0700/0700 | *** |  GB | Retail Sales |
| 17/01/2025 | 0900/1000 | ** | EU | EZ Current Account |
| 17/01/2025 | 1000/1100 | *** | EU | HICP (f) |
| 17/01/2025 | 1100/1200 | EU | ECB's Cipollone lecture at Crypto Asset Lab conference | |
| 17/01/2025 | 1330/0830 | * | CA | International Canadian Transaction in Securities |
| 17/01/2025 | 1330/0830 | *** | US | Housing Starts |
| 17/01/2025 | 1415/0915 | *** | US | Industrial Production |
| 17/01/2025 | 1600/1100 | CA | BOC releases review of pandemic policy actions. | |
| 17/01/2025 | 2100/1600 | ** | US | TICS |
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