Highlights:
- A recovery for the major equity indices has weighed on the greenback while cross/JPY pairs extend bounces.
- Treasuries are scaling back from early London session highs ahead of Dec PPI.
- US PPI is the focus on the Tuesday economic calendar before UK and US CPI cross Wednesday. Fed speakers include Schmid and Williams.
US TSYS: Paring Overnight Gains Ahead Dec PPI
- Treasuries are scaling back from early London session highs, marking the low end of the range in the last few minutes.
- Focus is on December PPI at 0830ET (prior, est): Final Demand MoM (0.4%, 0.4%), YoY (3.0%, 3.5%) while Ex Food and Energy MoM (0.2%, 0.3%), YoY (3.4%, 3.8%). Wednesday’s US CPI report headlines the weekly calendar, however, with with Bloomberg consensus currently looking for a 0.2% M/M print for core CPI in what’s a close call with a 0.3% M/M.
- Tsy Mar'25 10Y futures tapping 107-10 (+2.5) low, trading 107-11 last. Initial technical support at 107-06 (Jan 13 low)followed by 107-04 (Low Apr 25 ‘24 and a key support). 10Y yield +.0042 at 4.7821%, curves mixed with 2s10s -.014 at 39.629, 5s30s +1.273 at 37.574.
- Scheduled Fed speakers for today include KC Fed Schmid (text TBA, Q&A) at 1000ET followed by NY Fed Williams open remarks (text, no Q&A) at 1500ET.
- Tsy auction: $85B 42D CMBs at 1130ET.
US TSY FUTURES: Short Setting in WN Dominated on Monday
OI points to a mix of net short setting (TU, UXY, US & WN) and long cover (FV & TY) during yesterday’s move lower in Tsy futures.
- Net short setting in WN futures accounted for all of the net DV01 equivalent positioning movement on the curve, as the net swings in the remaining contracts offset.
| 13-Jan-25 | 10-Jan-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,309,879 | 4,296,021 | +13,858 | +529,282 |
FV | 6,134,293 | 6,154,065 | -19,772 | -819,298 |
TY | 4,660,490 | 4,677,693 | -17,203 | -1,090,129 |
UXY | 2,225,372 | 2,220,460 | +4,912 | +421,706 |
US | 1,937,239 | 1,929,471 | +7,768 | +941,969 |
WN | 1,796,756 | 1,782,817 | +13,939 | +2,526,574 |
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| Total | +3,502 | +2,510,105 |
US TSY FUTURES: CFTC Shows Hedge Funds & Asset Managers Cutting Exposure to Start ‘25
The latest CFTC CoT report showed hedge funds and asset managers lightening their overall net exposure in the week to January 7.
- Levered funds trimmed net shorts across the curve, unwinding over $16.5mn of DV01 equivalent exposure. They remain net short in all contracts.
- Asset managers trimmed their net long position. The exception to the broader theme came via FY and TY futures, where they added to existing longs. They remain net long in all contracts.
- Meanwhile, non-commercial participants added to (TY & WN) and trimmed net short exposure (TU, FV, UXY & US) at different points on the curve.
Source: MNI/CFTC/Bloomberg
STIR: Short Setting Dominated in Most SOFR Futures on Monday
OI data suggests short setting dominated through the SOFR greens on Monday, with only limited pockets of net long cover seen in that area of the strip.
- Net long cover then became more prominent in the blues,
- Hawkish adjustments continued in the wake of Friday’s NFP release, with a bid in energy commodities adding further weight.
| 13-Jan-25 | 10-Jan-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,087,770 | 1,098,794 | -11,024 | Whites | +48,958 |
SFRH5 | 1,198,588 | 1,184,367 | +14,221 | Reds | +85,777 |
SFRM5 | 1,065,028 | 1,030,324 | +34,704 | Greens | +32,256 |
SFRU5 | 821,991 | 810,934 | +11,057 | Blues | -11,195 |
SFRZ5 | 1,024,840 | 994,376 | +30,464 |
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SFRH6 | 670,335 | 639,796 | +30,539 |
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SFRM6 | 655,656 | 645,320 | +10,336 |
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SFRU6 | 631,967 | 617,529 | +14,438 |
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SFRZ6 | 751,998 | 734,804 | +17,194 |
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SFRH7 | 493,360 | 483,230 | +10,130 |
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SFRM7 | 401,384 | 392,266 | +9,118 |
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SFRU7 | 287,516 | 291,702 | -4,186 |
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SFRZ7 | 269,851 | 280,884 | -11,033 |
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SFRH8 | 216,396 | 219,902 | -3,506 |
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SFRM8 | 176,637 | 173,450 | +3,187 |
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SFRU8 | 105,922 | 105,765 | +157 |
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MNI US CPI PREVIEW: Still Too High For Comfort
Our preview of Wednesday's December CPI release has been published (see here):
- Consensus sees core CPI inflation decelerating slightly to between 0.2 to 0.3% M/M in December, with MNI’s analyst review pointing to an average estimate of 0.24% so a bias toward a 0.2% rounded figure.
