Highlights:
- The continued post-NFP themes of a weaker EUR and GBP have continued early Monday.
- Fed Funds implied rates have continued to push higher in an extension of the sell-off seen after Friday’s strong payrolls.
- US Federal Budget balance data highlights a light Monday schedule. US PPI will cross Tuesday before UK and US CPI data on Wednesday.
US TSYS: Extension of Post-Payrolls Bear Flattening
- Treasuries have lifted a little off London session lows but still sit firmly lower on the day in a continuation of the bear flattening seen with Friday's strong payrolls report and inflation expectation readings.
- EGBs catching up from Friday’s late sell-off in Treasuries helps support moves along with further gains for oil futures.
- Cash yields are 1.0-3.8bp higher, with a flattening bias intact as 2s10s drops to 37.3bp vs 42bp seen pre-payrolls.
- TYH5 trades at 107-09 (-03+) having earlier set new recent lows of 107-06, amidst reasonable cumulative volumes of 365k considering a Japan holiday.
- The trend condition remains bearish, with next support seen at a key 107-04 (Apr 25, 2024 low).
- Today sees a particularly thin docket before picking up mid-week with PPI (Tue) and CPI (Wed) likely setting the tone for the week.
- Data: NY Fed consumer inflation expectations (1100ET), Mthly budget data Dec (1400ET)
- Bill issuance: $84B 13W & $72B 26W Bill auctions (1130ET)
US TSY FUTURES: Mix of Modest Short Setting & Long Cover Seen Friday
OI data suggests that net short setting in TY futures provided the most notable DV01 equivalent swing during Friday’s sell off, although all of the DV01 equivalent moves were fairly modest.
- A mix of net short setting and long cover was seen across the curve.
| 10-Jan-25 | 09-Jan-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,297,136 | 4,307,905 | -10,769 | -411,503 |
FV | 6,156,888 | 6,175,562 | -18,674 | -773,522 |
TY | 4,681,497 | 4,662,169 | +19,328 | +1,224,051 |
UXY | 2,220,555 | 2,212,168 | +8,387 | +720,070 |
US | 1,930,541 | 1,934,289 | -3,748 | -455,315 |
WN | 1,782,982 | 1,778,475 | +4,507 | +819,539 |
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| Total | -969 | +1,123,321 |
STIR: Just One Fed Cut Seen This Year
- Fed Funds implied rates have continued to push higher overnight in an extension of the sell-off seen after Friday’s strong payrolls and U.Mich inflation expectations reports. A next cut has shifted from being considered around Jun-Jul meetings to not quite being fully priced for the year (admittedly 24.3bp).
- This week’s scheduled Fedspeak is much lighter after last week’s multiple mostly hawkish appearances, although with only Goolsbee speaking after payrolls.
- Next up sees Schmid (’25 voter) tomorrow before some focus on Kashkari (’26) and Williams (permanent) on Wed before the Fed’s blackout period starts on Friday midnight.
- Cumulative cuts from 4.33% effective: 0.5bp Jan, 4.5bp Mar, 8bp May, 15.5bp Jun, 17.5bp Jul and 24bp Dec.
- Recapping some of the analyst view changes since Friday’s payrolls report, ranked by a hawkish to dovish stance, all coming before this week’s inflation data:
- BofA: No longer calls for cuts. Base case for extended hold, risks for next move skewed toward a hike.
- RBC: Now see the Fed on hold at 4.25-4.5% throughout 2025.
- Barclays: Expect just one 25bp cut this year, in June, before going on a more extended hold. “We think that the FOMC will resume 25bp cuts in June 2026, when we expect it to be evident in the data that price pressures from anticipated tariffs are not fueling broader inflationary pressures. All told, we expect three 25bp cuts in 2026, timed at the final three SEP meetings. Compared to our prior baseline, this effectively shifts one 25bp cut from March 2025 to December 2026.”
- MUFG: Now see longer Fed pause with next cut in Jun and only two cuts in 2025, terminal rate lifted 25bps to 3.75-4%. They also see QT continuing for longer, eyeing updates in early summer.
- JPM: Now see next cut in June before final one in Sept.
- GS: Now sees 2 cuts (June and Dec) vs previously 3 cuts this year, but still see terminal of 3.5-3.75%.
- Citi: Now sees next cut in May vs Jan previously.
STIR: Short Setting Dominated in SOFR Futures Following NFPs
Net short setting dominated through SFRM8 on Friday, as the NFP data drove an aggressive round of hawkish repricing.
