Highlights:
- US NFP growth is seen at ~160k in December as recent distortions from hurricanes and strikes are increasingly in the rear-view mirror.
- JPY volatility has been in focus early Friday following a Bloomberg sources piece on the BoJ.
- Hawkish commentary from Fed’s Musalem and a strong increase in oil futures drives cash yields higher.
US TSYS: Bear Flatter Ahead of Payrolls, TY Nearer to Support
- Treasuries sit bear flatter ahead of the nonfarm payrolls report for December.
- Cash yields are 1-2.5bp higher on the day, with increases led by the front end after hawkish commentary from St Louis Fed’s Musalem (’25 voter) plus a strong increase in oil futures.
- Long yields again lag increases in EGBs and Gilts in particular.
- 2s10s has been trimmed to 41.5bp (-1.2bp) but continues to sit close to recent highs of 43.5bp.
- TYH5 has recently touched a session low of 108-01 (-06), through yesterday’s mourning-shortened session but not testing Wednesday’s 107-28+.
- Cumulative volumes are depressed at 235k with payrolls in focus.
- The bearish trend sequence remains in place and clearance of that support could open 107-21+ (May 29, 2024 low, cont.), whilst to the upside there is resistance at 109-01 (20-day EMA).
- Data: Nonfarm payrolls Dec (0830ET), U.Mich consumer survey Jan P (1000ET)
- Fedspeak: Goolsbee on CNBC (1004ET)
US TSY FUTURES: OI Indicates Net Short Cover in TY Futures on Thursday
OI points to a mix of modest net long setting and short cover across much of the futures curve on Thursday, with net short cover in TY futures providing the only DV01 equivalent swing of any note.
- Still, the net short cover seen in TY futures only accounted for a little over half of the net short setting seen in the contract on Wednesday (the latter stood at ~$3.38mln in DV01 equivalent terms).
- The early close and thinner desks owing to the U.S. day of mourning for former President Carter helps explain the limited positioning movement.
| 09-Jan-25 | 08-Jan-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,307,777 | 4,297,391 | +10,386 | +398,655 |
FV | 6,177,055 | 6,173,595 | +3,460 | +144,396 |
TY | 4,664,036 | 4,693,497 | -29,461 | -1,882,277 |
UXY | 2,211,677 | 2,208,735 | +2,942 | +254,749 |
US | 1,934,550 | 1,937,199 | -2,649 | -324,418 |
WN | 1,778,474 | 1,777,394 | +1,080 | +197,213 |
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| Total | -14,242 | -1,211,683 |
STIR: Next Fed Cut in June Only Just Fully Priced Pre-Payrolls
- Fed Funds implied rates have seen an intraday boost from hawkish comments from St Louis Fed’s Musalem (’25 voter). He viewed the Dec decision as a close call but interestingly wasn’t one of the four dots that indicated a preference of no cut that meeting (vs only one official dissent) – see the 0601ET bullet for details.
- It helps see rates 0.5-3bp higher on the day across 2025 meetings.
- Cumulative cuts from 4.33% effective: 1bp Jan, 10.5bp Mar, 16bp May, 25bp Jun, 29bp Jul and 40bp Dec.
- Chicago Fed’s Goolsbee (’25) is today’s sole scheduled Fedspeak, following nonfarm payrolls at 1004ET. Typically the most dovish member of the FOMC, headlines echoing other FOMC rhetoric around the need for greater caution would be notable. He said Dec 20 that he made his 2025 rate path more shallow in the Dec SEP but still sees rates coming down a fair bit more and over a 12-18 month window.
STIR: OI Points to Mix of Long Setting & Short Cover in SOFR Futures on Thursday
OI data points to a mix of net long setting and short cover during yesterday’s uptick in most SOFR futures.
- Net long setting across SFRU5, Z5 & H6 presented the most concentrated positioning adjustment, although net short cover then became more prominent beyond that area of the strip.
| 09-Jan-25 | 08-Jan-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,110,888 | 1,111,284 | -396 | Whites | +182 |
SFRH5 | 1,151,141 | 1,156,190 | -5,049 | Reds | +9,465 |
SFRM5 | 1,007,427 | 1,008,001 | -574 | Greens | -4,890 |
SFRU5 | 803,705 | 797,504 | +6,201 | Blues | -17,506 |
SFRZ5 | 986,652 | 960,322 | +26,330 |
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SFRH6 | 614,252 | 609,031 | +5,221 |
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SFRM6 | 629,725 | 642,489 | -12,764 |
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SFRU6 | 619,761 | 629,083 | -9,322 |
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SFRZ6 | 715,683 | 714,459 | +1,224 |
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SFRH7 | 483,116 | 482,276 | +840 |
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SFRM7 | 390,316 | 389,434 | +882 |
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SFRU7 | 290,549 | 298,385 | -7,836 |
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SFRZ7 | 282,042 | 294,394 | -12,352 |
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SFRH8 | 220,196 | 225,732 | -5,536 |
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SFRM8 | 173,308 | 172,497 | +811 |
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SFRU8 | 106,954 | 107,383 | -429 |
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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 the employment report here.