- Likely to be the single most closely watched individual aspect of Wednesday’s CPI report, rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December.
- Supercore inflation is seen pulling back, though, to the upper 0.20s%, from 0.34% in November.
- If housing is our top pick to watch this month then core goods inflation – which is seen pulling back in December - is closely second, amid tariffs speculation.
- Initial estimates point to core PCE inflation at ~0.20% M/M, softer in outright terms but on a relative basis an acceleration from the softer 0.115% in Nov. That outlook will hinge partly on PPI data out Tuesday.
- It is clear that the Fed will hold in January, with the first plausibly “live” meeting not until March. But with pricing having shifted so quickly away from 2025 cuts, it’s a good juncture to assess whether markets have gotten too hawkish.
- Even in-line inflation readings could bolster the FOMC leadership’s confidence that they are on track to get PCE to 2%, and leave the door open to two rate cuts later this year, though this report is not widely expected to provide the requisite evidence.
US INFLATION: PPI Details Key as Ever to PCE Readthrough
Besides setting the tone for Wednesday's CPI data, the December PPI report (0830ET Tuesday) will help shape expectations for the monthly PCE print which is due out on Jan 31, two days after the FOMC decision.
- In contrast to CPI expectations, core sequential PPI readings are seen slightly hotter in December than November. In particular, ex-food/energy/trade is seen picking up to 0.3% M/M from 0.1% prior (0.05% unrounded). Headline Final Demand PPI is seen at 0.4% M/M for a second consecutive month.
- Initial pre-PPI estimates point to core PCE inflation at ~0.20% M/M, softer than CPI in outright terms but on a relative basis an acceleration from the softer 0.115% in Nov. Analyst estimates we've seen range from 0.18% (Goldman) to 0.27% (Deutsche), with a median 0.20% and mean 0.21%.
- To give a sense of expectations by PCE-translated PPI categories, for which health care services, portfolio management and domestic airfares will be the focus:
- Nomura is a above consensus seeing a 0.24% M/M PCE print (with core CPI at 0.27%), and note in particular PPI domestic airfares and portfolio management /investment advice prices rising on an NSA basis by by 2.0% and 1.5% M/M respectively.
- Citi, which is in line with consensus on core PCE at 0.20% and core CPI at 0.23%, sees PPI ex-food/energy/trade up 0.3% M/M (in line with consensus) "mainly because of certain financial services components such as portfolio management."
- As we note in our CPI preview, Fed leadership is likely to discount the signal from a surprising PCE print if it's driven by categories such as portfolio management.
ISRAEL: Qatar Says Gaza Deal 'In Final Stage', ToI Reports Hamas Accepts Draft
Qatari Foreign Ministry spox Majed Al-Ansari has said in a press briefing on the prospect of a Gaza ceasefire deal, “We do believe we are at a developed stage, we do believe we are at a final stage, but obviously until there is an announcement, there will be no announcement,”. Says that "It's very difficult" to try to pinpoint a specific time frame for a deal, but adds “All we can say is that today we are the closest than at any time in the past to a deal,”.
- Al-Ansari says the negotiations have passed "the biggest challenges... but it doesn't mean that we have reached the end of the negotiations [...] The most minor detail can undermine the whole process. The underlying issues have been ironed out… this doesn't mean the deal is a reality... we might be lost in the details, as was the case in the past."
- The Times of Israel reports that according to two officials, Hamas has accepted the draft agreement.
- There is also focus on whether ultranationalist parties in the Israeli gov't could look to scupper a deal. Al Jazeera quotes Alon Liel, the former director general of Israel’s Foreign Ministry, saying that the gov't of PM Benjamin Netanyahu will be able to rely on the support of opposition centrist parties to pass a ceasefire deal even if the ultranationalists in gov't vote against.
FRANCE: PM Favours Renegotiation Over Suspension of Pension Reform; Risks PS Ire
French media outlets reporting that PM Francois Bayrou has told parliamentary leaders of the gov't parties that he does not intend to announce a suspension of the 2023 pension reforms in his general policy speech to be delivered in the National Assembly at 1500CET (0900ET, 1400GMT). Le Monde reports Bayrou said he "wished to initiate a renegotiation of the pension reform[...], in order to reach an agreement by September 2025, the date on which the retirement age should normally be raised by three additional months."