- Only isolated rounds of net long cover were seen through the blues.
| 10-Jan-25 | 09-Jan-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,098,794 | 1,110,882 | -12,088 | Whites | +59,450 |
SFRH5 | 1,194,148 | 1,152,339 | +41,809 | Reds | +51,001 |
SFRM5 | 1,030,324 | 1,007,829 | +22,495 | Greens | +24,221 |
SFRU5 | 810,938 | 803,704 | +7,234 | Blues | -590 |
SFRZ5 | 994,404 | 985,860 | +8,544 |
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SFRH6 | 644,250 | 615,156 | +29,094 |
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SFRM6 | 645,320 | 629,725 | +15,595 |
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SFRU6 | 617,529 | 619,761 | -2,232 |
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SFRZ6 | 735,546 | 715,020 | +20,526 |
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SFRH7 | 482,559 | 481,978 | +581 |
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SFRM7 | 392,266 | 390,316 | +1,950 |
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SFRU7 | 291,713 | 290,549 | +1,164 |
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SFRZ7 | 280,884 | 280,607 | +277 |
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SFRH8 | 220,376 | 220,196 | +180 |
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SFRM8 | 173,450 | 173,308 | +142 |
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SFRU8 | 105,765 | 106,954 | -1,189 |
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MNI US EMPLOYMENT INSIGHT: Questioning Any 2025 Cuts
- The payrolls report for December was stronger than expected almost across the board.
- It has helped keep prospects of further rate cuts off the table for the immediate future, with Fed Futures pricing ~25bp of cuts for the year vs 40bp prior, aided by surprisingly swift increases in consumer inflation expectations in the U.Mich survey.
- A few analysts have also raised their rate path views, of note coming ahead of the week's PPI/CPI reports on Tue/Wed.
Please find the full MNI US Employment Insight here.
ISRAEL: 'Breakthrough' in Gaza Ceasefire Talks - RTRS
Reuters reports that a breakthrough has been reached in Doha following talks between Israeli security and policy chiefs, US President-elect Donald Trump's Middle East envoy Steven Witkoff and Qatari PM and Foreign Minister Sheikh Mohammed bin Abdul Rahman Al Thani. Claims that a 'final' draft of a Gaza ceasefire and hostage release deal has been sent to Israel and Hamas for approval. The official claims that the Qatari PM met with representatives from Hamas while Witkoff met with the Israeli delegation in an effort to push both sides towards a deal.
- Israel's N12 reports the deal is largely similar to the three-stage agreement put forward by the Biden administration in May. This would see 34 hostages defined as 'humanitarians' released, followed by discussions on the second stage from the 16th day of the ceasefire including returning young men and soldiers. The third stage will see broader talks on governing Gaza and reconstruction.
- NYT highlights the issues that have dogged talks for some time. NYT: "[Netanyahu was] still unwilling to declare an end of the war as part of [the May draft deal]. Israel is insisting on a vaguer formula that leaves room for ambiguity and for a resumption of fighting at some point,[...] the Americans were supposed to provide mediators with a guarantee that the United States would work to bring the war to an end, [...]Hamas is also demanding detailed maps from Israel showing where it will withdraw to, [...] disagreements remain about the timing of an Israeli troop withdrawal from the Philadelphi Corridor"
ISRAEL: Officials Deny Draft Ceasefire Reports as Smotrich Blasts Prospective Deal
Finance Minister Bezalel Smotrich has pushed back against earlier reports of a potential 'final draft' for a ceasefire between Israel and Hamas in Gaza. Smotrich, who leads the ultranationalist National Religious Party–Religious Zionism party, said that his party “will not be part of” such a deal, claiming that it would be a “catastrophe for Israel’s national security.” Reuters reports that Israeli officials have denied receipt of a draft ceasefire proposal after Smotrich's statement.
- In a statement, Smotrich goes on to say “This is the time to continue with all our might, to occupy and cleanse the entire Strip, to finally take control of humanitarian aid from Hamas, and to open the gates of hell on Gaza until Hamas surrenders completely and all the hostages are returned.”
- For PM Benjamin Netanyahu, the political calculus surrounding any deal is delicate. There is a strong possibility that Security Minister Itamar Ben-Gvir from the ultranationalist Otzma Yehudit party will resign from Cabinet if a ceasefire deal is implemented no matter the content, with the complete destruction of Hamas and Israel's occupation of the Gaza strip seen as red lines for the hardliner.
