Highlights:
- EUR rips higher on German fiscal plans, markets gear for further upside
- ISM services watched carefully for stagflationary clues
- Prospective tariff relief to keep focus on Lutnick
US TSYS: Limited Paring Of German Fiscal and Potential Tariff Relief Losses
- Treasuries trade a little firmer through 2-10Y tenors but it’s only broad consolidation of the sharp push lower seen yesterday on a rapid increase in German fiscal plans plus Lutnick hinting at tariff relief for Canada and Mexico.
- Growth negative tariff impacts had outweighed the inflationary angle in recent sessions).
- Cash yields are 4bps lower (2s) to near unchanged (20s/30s).
- 2s10s has climbed further to 28.5bps (+3bp) for levels last sustained in early February.
- TYM5 sits at 111-04 (-04) on another heavy overnight session with cumulative volumes at 730k.
- It has seen a swing from yesterday’s high of 112-01, stopping just short of resistance at 112-02 (Fibo projection). The daily trend condition is overbought and a pullback would be considered corrective with firm support seen at 110-00 (Feb 7 high).
- Data: MBA mortgage data (0700ET), ADP employment Feb (0815ET), S&P Global Services/comp PMI Fed final (0945ET), ISM Services Feb (1000ET), Factory orders Jan (1000ET)
- Fedspeak: Beige Book (1400ET) – see STIR bullet.
- Bill issuance: US Tsy $60B 17W bill auction (1130ET)
STIR: Holding Swing Off Dovish Extremes, ISM Services and Beige Book Ahead
- Fed Funds implied rates consolidate yesterday’s lift off recent dovish extremes, aided by spillover from German fiscal plans plus Lutnick hinting at tariff relief for Canada and Mexico (growth negative tariff impacts had outweighed the inflationary angle in recent sessions).
- Cumulative cuts from 4.33% effective: 1.5bp Mar, 11.5bp May, 27.5bp Jun, 37.5bp Jul and 73bp Dec.
- The 73bp of cuts for 2025 has swung from as many as 85bp yesterday.
- Data headlines today’s docket with no scheduled Fedspeak after NY Fed’s Williams yesterday reiterated that he sees mon pol as “modestly restrictive” and didn’t see a current need to change policy. He also noted inflation expectations are to be watched closely, adding to similar comments from St Louis Fed’s Musalem on Friday.
- The main focus is on the ISM Services February report whilst the Beige Book will be watched for anecdotal updates, especially concerning tariff impacts, ahead of the Mar 19 FOMC. It’ll be the first Beige Book since Trump’s inauguration.
- Beige Book “tariff” count: Zero mentions in the Oct 23 report, 11 in Dec 4 and 23 in Jan 15. From January’s update: “More contacts were optimistic about the outlook for 2025 than were pessimistic about it, though contacts in several Districts expressed concerns that changes in immigration and tariff policy could negatively affect the economy.”
STIR: Mix Of Positioning Swings Seen In SOFR Futures On Tuesday
OI data points to a mix of long setting and short cover through SFRH7 on Tuesday, before short setting and long cover became more prominent further out as the strip twist steepened.
| 04-Mar-25 | 03-Mar-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,059,369 | 1,054,964 | +4,405 | Whites | +33,692 |
SFRH5 | 1,307,236 | 1,294,280 | +12,956 | Reds | -9,278 |
SFRM5 | 1,109,131 | 1,114,554 | -5,423 | Greens | -8,383 |
SFRU5 | 903,771 | 882,017 | +21,754 | Blues | +8,773 |
SFRZ5 | 987,453 | 1,022,989 | -35,536 |
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SFRH6 | 654,225 | 645,491 | +8,734 |
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SFRM6 | 592,759 | 581,501 | +11,258 |
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SFRU6 | 569,490 | 563,224 | +6,266 |
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SFRZ6 | 767,578 | 768,540 | -962 |
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SFRH7 | 438,851 | 433,451 | +5,400 |
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SFRM7 | 443,290 | 446,663 | -3,373 |
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SFRU7 | 302,445 | 311,893 | -9,448 |
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SFRZ7 | 381,794 | 359,601 | +22,193 |
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SFRH8 | 219,389 | 227,082 | -7,693 |
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SFRM8 | 178,870 | 183,299 | -4,429 |
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SFRU8 | 123,780 | 125,078 | -1,298 |
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SECURITY: German Gov't Spox-EU Proposals On Defence 'Go In Right Direction'
A spokesperson for the German gov't has said that the European Commission's proposals with regard to defence spending "go in the right direction". This comes after two significant announcements from Brussels and Berlin on 4 March with regard to defence and security spending objectives, and how it can be paid for.