- The centre-left Socialist Party (PS) has talked up a suspension of the reforms as its price for supporting the gov't in a post-speech censure vote, and indeed votes on the social security budget and state budget. The PS executive is set to meet at 1300CET (0700ET, 1200GMT), and it remains to be seen whether the party and its 66 deputies will back, abstain, or vote against the gov't come the probably Thursday 16 Jan censure vote.
- Should Bayrou's middle-ground approach on pension refrom fall short of PS demands then it remains to be seen whether the Bayrou gov't can last. Depending on the nature of censure motions - whether it is put forward by the gov't, far-left or far-right will impact support - should the left-wing New Popular Front alliance (in which the PS sits) and the far-right National Rally vote against Bayrou it would be enough to see the gov't defeated, risking further political paralysis.
UK: Chancellor Reeves to Address Commons ~1230GMT
Chancellor of the Exchequer Rachel Reeves is set to deliver a ministerial statement in the House of Commons at around 1230GMT (0730ET, 1330CET) regarding her recent trip to China for talks with senior officials. While the China trip is ostensibly the reason for the statement, it is likely that - if she does not address it herself - then during questions after the statement, the chancellor will be asked about the state of the UK's public finances amid elevated borrowing costs, the prospect of gov't spending cuts or tax rises to address the issue, and indeed the longevity of her own position.
- Prime Minister Sir Keir Starmer was asked on 13 Jan whether Reeves would remain in office throughout the current parliament. He refused to do so, instead only saying that she had his full confidence. This was seen as swerving the issue. Later, a Downing St. spox did eventually confirm that Reeves would remain as chancellor for the entire parliament.
- Public perceptions of drift and inability to deal with issues has seen Labour's support slump. The latest 12-13 Jan YouGov poll shows Labour retaining the lowest proportion of its 2024 cohort, with just 54% of those who voted Labour in the last GE saying they would do so again. This compares to the right-wing populist Reform UK, retaining 87% of its 2024 voters. The latest poll has Labour on 26% support to Reform UK's 25%. The main opposition centre-right Conservatives sit third on 22%.
FOREX: Recovery for Equities Weighs on Greenback, Cross/JPY Extends Bounce
- The USD was under pressure at the NY/Asia Pac cross over, as headlines crossed from Bloomberg that Trump economic advisers were considering/studying a gradual tariff hike approach. The more optimistic price action for equities has provided weakness for both the greenback and the Japanese Yen, with most recent reports of a potential Israel/Hamas ceasefire assisting this sentiment.
- As such, cross/JPY is extending its recovery, with the likes of EURJPY and AUDJPY rising half a percent on Tuesday to turn positive on the week despite Monday’s sharp initial selloff.
- The recent move down in EURJPY appears technically corrective, however the cross did breach support at 160.91, the Jan 2 low. The next support to watch is 159.51, 61.8% of the Dec 3 - 30 bull cycle. A reversal higher would signal the end of the corrective cycle and refocus attention on 164.90, the Dec 30 high. First resistance is at 162.43, the 20-day EMA.
- NZD outperformance stands out today, and appears to be driven by the positive signals from the Q4 NZIER Business Opinion Survey and its influence on OIS pricing, which is tempering expectations for RBNZ easing. To sum up, the survey showed that a net 16% of businesses expect the economy to improve, vs 1% expecting it to get worse in Q3.
- NZDUSD has risen back above 0.5600 and will look to the 20-day EMA as initial resistance, intersecting today at 0.5641. NZDJPY is one of the best performing crosses, currently up 0.80% on the session.
- GBP once again underperforms, with cable down 0.15% on the day and notably 70 pips off the overnight 1.2250 highs. EURGBP is currently testing the Monday highs of 0.8424 having recently undermined the recent bearish theme, suggesting scope for a stronger short-term recovery. The cross will now target 0.8448, the Oct 31 high, and 0.8494, the Aug 26 ’24 high.
- US PPI is the focus on the Tuesday economic calendar before UK and US CPI cross Wednesday. Fed speakers include Schmid and Williams.
CHF: USDCHF Off Session Lows, Danske Comment on Positioning
USDCHF extended yesterday's late selloff this morning, printing a 0.9129 low following headlines suggesting a more gradual tariff introduction under the new US administration. However, the pair has since pared the majority of its session losses, suggesting that bullish trend indicators remain intact for the pair.
- Cycle highs were reached yesterday at 0.9201, and further upside momentum would place focus on 0.9224/44, the key medium-term targets for the pair. Support moves up to 0.9061, the 20-day EMA.
- Danske see "aggregate USD positioning still in stretched long territory", while CHF positioning moved further towards stretched short as of data up until January 7. While this may indicate potential for a deeper short-term correction, it underlines that market bets continue to look for further upside potential in the pair.