- Netanyahu can afford to lose Ben-Gvir's party, but not Smotrich's as well. Doing so would see the gov't lose its majority in the Knesset.
US: Biden Administration Announces Sweeping Export Controls on AI-Related Tech
The US Commerce Department issued new export controls to curb China's access to AI-related tech via third countries. The new rule will create a global licensing system for advanced AI technology exports, partially, or totally, restricting US firms from exporting to non-allied or adversarial countries. The rule comes into effect in 120 days, providing President-elect Donald Trump time to assess the measures.
- Axios reports: “The Export Control Framework for AI Diffusion is the Biden administration's final swing at China's AI industry," and follows a major package of sanctions on Russia’s energy sector package on Friday. The announcements signal Biden's intent to use executive tools to pursue foreign policy objectives before Trump takes office next week.
- Reuters notes the rules, "go beyond China and are aimed at helping the U.S. keep its dominant status in AI by controlling it around the world.”
- US Commerce Secretary Gina Raimondo: "The U.S. leads AI now - both AI development and AI chip design, and it's critical that we keep it that way,"
- White House National Security Adviser Jake Sullivan: "The U.S. has to be prepared for rapid increases in AI's capability in the coming years, which could have transformative impact on the economy and on our national security,"
- A former Biden administration economic official told the Washington Post: “This is definitely a departure from how we’ve thought about technology since the early 1990s… [It is] more consistent with the way we thought about the role of technologies … during the Cold War.”
US/RUSSIA: No Specific Preparations Underway for Putin-Trump Meeting - Kremlin
Reuters reporting comments from Kremlin spokesperson Dmitry Peskov, stating that there are “no specific preparations” underway for a meeting between Russian President Vladimir Putin and US President-elect Donald Trump, appearing to counter Trump, who said at a press conference last week: “[Putin] wants to meet, and we are setting it up”.
- Peskov said on a potential Putin-Trump meeting: “There is only an understanding of the political will – we shall watch the situation.”
- On conditions for a ceasefire in Ukraine, Peskov said: “The issue of security guarantees for both Ukraine and Russia is an integral part of any possible settlement of the Ukraine conflict.”
- On US sanctions enacted on Friday, described by White House official Daleep Singh as “the most significant sanctions yet on Russia’s energy sector,” Peskov said: “It is clear that the United States will continue to try to undermine our companies… such decisions are bound to destabilize global energy, oil markets.”
- Peskov added: “We will monitor the situation and configure the companies' activities… We will seek to minimise the impact of these sanctions.”
- In a call on Friday, US President Joe Biden updated Ukrainian President Volodymyr Zelenskyy on US efforts to “surge support to Ukraine and strengthen its position vis-à-vis Russia.”
- Semafor reports that the new US sanctions “will severely curb Russian fossil fuel exports to India and China”, forcing India and China “to look to the Middle East, Africa, and the Americas for alternatives.”
FOREX: GBPJPY Extends Decline as Weak Risk Sentiment Weighs
- The continued post-NFP themes of a weaker Euro and Pound have continued early Monday. Weak risk sentiment continues to boost the Japanese yen, prompting some significant declines for cross/JPY to start the week.
- EURUSD has traded below the 1.02 handle, registering fresh cycle lows for the pair at 1.0178. Higher European NatGas prices are providing additional single currency headwinds, as equity weakness particularly weighs on EURJPY, down 0.70% on the session with the 160.00 mark supporting for now.
- With the bearish EURUSD trend sequence intact, analysts will now look to 1.0138, the 1.764 projection of the Sep 25 - Oct 23 - Nov 5 price swing as the next target for the move.
- For sterling, 1.2100 has so far held for cable, however the pair is down 0.85% as the negative backdrop for UK assets continues to permeate. We highlighted last week how 190.60 was the first major target for the move in GBPJPY, a trendline drawn from the Aug low. This trendline has been pierced, with the pullback from the Dec 30 highs briefly extending to 4.5%. Given this development, 188.09 will now be in focus, the Dec 03 low.
- Overall, the USD index is up 0.3% since the open having printed a fresh two-year high above 110.00.
- US Federal Budget balance data highlights a light Monday schedule. US PPI will cross Tuesday before UK and US CPI data on Wednesday.
