Highlights:
- Headlines regarding steel and aluminium tariffs drive initial USD optimism.
- Fed Funds implied rates are little changed from Friday’s close, with little net impact from the latest tariff developments.
- There are no tier one data releases due today, with attention on ECB Lagarde’s EU Parliament address at 1400GMT.
US TSYS: Unfazed by Latest Trump Tariffs
- Treasuries sit mildly twist steeper from Friday’s close, giving a sense of downplaying Trump’s weekend steel and aluminum tariffs announcement.
- That being said, there could still be sensitivity to upcoming details on those tariffs. Today’s docket meanwhile is particularly light although NY Fed inflation expectations take greater prominence than usual considering the partisanship clouding the U.Mich readings.
- Cash yields range from 0.5bp lower (front-end/belly) to 1.5bp higher (30s).
- 2s10s sits at 21.6bp (+0.8bp) vs overnight lows of 19bp but it’s still one of the lowest since mid-to-late December.
- TYH5 has kept to narrow ranges, currently at 109-05+ (-02) on modest cumulative volumes of 305k.
- The short-term trend needle points north, with resistance seen at 110-00 (Feb 7 high, snap reaction to NFP print) before 110-14 (Dec 14 high). To the downside, support at 108-20+ (Feb 4 low).
- Data: NY Fed inflation expectations Jan (1100ET)
- Bill issuance: US Tsy $84B 13W & $72B 26W Bill auctions (1130ET)
US TSY FUTURES: Net Shorts Added Across the Curve Following NFP
OI data points to net shorts being added across the curve following Friday’s NFP release, concentrated in FV & TY contracts.
| 07-Feb-25 | 06-Feb-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,095,807 | 4,092,514 | +3,293 | +121,479 |
FV | 6,389,125 | 6,331,086 | +58,039 | +2,394,689 |
TY | 4,915,931 | 4,881,955 | +33,976 | +2,174,804 |
UXY | 2,268,158 | 2,262,955 | +5,203 | +456,199 |
US | 2,002,376 | 2,000,290 | +2,086 | +264,547 |
WN | 1,794,659 | 1,793,515 | +1,144 | +220,026 |
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| Total | +103,741 | +5,631,743 |
US TSY FUTURES: CFTC CoT Shows Funds Adding to Overall Net Short
The latest CFTC CoT report (covering the week ending 4 February) showed leveraged funds, asset managers and non-commercial investors extending on their respective net positioning biases.
- Leveraged funds added over $15mln DV01 equivalent of fresh net shorts across the curve. FV drove the bulk of that swing (over $12mln DV01 equivalent of fresh net shorts added), while net shorts were also added in UXY & US futures. Meanwhile, they trimmed their net shorts across the remainder of the curve (TU, TY & WN futures). The cohort remains net short across all contracts.
- Asset managers marginally extended on their net long position in curve-wide DV01 equivalent terms, adding just over $1mln of fresh net longs. Relatively aggressive trimming of TY net longs (over $9mln DV01 equivalent) and cover of some TU longs limited the overall positioning swing, with net long setting seen across the remainder of the curve. The cohort remains net long across all contracts.
- Non-commercial investors flipped to net short US futures from net long, while adding to existing net shorts across the remainder of the curve (see table below).
Source: MNI/CFTC/Bloomberg
STIR: Fed Rate Path Consolidates NFP Hawkish Shift
- Fed Funds implied rates are little changed from Friday’s close, with little net impact from President Trump saying Sunday he will impose fresh 25% tariffs on all steel and aluminum imports.
- It does however help consolidate the hawkish shift seen on Friday’s NFP report. See a recap of it here and a summary of all the main macro developments of the week here.
- Cumulative cuts from 4.33% effective: 2bp Mar, 7.5bp May, 15bp Jun, 20bp Jul, 26.5bp Sep and 36.5bp Dec.
- Today sees a particularly light macro docket, with calendar focus on Chair Powell’s Senate testimony on Tue before CPI on Wed. Of course, politics will remain at the fore with Trump having pledged to announce reciprocal tariffs on Tue or Wed.