FED: More Questions as Hawkish Musalem Wasn’t One of Dots Objecting to Dec Cut
- St Louis Fed’s Musalem (’25 voter) has told the WSJ that he viewed last month’s decision to lower interest rates as a “close call” because the economic outlook appears to be different now than it was when the central bank started cutting rates four months ago.
- By the time of last month’s meeting, the risk had increased that inflation might get stuck between 2.5-3%. Accordingly, greater caution is warranted on reducing interest rates.
- Interestingly, he said he wasn't one of four officials last month who suggested a rate cut wasn't needed in projections submitted at the meeting. He said he penciled in two cuts for this year in those projections, putting him in line with the median.
- Recall that Hammack was the sole dissenter that meeting which left three other 2024 dots preferring no change (presumably from non-voters unless they were voters unusually opting for a mild form of dissent).
- Assuming there weren’t any of these soft dissents (which would rule out Bowman), that leaves Schmid as a likely contender for one of the three and also suggests that two of Bostic, Logan or Kashkari are more hawkish than we thought.
CANADA: Canada Could Aim to Go 'Dollar for Dollar' w/US on Tariffs - BBG
Bloomberg reports that Canada is "drawing up plans for extensive tariffs against US products if Donald Trump follows through on his threat to put 25% levies on Canadian goods, according to people familiar with the matter." An earlier report from AP suggested that certain US goods including orange juice, lavatories, and some steel products could face retaliatory tariffs in the event of US action. However, the Bloomberg article claims that outgoing PM Justin Trudeau's gov't "is also preparing to go much further if necessary, said the officials, speaking on condition they not be identified. One list being circulated internally includes nearly every product the US exports to Canada, said one government official, with the general aim of going “dollar for dollar” on tariffs."
- The issue of US tariffs on Canadian products has been elevated to the status of a political furore in recent days. The US president-elect has railed against what he perceives as weak control on the border allowing transnational criminal organisations and illegal immigrants to get into the US, as well as delivering inflammatory comments about making Canada the US' '51st state'.
- Speaking to CNN on 9 Jan, Trudeau said “President Trump, who is a very skilful negotiator, is getting people to be somewhat distracted by that, by that conversation, to take away from the conversation around 25% tariffs on oil and gas and electricity and steel and aluminium and lumber and concrete,” adding that Canada becoming part of the US is “not going to happen.”
FOREX: JPY Volatility in Focus as US Employment Report Awaited
- Volatility for the Japanese Yen has been in focus early Friday following a Bloomberg sources piece suggesting that BoJ officials will discuss raising inflation forecasts at its January meeting. USDJPY traded from around 158.40 down to 157.63 on the back of the report, highlighting the growing intervention risks at these levels and the short-term fragility of holding JPY shorts.
- USDJPY fell just shy of the Thursday lows at 157.58, however the weekly lows remain much further out at 156.24 should non-farm payrolls disappoint. A collection of highs between 158.40-55 represent a building area of short-term resistance, ahead of 159.45, the Jul 12 high.
- GBPJPY took a hit down to 193.69, just 20pips shy of the 193.49 lows on Thursday. The cross has been consolidating recent weakness, bolstered by a break of trendline support on the rising fiscal concerns in the UK.
- Elsewhere, the dollar index is unchanged as we approach the key labour market data in the US, with EURUSD holding close to 1.0300 into the NY session open. There has been some underperformance for Antipodean FX, with AUDUSD holding below 0.6200, and NZD/USD consolidating beneath 0.5600 as well, just above most recent lows of 0.5572. The October 2022 low at 0.5512 is the medium-term target for the move.
- USDCHF strength is standing out on Friday, as the pair prints fresh cycle highs in recent trade ahead of the US employment report. With trend indicators continuing to point upwards, and well-noted intervention risks at current USDJPY levels, USDCHF may particularly benefit from a hawkish set of data. Furthermore, resistance at 0.9158 is now firmly in sight, and a break above here would signal scope for a move towards 0.9224/44, key medium-term targets for the pair.
- US 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. The unemployment rate is broadly seen holding at 4.2%. Canadian jobs numbers are also due.
EUROPEAN ISSUANCE UPDATE
- The UK DMO has announced the joint bookrunners for the 4.375% Jan-40 gilt (ISIN: GB00BQC82D08) syndicated tap which is scheduled for the W/C 20 January will be Deutsche Bank, J.P. Morgan, Morgan Stanley, Nomura and RBC CM.
EQUITIES: Bull Cycle in Eurostoxx 50 Futures Intact, Price Near Recent Highs
- A bull cycle in the Eurostoxx 50 futures contract remains intact and price is trading at its recent highs. This week’s 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 4933.29, 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: Recent Gains in Gold Appear Corrective for Now
- The trend structure in WTI futures remains bullish and the contract traded to a fresh cycle high again, on Wednesday. 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 $71.57. This average is seen as a key short-term support.
- Recent gains in Gold appear corrective - for now. However, the yellow metal is holding on to this week’s 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 short-term 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 $2640.2, the 50-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 10/01/2025 | - | *** |  CN | Money Supply |
| 10/01/2025 | - | *** | CN | Social Financing |
| 10/01/2025 | - | *** | CN | New Loans |
| 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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