Highlights:
- NFP annual revisions in focus, seen lowering March'24 gains by around 700k
- GBP strength cements view that Thursday BoE decision was less dovish than initially appeared
- Swap spreads gaining attention, US-GE spread diverges further
- Treasuries are broadly bear flatter. The front end is seemingly still weighed by some hawkish Fed commentary ahead of today’s payrolls report whilst the longer end continues to see some relative support from Tsy Sec Bessent’s mid-week comments around wanting 10Y yields lower helping the flattening theme and no change in Treasury Refunding guidance.
- MNI Payrolls Preview here.
- Cash yields are 0-1.5bp higher on the day, with increases led by 2s.
- 2s10s trades at 21bps (-1.3bp) for lows since Dec 23.
- TYH5 trades at 109-19 for near unchanged on the day amidst reasonable cumulative volumes for a pre-NFP overnight session of 305k (although still only about 70% of recent averages).
- The bull phase remains intact, with yesterday’s high of 109-29 coming close to resistance at 109-30 (61.8% retrace of Dec 6 – Jan 13 bear leg) after which lies 110-03+ (Dec 6 high). To the downside, support is seen at 108-02+ (Feb 4 low).
- Data: Nonfarm payrolls Jan (0830ET), U.Mich consumer survey Feb prelim (1000ET), Wholesale inventories/sales Dec F/Dec (1000ET), Consumer credit Dec (1500ET)
- Fedspeak: Bowman (0925ET), Kugler (1200ET) - see STIR bullet
STIR: Next Fed Cut Seen In July Ahead With Payrolls Eyed
- Fed Funds implied rates have pushed up to 1bp higher today ahead of a potentially complicated payrolls report including annual revisions. The next Fed cut is just about fully priced for July whilst the 43bp cuts for 2025 is within recent ranges.
- Cumulative cuts from 4.33% effective: 4bp Mar, 11bp May, 20bp Jun, 25.5bp Jul and 43bp Dec.
- Dallas Fed’s Logan (’26 voter) offered some notable hawkish comments in her first mon pol update in almost three months late yesterday. Interest rates could be on hold for “quite some time” and may already be near neutral considering inflation is falling toward the central bank’s target in an environment with strong demand and a stable labor market - if this continues there wouldn’t be “much” near-term room for cuts.
- "I think the possible policy strategies for the FOMC in 2025 boil down to two key alternatives. In some scenarios, it will soon be appropriate to resume reducing the federal funds target range. In other scenarios, we'll need to hold rates at least at the current level for quite some time."
- Today’s Fedspeak sees two permanent voters but with Bowman likely to repeat recent commentary:
- 0925ET – Bowman (permanent voter, hawk) gives update on economy and bank regulation (text only). This is likely to be a repeat on Wed remarks, which had an impact on swap spreads from a reduced regulatory angle rather than touching on mon pol.
- 1200ET – Kugler (permanent voter, dovish/center) speaks on entrepreneurship & productivity (text + Q&A). She last spoke on Jan 4 on a panel, seeing progress towards the 2% inflation target and suspecting the recent inflation data was a “bump”. She viewed policy as having moved to a more moderate level of restrictiveness, at a good point but watching the labor market.
BONDS: SWAPS: Notable Divergence In U.S. & German Long End Swap Spreads
While both the U.S. & German 30-Year swap spreads remain deep in negative territory, divergence between the two witnessed over the past couple of sessions is notable.
- We have previously covered the drivers in play in both markets, summarised below:
- In the U.S., the lack of movement in the Treasury’s forward guidance surrounding its coupon issuance and comments from Fed Governor Bowman (a top candidate to replace Vice Chair for regulation Barr), pointing to the potential for a reduction in balance sheet restrictions for dealers, have been at the fore. Bowman will speak again later, once again covering the topic of bank regulation, as well as the economy.
- Meanwhile, the increased free float and fiscal/issuance risks continue to weigh on the long end of the German swap spread curve.
- Commerzbank write “it is remarkable how little Bunds were able to benefit from the regulatory hopes sweeping through U.S. Treasuries.”
- They also play down the likelihood of similar European regulatory action, which leaves the fundamental backdrop outlined above at the fore and helps explain the divergence.
Fig. 1: U.S. 30-Year Swap Spread & German Buxl ASW vs. 3-Month Euribor (bp)
Source: MNI - Market News/Bloomberg
ECB: Nominal Neutral Range 1.75-2.25%, But Large Estimation Uncertainties
The nominal neutral rate of interest in the eurozone was likely in a range of 1.75% to 2.25% as of Q4 2024, according to ECB staff.
- In a briefing prepared for the January Governing Council meeting and published as an ECB Economic Bulletin Friday, staff said "estimates of the nominal r* from the most recent interval range between 1.75% and 2.25%". However, given the large estimation uncertainties, "such ranges should be viewed as merely indicative and alternative methodological ranges were offered”.