STIR: Short Setting Most Prominent in SOFR Futures Post-NFP
OI data suggests that net short setting provided the dominant positioning theme as SOFR futures adjusted to Friday’s NFP data and Fedspeak
- Net long cover was seemingly more prominent in at least 2 of the front 4 contracts before short setting moved to the fore further out the strip (dominating SFRM6 through SFRU8).
| 07-Feb-25 | 06-Feb-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,058,626 | 1,062,530 | -3,904 | Whites | -13,892 |
SFRH5 | 1,215,336 | 1,202,229 | +13,107 | Reds | +55,636 |
SFRM5 | 1,081,826 | 1,091,273 | -9,447 | Greens | +30,575 |
SFRU5 | 801,006 | 814,654 | -13,648 | Blues | +15,633 |
SFRZ5 | 972,462 | 937,772 | +34,690 |
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SFRH6 | 667,804 | 672,306 | -4,502 |
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SFRM6 | 632,918 | 623,898 | +9,020 |
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SFRU6 | 595,284 | 578,856 | +16,428 |
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SFRZ6 | 680,698 | 679,926 | +772 |
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SFRH7 | 477,958 | 468,182 | +9,776 |
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SFRM7 | 417,532 | 409,719 | +7,813 |
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SFRU7 | 294,700 | 282,486 | +12,214 |
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SFRZ7 | 283,878 | 273,435 | +10,443 |
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SFRH8 | 217,500 | 216,968 | +532 |
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SFRM8 | 186,037 | 182,099 | +3,938 |
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SFRU8 | 119,596 | 118,876 | +720 |
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MNI US EMPLOYMENT INSIGHT: Strong Trends Kick Next Cut to Sept
- The January payrolls report saw a modest miss for nonfarm payrolls but it was more than offset by a robust two-month net revision along with a smaller than expected benchmark revision.
- Further, the unemployment rate again surprised lower at 4.0% for its lowest since May 2024 in a further step away from the 4.3% the median FOMC member forecast for 4Q25 in the December SEP.
- Wage growth meanwhile also surprisingly accelerated but against a notable caveat of average weekly hours sliding to lows last seen in the depths of the pandemic and mid-2010 (that’s despite the BLS saying adverse weather played no impact).
- The combination saw Fed rate cut expectations trimmed again to 37bp of cuts for 2025 vs 43bp pre-data, although it was clearly less overtly hawkish than the December payrolls report which briefly saw 25bp of cuts priced for the year in subsequent Asia trade.
- We have seen one explicit analyst view change on the back of the data: Standard Chartered now call for a terminal of 4%, reached in Q3, vs 3.5% previously.
See the full report here.
BOE: Mann Due to Speak Tomorrow at 8:45GMT: A Dove Now, but for How Long?
- Catherine Mann has long presented herself as having an “activist” rather than hawkish stance. Through the hiking cycle she dissented in favour of larger hikes in 6 of the 14 meetings through which Bank Rate was increased. Throughout this time she noted that she favoured front loading hikes and then when the facts changed to also then opt for a faster cutting cycle.
- She then voted four times while Bank Rate was maintained at 5.25% in favour of further hikes (never subscribing to the wider MPC’s “Table Mountain” view) and only moved away from voting for hikes in March 2024. She also dissented against the rate cuts delivered in August and November.
- We would be very surprised if Mann did not follow up her dovish dissent (50bp vote for a cut last week) by voting for more cuts at least in March and May but we aren’t quite sure how far she will want to cut Bank Rate as it was noted in the Minutes that she thought that “monetary policy would need to remain restrictive for some time to anchor inflation expectations, and Bank Rate would likely stay high given structural persistence and macroeconomic volatility.”
- However, it was also qualified that Mann thought that the 50bp cut was appropriate at “this meeting” – indicating that she may not repeat a vote for the same magnitude of cut at future meetings. The full part of this passage in the Minutes noted that “a more activist approach at this meeting would give a clearer signal of financial conditions appropriate for the United Kingdom.”
