Highlights:
- Treasuries post a new YTD high, with PCE and MNI Chicago PMI next up
- NZD/USD extends weakness phase, narrows gap with YTD low
- MNI projects 2.3% Y/Y German National CPI, Core 2.7%
US TSYS: Off Fresh Ytd Highs Ahead Of PCE, 60bp Of Cuts Eyed For 2025
- Treasuries have pared gains seen in Asia hours on safe haven flow, with the intraday pullback from fresh ytd highs starting in London trading in isolated moves that aren’t reflected in EGBs.
- Cleveland Fed’s Hammack saying in a Reuters interview published 0600ET on preferring a continued steady approach to QT could have helped the long end continue those intraday losses.
- It comes ahead of the January monthly PCE report, which as we noted yesterday should still see expectations in the 0.25/0.26% M/M area despite yesterday’s modest upward revision for Q4.
- It leaves the curve back little changed on the day, with yields between +-0.5bps on the day.
- 10Y yields earlier touched a fresh ytd low of 4.22% Y/Y for levels last seen Dec 11 (currently back at 4.26%), as they continue to reflect Bessent’s plan to lower long end rates along with growth-negative aspects of tariff policy.
- TYM5 at 110-27 (+ 07) is back towards the top end of yesterday’s range having pulled back from overnight and fresh cycle highs of 111-03+, amidst heavy volumes nearing 600k.
- The trend needle points north, with 111-03+ setting latest initial resistance after which lies 111-13 (Dec 10 high).
- Fed Funds futures cumulative cuts from 4.33% effective: 1.5bp Mar, 7.5bp May, 22bp Jun, 30bp Jul and 60.5bp Dec.
- Data: PCE Jan (0830ET), Adv goods trade bal Jan (0830ET), Retail/wholesale inventories Jan/Jan P (0830ET), MNI Chicago PMI Feb (0945ET), KC Fed Services Feb (1100ET)
- No Fedspeak scheduled today.
STIR: Net Short Setting Most Prominent In SOFR Futs On Thursday
OI data suggests that net short setting dominated in most SOFR futures on Thursday, with the most meaningful exception coming via modest net long cover in the red pack.
| 27-Feb-25 | 26-Feb-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,035,923 | 1,032,162 | +3,761 | Whites | +20,178 |
SFRH5 | 1,286,619 | 1,278,706 | +7,913 | Reds | -7,575 |
SFRM5 | 1,145,877 | 1,152,516 | -6,639 | Greens | +40,578 |
SFRU5 | 875,600 | 860,457 | +15,143 | Blues | +15,585 |
SFRZ5 | 1,005,871 | 1,011,138 | -5,267 |
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SFRH6 | 631,665 | 631,220 | +445 |
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SFRM6 | 611,631 | 620,266 | -8,635 |
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SFRU6 | 563,485 | 557,603 | +5,882 |
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SFRZ6 | 779,353 | 756,302 | +23,051 |
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SFRH7 | 436,638 | 427,953 | +8,685 |
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SFRM7 | 452,607 | 451,166 | +1,441 |
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SFRU7 | 324,042 | 316,641 | +7,401 |
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SFRZ7 | 370,142 | 351,196 | +18,946 |
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SFRH8 | 226,421 | 227,031 | -610 |
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SFRM8 | 185,152 | 187,399 | -2,247 |
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SFRU8 | 131,406 | 131,910 | -504 |
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EUROPEAN INFLATION: MNI Projects 2.3% Y/Y German National CPI, Core 2.7%
From state-level data that equates to 89.1% weighting of the national February flash German CPI print (due at 13:00 GMT / 14:00 CET), MNI estimates that national CPI (non-HICP print) rose by 0.4% M/M (Jan -0.2%) and rose 2.3% Y/Y (Jan 2.3%). See the tables below for full calculations.
- Analyst consensus stands at 2.3% Y/Y and 0.4% M/M, so the release appears to come in inline.
- Current tracking of core CPI (ex-energy and food, based on 50% of the national index) implies around 2.7% Y/Y (2.9% in Jan) and 0.3% M/M (-0.3% Jan).
- We will provide a follow-up bullet looking at underlying drivers in due course.
