Highlights:
- Solid PMIs trigger EUR squeeze, hitting new YTD high against USD
- Trump underpins risk on hesitance to apply Chinese tariffs
- Final Michigan sentiment, existing home sales the calendar highlights
US TSYS: Paring Of Trump Rally But Front End Still Firmer On The Day
- Treasuries have pared earlier gains seen on President Trump saying he’d “rather not to use” the “tremendous power” of tariffs on China, although the comments continue to have more impact at the front end of the curve.
- The paring has been helped by stronger than expected Eurozone PMIs, with Treasuries outperforming EGBs.
- Cash yields are 0.1-1.7bp lower on the day with 2s and 3s leading declines.
- The bull steepening sees 2s10s at 36.8bp (+1.1bp) and recently touched highs for the week but is within range prior to the Trump inauguration/Martin Luther King holiday on Jan 20.
- TYH5 has recently set session lows of 108-11 (-01) having pared an earlier climb to 108-19, amidst reasonable cumulative volumes of 375k.
- It remains above the week’s low of 108-06 after whcih we expect firmer support at 108-00 (Jan 16 low). Gains are considered corrective with resistance seen at 109-04 (Jan 21 high).
- Expect continued headline sensitivity today but also some focus on flash PMIs and the final U.Mich consumer survey.
- Data: S&P Global flash PMIs Jan (0945ET), U.Mich final Jan (1000ET), Existing home sales Dec (1000ET), KC Fed services Jan (1100ET)
STIR: Eyeing Most Amount Of 2025 Fed Cuts Priced In January To Date
- Fed Funds implied rates hold most of the overnight push lower seen after President Trump said he’d “rather not to use” the “tremendous power” of tariffs on China.
- A next 25bp cut from the Fed more firmly leans towards the June meeting (24.5bp priced) whilst the 42.5bp for 2025 as whole reached 44bp at one point for close to the most amount of cuts priced for the month to date.
- Cumulative cuts from 4.33% effective: 0.5bp Jan, 7bp Mar, 14.5bp May, 24.5bp Jun, 29.5bp Jul and 42.5bp Dec.
- Today’s macro docket sees focus on the January flash PMIs at 0945ET before the finalized U.Mich survey for January at 1000ET. Analysts look for a small paring of the surprisingly sharp increase to 3.3% from the flash of 5-10Y inflation expectations, its highest since 2008. The preliminary increase from 3.0% in Dec was “only the third time in the last four years that long-run expectations have exhibited such a large one-month change.”
US TSY FUTURES: Mix Of Net Long & Short Setting Seen Thursday
OI data points to a mix of net long (TU) and short setting (across the remainder of the curve) during Thursday’s twist steepening.
- Trump-driven weakness in oil promoted outperformance in the front end during late NY morning trade.
- Net short setting across UXY & US futures provided the most concentrated positioning adjustment (in net DV01 equivalent terms).
| 23-Jan-25 | 22-Jan-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,204,050 | 4,167,563 | +36,487 | +1,374,985 |
FV | 6,215,550 | 6,191,266 | +24,284 | +1,007,096 |
TY | 4,763,814 | 4,754,573 | +9,241 | +589,777 |
UXY | 2,286,084 | 2,265,932 | +20,152 | +1,749,778 |
US | 1,931,196 | 1,917,096 | +14,100 | +1,745,768 |
WN | 1,782,469 | 1,780,357 | +2,112 | +392,620 |
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| Total | +106,376 | +6,860,023 |
STIR: Mix Of Net Long & Short Setting Seen In Most SOFR Futures On Thursday
Net long setting was seen in most contracts between SFRH5 & SFRH7 during Thursday’s twist steepening of the SOFR strip.
- Net short setting was then a little more pronounced from SFRU7 to further out the strip.
| 23-Jan-25 | 22-Jan-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,062,996 | 1,063,021 | -25 | Whites | +29,532 |
SFRH5 | 1,203,705 | 1,192,798 | +10,907 | Reds | +17,191 |
SFRM5 | 1,038,690 | 1,017,359 | +21,331 | Greens | +321 |
SFRU5 | 788,318 | 790,999 | -2,681 | Blues | +5,597 |
SFRZ5 | 1,017,952 | 1,010,200 | +7,752 |
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SFRH6 | 694,979 | 692,864 | +2,115 |
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SFRM6 | 662,840 | 658,036 | +4,804 |
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SFRU6 | 623,890 | 621,370 | +2,520 |
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SFRZ6 | 721,452 | 723,400 | -1,948 |
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SFRH7 | 489,579 | 486,904 | +2,675 |
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SFRM7 | 403,562 | 405,489 | -1,927 |
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SFRU7 | 296,083 | 294,562 | +1,521 |
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SFRZ7 | 277,903 | 269,519 | +8,384 |
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SFRH8 | 207,954 | 210,535 | -2,581 |
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SFRM8 | 175,060 | 175,949 | -889 |
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SFRU8 | 114,368 | 113,685 | +683 |
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CANADA DATA: Wide-Ranging Labour Force Survey Revisions At 0830ET
- It’s easily missed ahead of time but it’s worth being aware of today’s labour force survey revisions at 0830ET (not showing in the Bloomberg calendar for instance).
- It will impact data from 1987-2024 and typically includes new seasonal factors for the past three years but it’s hard pinning down what other technicalities might change ahead of time.
- Typically, “this standard revision process results in minor changes to recent and historical LFS data and has little impact on trends in key labour market indicators, such as employment, unemployment, and labour force participation rates."
- However, we nevertheless watch for any changes in most recent trends after what currently looks to have been a strong end to 2024 with 141k net jobs created in Nov-Dec (51k and then 91k).