- The wider MPC updated its estimates for the neutral rate (model-based estimates suggest 2.25-3.75%) but it is not clear exactly where Mann believes the neutral rate will be and whether she fully endorses this range. If she does, after last week's cut we are only 75bp away from rates potentially not being restrictive any more.
- She is due to deliver a speech entitled “Economic Prospects” at Leeds Beckett University tomorrow at 8:45GMT and we will be watching this closely for any hints surrounding her voting intentions past the next couple of meetings.
- For more on our interpretation of last week's BOE meeting, see our BOE review here.
CHINA DATA: China Jan CPI Quickens to Five-Month High
China's Consumer Price Index rose 0.5% y/y in January, growing at the fastest pace in five months from December's 0.1% and beating an expectation of 0.4%, though weakness in factory-gate inflation persisted, data from the National Bureau of Statistics showed Sunday.
- The 1.1% y/y rise in service prices, led by tickets of movie and performances as well as airlines, have buoyed the headline CPI by 0.42 percentage points. A 0.4% gain in food prices also helped lift CPI by 0.07 pps, reversing the 0.09 pps drag in December. CPI grew 0.7% m/m, improving from December’s 0.0%.
- PPI declined 2.3% y/y, the same as December, marking the 28th consecutive negative read, also missing the market consensus of a 2.2% fall. PPI fell 0.2% m/m, expanding from December's 0.1% decline, as industrial production was in off-season due to Spring Festival.
FOREX: USD Index Eases From Overnight Highs, Japanese Yen Underperforming
- The focus in currency markets to start the week has once again been on tariff developments, amid early headlines from Trump that steel and aluminium tariffs would be announced. These headlines drove USD gains across the board, and the USD index briefly extended session gains to 0.37% at 108.44.
- However, given the US is not a major importer of steel, the initial move higher for the greenback has moderated through the remainder of the APAC and early European sessions. Price action is best summed up through the lens of USDJPY, which has benefited from both greenback sentiment and the swift recovery for major equity indices.
- The Japanese Yen remains broadly weaker on Monday, with USDJPY having briefly extended its recovery from Friday’s lows to around 150 pips, printing a 152.54 session high. Spot stands around 152.25 approaching the NY crossover.
- Overall, the recovery for Cross/JPY appears to be very much a correction to the broader developing theme we saw last week. Assisting the bounce, it is worth highlighting that Trump said on Friday he wants to end the trade deficit with Japan and that tariffs on the country were “an option”.
- Although well off the overnight highs of 1.4380, USDCAD remains higher on the session given Canada is exposed via both steel and aluminium exports to the US. Spot trades around 1.4330 last, up 0.27% from last Friday’s close.
- There are no tier one data releases so attention will be on ECB Lagarde’s EU Parliament address at 1400GMT. As a reminder, US CPI data is due Wednesday.
EUROPEAN ISSUANCE UPDATE
4.50% Mar-35 Gilt Syndication Preview
- The new 10-year 4.50% Mar-35 gilt will be launched via syndication this week, with a transaction expected tomorrow (and bookrunners tentatively suggesting that books may open at 8:30GMT).
Note that this means that books will be open during the release of Mann’s speech and the ensuing Q&A. - This will be the second 10-year gilt to launch via syndication this fiscal year, following the GBP11.0bln launch of the 4.25% Jul-34 gilt in June. The syndication saw strong demand with books of GBP110bln, with the spread set at 4.0bp above the 4.50% Sep-34 gilt (the tighter end of the 4.0-4.5bp guidance).
- At the six subsequent auctions (broadly monthly) bid-to-covers have remained healthy ranging (5/6 were between 2.80-2.87x with October seeing a stronger 3.25x). Tails, however, have been more variable, ranging from 0.5-1.3bp. We would expect to see another solid book at this week’s syndication.