- European Commission President Ursula von der Leyen presented the 'ReArm Europe' plan, which includes the used of the national escape clause from the Stability and Growth Pact to enable member states to boost defence spending without risking entering the excessive deficit procedure, EUR150B in EU loans to go towards military expenditure, and allowing the use of cohesion funding for defence spending.
- In Germany, the leaders of the centre-right Christian Democratic Union (CDU, Friedrich Merz) and Christian Social Union (CSU, Markus Söder) and the co-leaders of the centre-left Social Democratic Party (SPD, Lars Klingbeil and Saskia Esken) announced in an evening press conference that rules around defence spending would be loosened to exempt expenditure above 1% of GDP from the limits of the constitutional debt brake.
EUROPE ISSUANCE UPDATE:
Germany syndication: Launched
- E6bln (MNI saw downside risks to our initial E6bln estimate after overnight headlines on higher infra/military spending) of the new 2.90% Aug-56 Bund. This is the same size as last year.
- Spread set at 2.50% Aug-54 Bund (DE000BU2D004) MID +3.25bp (guidance was +4bp area), Books closed in excess of E36bln (smaller than the E74bln and E46bln seen on the two 30-year syndications in 2024).
Gilt auction results
- A decent 5-year gilt auction with with low price broadly in line with the pre-auction market mid-price with a solid average price and 0.3bp tail - a smaller tail than a month ago and a higher bid-to-cover of 3.39x (3.05x prior).
- After a brief dip just ahead of the auction results being published, the 4.375% Mar-30 gilt is now trading between the LAP (lowest accepted price) and the average auction price.
- Gilt futures also saw a dip just before the auction results (but after the bidding window closed) but are now broadly in line with pre-auction levels.
- GBP4.25bln of the 4.375% Mar-30 Gilt. Avg yield 4.311% (bid-to-cover 3.39x, tail 0.3bp).
EUROZONE DATA: Germany Service PMI Solid Before Defence Spillover, France Dire
- The final Eurozone services PMI was revised down a tenth to 50.6 (flash 50.7) in February from 51.3, for its lowest since Nov and before that Feb.
- We have been noting how ex Germany and France countries have been outperforming for some time, and indeed our calculation for the average at circa 54 increased to its highest since mid-2024.
- The weighted average of Germany and France at a sombre 48.6 in February belies two very different recent trends however, with Germany at 51.1 and France sliding almost 3pts to 45.3 (lowest since Jan 2024) despite today’s 0.8pp upward revision.
- Political uncertainty appears to continue to plague French business confidence but German firms look in a good place considering the survey dates of Feb 10-25 won’t have captured any spillover from latest defence spending and infrastructure investment plans.
FOREX: EUR Surge Far Exceeds Expectations, Markets Gear For Further Upside
- The EUR surge this morning is extending the higher yields, higher currency Europe-oriented trade this week, putting EUR/USD again well clear to new YTD highs. The updated German fiscal plan provided the latest driver, infitting with the EU's rearmament plan outlined on Monday. Yesterday’s technical break of 1.0533 in EUR/USD was significant, and today’s impressive follow through has seen spot rise to a high of 1.0722, closing in on 1.0728, the Nov 11 high. Above here, technical levels of note reside at 1.0804 (retracement point) and 1.0825, the Nov 7 high.