- The local data calendar remains light, placing the focus on US inflation data and Fed speakers this week for USDCHF sentiment.
EUROPEAN ISSUANCE UPDATE
EU dual-tranche syndication: Spread / size set
- E6bln (guidance was E5bln, MNI expected E5-7bln) of the new 3y Jul-28 EU-bond. Books in excess of E70bln, Spread set at MS+17bps (guidance was MS+19 bps area).
- E5bln tap (in line with guidance, MNI expected E4-6bln) of the 3.375% Oct-54 EU-bond. Spread set at MS+127bps (guidance was MS + 130 bps area), books in excess of E100bln.
Greece syndication: Spread set
- MNI expects E3-4bln of the new Jun-35 GGB. Spread set at MS+102bp (guidance was MS+107bps area), books in excess of E33bln.
Netherlands auction results
- E1.915bln of the 2.00% Jan-54 DSL. Avg yield 2.953%.
UK auction results
- Decent 30y linker auction with the average price of 80.714 higher than at any time during the auction window. This has led to the price moving higher post-results (albeit now a little below the striking price of the auction).
- The bid-to-cover of 3.06x was marginally lower than some other 14+ gilt auctions recently - but to still be in excess of 3x shows no real concerns in the market here.
- 10-year nominal yields moved down marginally on the release of the results (but largely retraced that move now).
- No immediate reaction in the 10-year or shorter part of the curve, nor in gilt futures.
- GBP1bln of the 1.25% Nov-54 linker. Avg yield 2.126% (bid-to-cover 3.06x, tail N/Abp).
Germany auction results
- Strong auction demand with the highest bid-to-cover at a Bobl auction since May. And that was despite the larger auction size of E5bln today (the 2024 auctions were all E4bln).
- The last time there was a larger volume of bids at a Bobl auction was in August 2020.
- E5bln (E3.793bln allotted) of the 2.40% Apr-30 Bobl. Avg yield 2.42% (bid-to-offer 1.91x; bid-to-cover 2.52x).
EQUITIES: Bull Cycle in Eurostoxx 50 Futures Remains in Play
- A bull cycle in the Eurostoxx 50 futures contract remains intact and the latest pullback appears corrective. Initial support is at 4937.06, the 50-day EMA. It has been pierced, a clear break of this EMA would undermine a bullish theme and signal scope for a deeper retracement. For bulls, resistance at 5040.00, Dec 9 high, has recently been pierced. Clearance of it would resume the bull cycle that started on Nov 21 and open 5068.13, a Fibonacci projection.
- A bear threat in the S&P E-Minis contract remains present and the contract traded to a fresh short-term low on Monday. 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 sights are on 5784.00, the Nov 4 low and an important short-term support. Initial pivot resistance is seen at 5991.72, the 50-day EMA.
COMMODITIES: WTI Futures Continue to Trade Close to Recent Highs
- The trend structure in WTI futures remains bullish and the contract traded higher again Monday. 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 $72.69. 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 the bulk of 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 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 $2642.9, the 50-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 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 |
| 15/01/2025 | 0315/0415 |  EU | ECB's Lane in fireside chat at GS global macro conference | |
| 15/01/2025 | 0700/0700 | *** |  GB | Consumer inflation report |
| 15/01/2025 | 0700/0700 | *** | GB | Producer Prices |
| 15/01/2025 | 0700/0800 | *** |  SE | Inflation Report |
| 15/01/2025 | 0745/0845 | *** |  FR | HICP (f) |
| 15/01/2025 | 0800/0900 | *** |  ES | HICP (f) |
| 15/01/2025 | 0800/0900 | EU | ECB's De Guindos at 15th Spain Investors Day | |
| 15/01/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 15/01/2025 | 1000/1100 | ** | EU | Industrial Production |
| 15/01/2025 | 1200/0700 | ** | US | MBA Weekly Applications Index |
| 15/01/2025 | 1330/0830 | ** |  CA | Monthly Survey of Manufacturing |
| 15/01/2025 | 1330/0830 | ** | CA | Wholesale Trade |
| 15/01/2025 | 1330/0830 | *** | US | CPI |
| 15/01/2025 | 1330/0830 | ** | US | Empire State Manufacturing Survey |
| 15/01/2025 | 1400/0900 | * | CA | CREA Existing Home Sales |
| 15/01/2025 | 1420/0920 | US | Fed's Barkin | |
| 15/01/2025 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 15/01/2025 | 1600/1100 | US | Fed's Williams | |
| 15/01/2025 | 1630/1630 | GB | BOE's Taylor Speech on Inflation Dynamics and Outlook | |
| 15/01/2025 | 1900/1400 | US | Fed Beige Book |
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