- Although the bulletin is not formally adopted by the Governing Council, President Lagarde and Executive Board member Cipollone have used the new indicative range in recent communications as opposed to the previous estimated range of 1.75% to 2.50%.
- Despite the uncertainties in measuring r*, estimates still suggest it has ticked up in the post-pandemic environment, although they continue to be measurably below those prevailing before the global financial crisis, pointing to still lingering lower-bound risks in the event of sufficiently large disinflationary shocks.
- In the 2024 staff report on r*, an indictive post pandemic increase of 30bp was highlighted.
- The 2025 report does not point to a specific level, but given the current ranges, is not believed to be significantly different.
STIR: Long Cover Seen In Most SOFR Futures On Thursday
OI points to net long cover in most SOFR futures on Thursday, as the recent round of dovish repricing faded a little.
- Net short setting across SFRM5 & U5 provided the most concentrated exception to the wider theme.
| 06-Feb-25 | 05-Feb-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,063,128 | 1,069,323 | -6,195 | Whites | -12,718 |
SFRH5 | 1,202,122 | 1,224,627 | -22,505 | Reds | -30,381 |
SFRM5 | 1,091,273 | 1,087,471 | +3,802 | Greens | -6,109 |
SFRU5 | 814,657 | 802,477 | +12,180 | Blues | -8,794 |
SFRZ5 | 935,772 | 939,707 | -3,935 |
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SFRH6 | 672,309 | 683,218 | -10,909 |
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SFRM6 | 623,898 | 628,844 | -4,946 |
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SFRU6 | 578,856 | 589,447 | -10,591 |
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SFRZ6 | 680,176 | 679,558 | +618 |
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SFRH7 | 468,182 | 468,485 | -303 |
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SFRM7 | 409,719 | 413,239 | -3,520 |
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SFRU7 | 282,486 | 285,390 | -2,904 |
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SFRZ7 | 273,435 | 278,908 | -5,473 |
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SFRH8 | 216,968 | 219,337 | -2,369 |
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SFRM8 | 182,099 | 181,581 | +518 |
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SFRU8 | 118,876 | 120,346 | -1,470 |
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FOREX: USD/JPY Looks to Pause Weekly Decline
- JPY slippage stands out early Friday, with USD/JPY managing to pause the week-long decline to bounce off an overnight low of 150.96. Newsflow and data releases are thin early Friday, with price action led by position squaring and consolidation before payrolls. A bearish theme in USDJPY remains intact and this week’s move down reinforces current conditions. The sell-off expands the downside range, however, note that the pair has entered oversold territory.
- AUD, NZD trade furtively well, cementing much of this week's rally. AUD/USD looks to secure a close above the 50-dma - a possible S/T signal that the bottom is in at 0.6088 for now, and only a renewed hawkish turn from the Fed or protracted trade war would see prices retest these levels in the immediate short-term.
- GBP remains a focus following yesterday's BoE decision and the dovish vote split - but strength for GBP/USD today underscores the belief that while the February vote saw a clear interest for rate cuts, the medium-term trajectory for rates is less one-dimensional, leaving less space for easy policy through into the early part of next year. Gains for the pair this week resulted in a breach of the 20-day EMA and delivered a print above 1.2500, the 50-day EMA, and 1.2523, the Jan 27 high.
- The coming payrolls report will naturally be the market focus - but it's not just the headline employment change that should take attention. The comprehensive release of revisions for monthly payroll gains are expected to revise down the sharp pace of gains from 2024 by around 700k, with new population controls for the household survey also set to feature.
COMMODITIES: Gold Moving Average Studies Highlight Clear Dominant Uptrend
- 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. It has been pierced, 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. This week’s 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 $2889.9 next, a Fibonacci projection. The first key support to watch is $2711.0, the 50-day EMA. The 20-day EMA is at $2767.4.
EQUITIES: Recovery for Eurostoxx 50 Futures This Week Resumes Uptrend
- Eurostoxx 50 futures have recovered from Monday’s low and the contract traded higher yesterday. The climb marks 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 5199.02, the 20-day EMA. The 50-day EMA is at 5085.52.
Monday’s initial sell-off in the S&P E-Minis contract and a breach of support at 5948.00, the Jan 27 low, continues to highlight a possible short-term 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.
| Date | GMT/Local | Impact | Country | Event |
| 07/02/2025 | 1215/1215 |  GB | BOE's Pill at National MPC Agency briefing | |
| 07/02/2025 | 1330/0830 | *** |  CA | Labour Force Survey |
| 07/02/2025 | 1330/0830 | *** |  US | Employment Report |
| 07/02/2025 | 1425/0925 | US | Fed Governor Michelle Bowman | |
| 07/02/2025 | 1500/1000 | ** | US | Wholesale Trade |
| 07/02/2025 | 1500/1000 | ** | US | U. Mich. Survey of Consumers |
| 07/02/2025 | 1700/1200 | US | Fed Governor Adriana Kugler | |
| 07/02/2025 | 2000/1500 | * | US | Consumer Credit |
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