- This has worked further against the USD. We wrote yesterday that EUR/USD trading ~1.0630 and above could trigger a test of key USD Index support at 105.178 - the 50% retracement of the Trump-tied rally off last year's lows. That level's under pressure this morning and a break below would a bearish technical signal for the greenback, and could draw further focus into Friday's payrolls.
- Outside off the EUR and USD, SEK is trading very well as a higher beta to European equities, while CAD is again coming under pressure from both heavy oil prices, and the doubling-down of tariff pressure from the US confirmed by Trump at the State of the Union address overnight.
- ISM services data will be carefully watched later today - particularly after the market-moving manufacturing release on Monday for any further signals of stagflationary pressure. Prices paid are seen unchanged at 60.4, although we saw a sizeable upside surprise on Monday (62.4 vs. Exp. 56.0) for manufacturing and the largest one-month gain since 1957 in the MNI Chicago PMI on Friday.
- BoE's Bailey, Pill, Greene and Taylor are set to speak later today in front of the Treasury Select Committe, but will likely stick to the key themes and messaging from the last Monetary Policy Report.
OPTIONS: Firm Demand for EUR Upside via Options, Solid Interest in $1.10 Strikes
Not just EUR spot markets that are gaining well early Wednesday, with front-end EUR implied vols surging on today's rally, putting the one-week clear of 11 points. This is still shy of the year's best levels (triggered by early February tariff volatility and Trump's inauguration), but holds 2.5 points clear of the YTD average as markets rush to price in near-term vol and the prospect of a higher EUR.
- Topside demand is clear to see: 1m EUR/USD risk reversals are now broadly flat, erasing the put premium that had dominated the market since late September and accompanied the USD Index rally off September lows. As a result, the rush of EUR/USD parity options pricing that became a notable market theme at the turn of the year has all but concluded, with markets now pricing just 0.3% options-implied probability of a touch of 1.00 by end-Q1, having traded as high as 28% just a month ago.
- No surprise then to see upside EUR/USD structures in firm demand today: over €11.5bln in calls have crossed the DTCC just this morning (that's near €3 in calls for every €1 in puts), with over €1bln call notional crossing at both the 1.08 and 1.10 strikes, making for some of the firmest upside EUR demand of the year so far.
OPTIONS: Expiries for Mar05 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0300-20(E1.7bln), $1.0325-35(E1.1bln), $1.0430-50(E1.3bln), $1.0500-05(E746mln)
- USD/JPY: Y147.90-00($702mln), Y148.50($505mln), Y149.00($720mln), Y151.00-10($1.0bln), Y151.85-00($1.0bln)
- EUR/JPY: Y161.75(E1.2bln)
- GBP/USD: $1.2500-20(Gbp1.1bln)
- AUD/USD: $0.6350(A$1.3bln)
- USD/CAD: C$1.4475-80(C$1.2bln), $1.4495-00($1.9bln), C$1.4560($636mln)
- USD/CNY: Cny7.3265($600mln)
EQUITIES: Eurostoxx 50 Futures Continue to Trade in Volatile Manner
The trend in the Eurostoxx 50 futures contract remains bullish and Monday’s strong start to the week reinforces current conditions. However, the contract has traded in a volatile manner this week and pulled back from Monday’s high. Key S/T support at 5394.00, the Feb 28 low, has been pierced. A clear break of it would signal scope for a deeper retracement towards the 50-day EMA at 5281.53. For bulls, a resumption of the trend would open 5600.00. A sharp sell-off in the S&P E-Minis contract this week, reinforces a short-term bear threat. The contract traded to a fresh short-term cycle low yesterday - price has breached support at 5809.00, the Jan 13 low. This highlights a stronger reversal and a double top pattern on the daily scale. A resumption of weakness would open 5698.25, a Fibonacci retracement. Initial firm resistance to watch is 6019.64, the 50-day EMA.