- However, unlike in the US where payrolls seasonal factors have been particularly favorable in recent months, these labour force employment factors were on the less favorable side for Dec in particular [see charts]. That could limit scope for downside revisions but we'll have to wait and see.
- The unemployment rate surprisingly dipped to 6.71% in Dec (cons 6.9) after the 6.84% in Nov. That said, revisions are unlikely to alter what has been a broader trend higher, having started 2024 at 5.7% and 2023 at 5.0%.
- Separately, the December advance release for manufacturing sales will also be released today at 0830ET, following yesterday’s surge in the retail sales advance likely in large response to the temporary GST/HST holiday.
UK DATA: Something for everyone in flash UK PMI data
- Upside surprise for manufacturing of 1.2 points vs consensus, 0.4 points for services and 0.8 points for composite. However, the details look to give something for both the hawks and doves here:
- On the cost / inflation side, there were some concerning aspects which will be noted by Mann (and potentially some of the other centrists on the MPC), with costs increasing leading to both the highest level of input price inflation since May 2023 and the highest increase in prices charged for 18 months. And perhaps even more worryingly it is noted that there are "efforts" to pass on these costs - which is why the output prices are increasing. Earlier in 2024 it was noted that firms were trying to absorb costs when they could.
- However new work and employment is being impacted with the Budget being cited as impacting both recruitment plans and confidence. This is likely to increase the confidence of the doves.
- "Total new work fell at the fastest pace since October 2023. Survey respondents cited subdued underlying demand conditions and cutbacks to non-essential spending."
- "Many firms suggested that the forthcoming hike in employers' National Insurance had resulted in cutbacks to recruitment plans, while others cited the impact of a post-Budget slump in business confidence."
- (Quotes from press release).
FOREX: PMIs Trigger EUR Squeeze, Showing Sensitivity to Good News
- USDJPY moved higher during the BoJ press conference at which Governor Ueda noted that the board has no preconception on the pace of rate hikes going forward - helping keep USD/JPY contained above the post-rate decision low. This keeps initial resistance at 156.82 (50.0% retracement of the Jan 10 - 21 bear leg) firmly intact.
- EUR is holding a post-PMI rally, with EUR/USD briefly topping the $1.05 handle for another YTD high. There's still a way to go before revisit post-US election highs ($1.0630 the level here) but we're seeing strong participation in the rally this morning, evident in EUR futures volumes being close to 80% above average for this time of day, and on track for the busiest session of the week so far. We see the technical break in EUR this week signalling scope for further strength - with 1.0574 marking an important retracement point, and the next hurdle before post-election highs.
- Cross-selling of USD vs. particularly the EUR and GBP has pressured the greenback this morning, with added weight on the currency coming alongside Trump's comments overnight, in which he stated that he would "rather not" put tariffs on China, although retained the option of doing so. The potential softening in stance has helped support risk, with stock futures trading generally firmer in Europe.
- The schedule ahead sees prelim US PMI numbers for January cross, ahead of both the final UMich sentiment read and existing home sales. There remain no Fed speakers on the schedule given the pre-decision media blackout period.
EQUITIES: E-Mini S&P Remains Firm, Trading Close to Dec Highs
- A bull cycle in the Eurostoxx 50 futures contract remains intact and the contract is trading higher again, today. Recent gains have resulted in a breach of 5054.00, the Jan 8 high, to confirm a resumption of the uptrend. Sights are on 5268.50, a Fibonacci projection point. Key short-term support has been defined at 4931.00, the Jan 13 low. Initial firm support lies at 5071.06, the 20-day EMA.
- S&P E-Minis remain firm and the contract has traded higher this week. Gains undermine a recent bearish theme. The contract has traded through the 50-day EMA and note that resistance at 6107.50, the Dec 26 high, has been breached. The clear break strengthens a bullish theme and opens 6178.75, the Dec 6 high and a key resistance. Initial firm support to watch is 5961.75, the Jan 16 low.
COMMODITIES: Trend Condition in WTI Futures Still Bullish Despite Pullback
- The trend structure in WTI futures remains bullish despite the recent pullback. The move down is allowing an overbought trend reading to unwind. Support to watch is the 20-day EMA, at $74.24. It has been pierced, a clear break would signal scope for a deeper retracement and expose the 50-day EMA, at $72.01. A reversal higher would highlight the end of the correction and refocus attention on $79.48, the Apr 12 ‘24 high and a key resistance.
- Gold continues to trade higher this week. The yellow metal has breached resistance at 2726.2, the Dec 12 high and a key short-term resistance. The clear break of this hurdle strengthens a bullish theme and signals scope for an extension near-term. Sights are on $2790.1, the Oct 31 all-time high. On the downside, the first key support to watch is $2664.6, the 50-day EMA. A reversal lower and a breach of this average would reinstate a bearish threat.
| Date | GMT/Local | Impact | Country | Event |
| 24/01/2025 | 1330/0830 | ** |  US | WASDE Weekly Import/Export |
| 24/01/2025 | 1330/0830 |  CA | StatsCan Labour Force Survey: Revisions, 1987 to 2024 | |
| 24/01/2025 | 1445/0945 | *** | US | S&P Global Manufacturing Index (Flash) |
| 24/01/2025 | 1445/0945 | *** | US | S&P Global Services Index (flash) |
| 24/01/2025 | 1500/1000 | *** | US | NAR existing home sales |
| 24/01/2025 | 1500/1000 | ** | US | U. Mich. Survey of Consumers |
| 24/01/2025 | 1800/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |
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