- We note how strong the books have been at EGB syndications this year and we have not seen any gilt auction in 2025 with bid-to-cover below 2.75x and we are yet to see a tail of 1.0bp or higher this calendar year.
- See more here.
EU-Bond Syndication Mandate
The EU has announced the mandate for its upcoming transaction (which is pencilled in for tomorrow). MNI pencils in E4-6bln for the short 7-year 2.50% Dec-31 EU-bond tap and E4-6bln for the 25-year 3.25% Feb-50 Green EU-bond (with an overall transaction size of E9-11 likely).
EQUITIES: Eurostoxx 50 Futures Holding Onto Recent Gains
- Eurostoxx 50 futures are holding on to their recent gains and a bull cycle remains in play. Last week’s gains marked a resumption of the uptrend that started on Nov 21 ‘24. Moving average studies are in a bull mode set-up too, highlighting a dominant uptrend. The focus is on 5381.13 next, a Fibonacci projection. Initial firm support to watch lies at 5211.11, the 20-day EMA. The 50-day EMA is at 5094.95.
- The Feb 3 initial sell-off in the S&P E-Minis contract and the breach of support at 5948.00, Jan 27 low, continues to highlight a possible S/T reversal threat. If correct, it suggests that the latest bounce is a correction. A resumption of weakness would open 5892.37, a Fibonacci retracement point. On the upside, a stronger rally would expose key resistance at 6178.75, the Dec 6 ‘24 high. Clearance of this hurdle would resume the primary uptrend.
COMMODITIES: Gold Rallies to Fresh Record High Again
- Recent weakness in WTI futures marks an extension of the current corrective cycle. The 20-day EMA has been breached and attention is on support around the 50-day EMA, at $72.20. Price has through the average, a clear break of it would suggest scope for a deeper retracement. This would open $68.05, the Dec 20 ‘24 low. On the upside, a clear reversal higher would refocus attention on $79.48, the Apr 12 ‘24 high and a key resistance.
- A bull cycle in Gold remains in play and the yellow metal has again traded to a fresh cycle high, today. The continued appreciation once again confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull mode position too, highlighting a dominant uptrend. Sights are on the $2900.0 handle next. The first key support to watch is $2776.3, the 20-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 10/02/2025 | 1400/1500 |  EU | ECB's Lagarde participates in plenary debate on ECB 2023 Report | |
| 10/02/2025 | 1530/1030 |  CA | BOC market participants survey | |
| 10/02/2025 | 1600/1100 | ** |  US | NY Fed Survey of Consumer Expectations |
| 10/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 10/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 11/02/2025 | 0001/0001 | * |  GB | BRC-KPMG Shop Sales Monitor |
| 11/02/2025 | 0700/0800 |  NO | GDP | |
| 11/02/2025 | 0845/0845 | GB | BOE's Mann lecture on Economic Prospects | |
| 11/02/2025 | 1100/0600 | ** | US | NFIB Small Business Optimism Index |
| 11/02/2025 | 1215/1215 | GB | BOE Bailey's speech on changes in financial markets | |
| 11/02/2025 | - | *** |  CN | Money Supply |
| 11/02/2025 | - | *** | CN | New Loans |
| 11/02/2025 | - | *** | CN | Social Financing |
| 11/02/2025 | 1330/0830 | * | CA | Building Permits |
| 11/02/2025 | 1350/0850 | US | Cleveland Fed's Beth Hammack | |
| 11/02/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 11/02/2025 | 1500/1000 | US | Fed Chair Jerome Powell | |
| 11/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 11/02/2025 | 1700/1200 | *** | US | USDA Crop Estimates - WASDE |
| 11/02/2025 | 1700/1800 | EU | ECB's Schnabel in Nuremberg Talk Series' panel | |
| 11/02/2025 | 1800/1300 | *** | US | US Note 03 Year Treasury Auction Result |
| 11/02/2025 | 2030/1530 | US | New York Fed's John Williams | |
| 11/02/2025 | 2030/1530 | US | Fed Governor Michelle Bowman |
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