- Japan's NIKKEI closed higher by 87.06 pts or +0.23% at 37418.24 and the TOPIX ended 8.03 pts higher or +0.3% at 2718.21.
- Elsewhere, in China the SHANGHAI closed higher by 17.755 pts or +0.53% at 3341.965 and the HANG SENG ended 652.44 pts higher or +2.84% at 23594.21.
- Across Europe, Germany's DAX trades higher by 767.88 pts or +3.44% at 23084.59, FTSE 100 higher by 58.74 pts or +0.67% at 8818.11, CAC 40 up 175.17 pts or +2.18% at 8221.37 and Euro Stoxx 50 up 126.69 pts or +2.35% at 5512.54.
- Dow Jones mini up 277 pts or +0.65% at 42874, S&P 500 mini up 48 pts or +0.83% at 5837.25, NASDAQ mini up 204.75 pts or +1% at 20603.
COMMODITIES: Fresh Cycle Lows in WTI Futures Reinforces Current Conditions
The current bearish trend condition in WTI futures remains intact and this week’s fresh short-term cycle lows reinforces current conditions. Recent weakness has resulted in a clear breach of support at $70.20, the Feb 6 low. This confirmed a resumption of the downtrend that started Jan 15 and has paved the way for an extension towards $66.41, the Dec 6 ‘24 low. Key short-term pivot resistance is seen at $71.05, the 50-day EMA. The recent pullback in Gold appears to be a correction. The move through the 20-day EMA does signal scope for an extension towards the next important support around the 50-day EMA, at $2812.4. However, this week’s gains are a positive development and potentially an early reversal signal. A stronger rally would refocus attention on the next objective at $2962.2, a Fibonacci projection. This would also open the $3000.0 handle.
- WTI Crude down $0.78 or -1.14% at $67.45
- Natural Gas down $0.1 or -2.28% at $4.256
- Gold spot up $0.68 or +0.02% at $2919.07
- Copper up $20.85 or +4.58% at $476.2
- Silver up $0.34 or +1.06% at $32.3215
- Platinum up $9.65 or +1% at $972.97
| Date | GMT/Local | Impact | Country | Event |
| 05/03/2025 | 0030/0930 | ** |  JP | S&P Global Final Japan Services PMI |
| 05/03/2025 | 0030/0930 | ** | JP | S&P Global Final Japan Composite PMI |
| 05/03/2025 | 0030/1130 | *** |  AU | Quarterly GDP |
| 05/03/2025 | 0100/0900 |  CN | National People's Congress opens | |
| 05/03/2025 | 0145/0945 | ** | CN | S&P Global Final China Services PMI |
| 05/03/2025 | 0145/0945 | ** | CN | S&P Global Final China Composite PMI |
| 05/03/2025 | 0730/0830 | *** |  CH | CPI |
| 05/03/2025 | 0745/0845 | * |  FR | Industrial Production |
| 05/03/2025 | 0815/0915 | ** |  ES | S&P Global Services PMI (f) |
| 05/03/2025 | 0815/0915 | ** | ES | S&P Global Composite PMI (final) |
| 05/03/2025 | 0845/0945 | ** |  IT | S&P Global Services PMI (f) |
| 05/03/2025 | 0845/0945 | ** | IT | S&P Global Composite PMI (final) |
| 05/03/2025 | 0850/0950 | ** | FR | S&P Global Services PMI (f) |
| 05/03/2025 | 0850/0950 | ** | FR | S&P Global Composite PMI (final) |
| 05/03/2025 | 0855/0955 | ** |  DE | S&P Global Services PMI (f) |
| 05/03/2025 | 0855/0955 | ** | DE | S&P Global Composite PMI (final) |
| 05/03/2025 | 0900/1000 | *** | IT | GDP (f) |
| 05/03/2025 | 0900/1000 | ** |  EU | S&P Global Services PMI (f) |
| 05/03/2025 | 0900/1000 | ** | EU | S&P Global Composite PMI (final) |