EUROPEAN ISSUANCE UPDATE
EU dual tranche syndication: Mandate
- The EU has mandated Barclays, BNP Paribas, J.P. Morgan, LBBW and NatWest Markets as Joint Lead Managers for its upcoming EUR Fixed Rate RegS Bearer dual tranche transaction comprising a new long 3-year benchmark line due 4th July 2028 and an increase of EU 3.375% benchmark due 5th October 2054 (EU000A3K4EY2). No further group. The transaction will be launched tomorrow, subject to market conditions.
- The new 3-year maturing 4 July 2028 was one of the three issues highlighted as likely to launch in H1. We pencil in a tranche size of E5-7bln (we have not seen an EU-bond tranche larger than that since March 2022 - but there is a possibility we go a bit higher with the large H1 EU funding plan).
- The 3.375% Oct-54 tap we pencil in between E4-6bln (possibly partly depending upon the size of the new 3-year).
- We look for a combined E9-13bln total transaction size.
Greece syndication: Mandate
- "The Hellenic Republic has mandated BofA Securities, Deutsche Bank, Goldman Sachs Bank Europe SE, Morgan Stanley, National Bank of Greece and Societe Generale as Joint Lead Managers for a new Reg S Cat 1/144A 10-year EUR Benchmark CAC bond maturing 15 June 2035 to be issued in dematerialised registered form. The syndicated transaction will be launched in the near future, subject to market conditions."
- We had expected a 10-year GGB - but had thought next week to be more likely than this week (given the GGB auction on Wednesday).
- We pencil in a E3-4bln size tomorrow.
Italy auction results
- 3- & 7-Year BTP supply passed smoothly.
- E2.75bln of the 2.70% Oct-27 BTP. Avg yield 2.85% (bid-to-cover 1.65x).
- E3bln of the 3.15% Nov-31 BTP. Avg yield 3.49% (bid-to-cover 1.63x).
EQUITIES: Bear Threat in E-Mini S&P Remains Present, Next Support at $5811.65
- A bull cycle in the Eurostoxx 50 futures contract remains intact and price is trading closer to its recent highs. Last 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 and open 5068.13, a Fibonacci projection. On the downside, initial firm support lies at 4935.71, the 50-day EMA.
- A bear threat in the S&P E-Minis contract remains present and the contract is trading lower today. The reversal from the Dec 26 high, confirms the end of the Dec 20 - 26 correction. 5866.00, the Dec 20 low and a key short-term support, has been cleared. This strengthens a bearish theme and opens 5811.65, a Fibonacci retracement. Initial firm resistance is 6107.50, the Dec 26 high. First pivot resistance is seen at 5996.50, the 50-day EMA.
COMMODITIES: WTI Futures Start the Week on the Front Foot, Trend Remains Bullish
- The trend structure in WTI futures remains bullish and the contract is again trading higher, today. The stronger reversal to the upside has resulted in a breach of key short-term resistance at $76.41, the Oct 8 high. Clearance of this hurdle strengthens a bull theme and opens $79.59, the Jul 5 ‘24 high. On the downside, a reversal lower would expose the 20-day EMA, at $72.05. 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 last 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 $2642.1, the 50-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 13/01/2025 | 1600/1100 | ** |  US | NY Fed Survey of Consumer Expectations |
| 13/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 13/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 13/01/2025 | 1900/1400 | ** | US | Treasury Budget |
| 14/01/2025 | 0500/1400 |  JP | Economy Watchers Survey | |
| 14/01/2025 | 0735/0835 |  EU | ECB's Lane speech on Europe, Asia and the Changing Globe | |
| 14/01/2025 | 0830/0830 |  GB | BOE's Breeden speech on Financial Stability | |
| 14/01/2025 | 0900/1000 | * |  IT | Industrial Production |
| 14/01/2025 | 1000/1000 | * | GB | Index Linked Gilt Outright Auction Result |
| 14/01/2025 | 1000/1000 | * | GB | Index Linked Gilt Outright Auction Result |
| 14/01/2025 | 1100/0600 | ** | US | NFIB Small Business Optimism Index |
| 14/01/2025 | - | *** |  CN | Money Supply |
| 14/01/2025 | - | *** | CN | Social Financing |
| 14/01/2025 | - | *** | CN | New Loans |
| 14/01/2025 | 1330/0830 | *** | US | PPI |
| 14/01/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 14/01/2025 | 1500/1000 | US | Fed's Schmid | |
| 14/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
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