| 05/03/2025 | 0930/0930 | ** |  GB | S&P Global Services PMI (Final) |
| 05/03/2025 | 0930/0930 | *** | GB | S&P Global/ CIPS UK Final Composite PMI |
| 05/03/2025 | 1000/1100 | ** | EU | PPI |
| 05/03/2025 | 1000/1100 | * | IT | Retail Sales |
| 05/03/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 05/03/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 05/03/2025 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 05/03/2025 | 1315/0815 | *** | US | ADP Employment Report |
| 05/03/2025 | 1430/1430 | GB | TSC: Bailey/Pill/Taylor/Greene | |
| 05/03/2025 | 1430/1430 | GB | Greene annual report | |
| 05/03/2025 | 1445/0945 | *** | US | S&P Global Services Index (final) |
| 05/03/2025 | 1445/0945 | *** | US | S&P Global US Final Composite PMI |
| 05/03/2025 | 1500/1000 | *** | US | ISM Non-Manufacturing Index |
| 05/03/2025 | 1500/1000 | ** | US | Factory New Orders |
| 05/03/2025 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 05/03/2025 | 1900/1400 | US | Fed Beige Book | |
| 05/03/2025 | 2315/1815 | US | New York Fed's Roberto Perli | |
| 06/03/2025 | - | EU | European Central Bank Meeting | |
| 06/03/2025 | 0030/1130 | * | AU | Building Approvals |
| 06/03/2025 | 0030/1130 | ** | AU | Trade Balance |
| 06/03/2025 | 0645/0745 | ** | CH | Unemployment |
| 06/03/2025 | 0700/0800 |  SE | Flash CPI | |
| 06/03/2025 | 0830/0930 | ** | EU | S&P Global Final Eurozone Construction PMI |
| 06/03/2025 | 0930/0930 | GB | Decision Maker Panel data | |
| 06/03/2025 | 0930/0930 | ** | GB | S&P Global/CIPS Construction PMI |
| 06/03/2025 | 1000/1100 | ** | EU | Retail Sales |
| 06/03/2025 | 1100/0600 | *** |  TR | Turkey Benchmark Rate |
| 06/03/2025 | 1315/1415 | *** | EU | ECB Deposit Rate |
| 06/03/2025 | 1315/1415 | *** | EU | ECB Main Refi Rate |
| 06/03/2025 | 1315/1415 | *** | EU | ECB Marginal Lending Rate |
| 06/03/2025 | 1330/0830 | *** | US | Jobless Claims |
| 06/03/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 06/03/2025 | 1330/0830 | ** |  CA | International Merchandise Trade (Trade Balance) |
| 06/03/2025 | 1330/0830 | ** | CA | International Merchandise Trade (Trade Balance) |
| 06/03/2025 | 1330/0830 | ** | US | Trade Balance |
| 06/03/2025 | 1330/0830 | ** | US | Non-Farm Productivity (f) |
| 06/03/2025 | 1345/1445 | EU | ECB Press conference post Governing council meeting | |
| 06/03/2025 | 1345/0845 | US | Philly Fed's Pat Harker | |
| 06/03/2025 | 1445/1545 | EU | Publication of ECB Staff macroeconomic projections | |
| 06/03/2025 | 1500/1000 | * | CA | Ivey PMI |
| 06/03/2025 | 1500/1000 | ** | US | Wholesale Trade |
| 06/03/2025 | 1515/1615 | EU | ECB Podcast: Lagarde presents latest MonPol decision | |
| 06/03/2025 | 1515/1615 | EU | Lagarde video message at Women's Forum event | |
| 06/03/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 06/03/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 06/03/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 06/03/2025 | 1700/1200 | US | Treasury Secretary Scott Bessent | |
| 06/03/2025 | 2030/1530 | US | Fed Governor Christopher Waller |