- Note: These estimates are in relation to the national CPI print, not the HICP print which feeds into the Eurozone HICP print that the ECB targets. The magnitude of surprises to consensus can sometimes be different due to the different methodologies and weights used in national CPI vs HICP - but the direction of the surprise is normally the same.
| Y/Y | February (Reported) | January (Reported) | Difference |
| North Rhine Westphalia | 1.9 | 2.0 | -0.1 |
| Hesse | 2.3 | 2.5 | -0.2 |
| Bavaria | 2.4 | 2.5 | -0.1 |
| Brandenburg | 2.3 | 2.3 | 0.0 |
| Baden Wuert. | 2.5 | 2.3 | 0.2 |
| Berlin | 2.0 | 2.1 | -0.1 |
| Saxony | 2.3 | 2.4 | -0.1 |
| Rhineland-Palatinate | 2.4 | 2.7 | -0.3 |
| Lower Saxony | 2.5 | 2.5 | 0.0 |
| Saarland | 2.4 | 2.6 | -0.2 |
| Saxony-Anhalt | 3.0 | 2.9 | 0.1 |
| Weighted average: | 2.29% | for | 89.1% |
| M/M | February (Reported) | January (Reported) | Difference |
| North Rhine Westphalia | 0.4 | -0.1 | 0.5 |
| Hesse | 0.3 | 0.1 | 0.2 |
| Bavaria | 0.4 | -0.3 | 0.7 |
| Brandenburg | 0.6 | 0.0 | 0.6 |
| Baden Wuert. | 0.5 | -0.2 | 0.7 |
| Berlin | 0.4 | -0.2 | 0.6 |
| Saxony | 0.3 | -0.4 | 0.7 |
| Rhineland-Palatinate | 0.2 | 0.0 | 0.2 |
| Lower Saxony | 0.4 | -0.2 | 0.6 |
| Saarland | 0.3 | 0.0 | 0.3 |
| Saxony-Anhalt | 0.5 | -0.2 | 0.7 |
| Weighted average: | 0.41% | for | 89.1% |
EUROPEAN INFLATION: German State-Level Details Point Towards Lower Services
Looking a bit closer at this morning's German CPI state level September inflation data, core and services inflation appear to have slowed, while for goods the data points towards a broadly unchanged yearly rate on the back of firmer food inflation. Overall, analyst's expectations ahead of the release appear to have broadly materialized in February.
- Looking at the categories with heavy services weighting, we see decelerations in healthcare (2.7-2.8% vs 3.1% Jan), communication (-1.2% to -1.3% vs -0.9% Jan), recreation and culture (1.1-1.2% vs 1.7% prior) and restaurants and hotels (note a base effect is dampening here, we see it around 4.2% vs 4.4% Jan). Education seems to have accelerated noticeably, meanwhile (around 5.4% vs 4.7% Jan).
- Food (incl. alcoholic beverages, distinct category to food-only published by Destatis later) inflation appears to have seen a pronounced bump, to around 2.9% Y/Y (1.4% Jan) - in line with Goldman Sachs' expectations ahead of the release for a higher unprocessed food category this month.
- Core goods overall seem to have decelerated again - we see clothing and footwear very broadly around 0.6% Y/Y (2.9% Jan) but furnishings and household equipment a bit firmer than before, around -0.7% Y/Y (-0.8% Jan).
- Note that the above gives an indication of the national CPI rather than HICP, but we have already seen services inflation decelerate in the French and Italian prints this morning.
US-RUSSIA: Talks In Istanbul 'Substantive And Businesslike' - Russian MFA
Reuters reporting that diplomatic talks between US and Russian officials in Istanbul yesterday were “substantive and businesslike” according to a Russian Foreign Ministry statement, with Russia suggesting the US, “consider restoring direct air links”.
- The Russian MFA noted that the US and Russian officials discussed issues related to diplomatic property and “agreed to continue the dialogue through this channel.”
- A US State Department readout of the meeting noted that the US, “raised concerns regarding access to banking and contracted services as well as the need to ensure stable and sustainable staffing levels at the U.S. Embassy in Moscow.”
- State added that, “through constructive discussions, both sides identified concrete initial steps to stabilize bilateral mission operations in these areas.”
- State added that principals, “agreed to hold a follow-up meeting on these issues in the near term, with the date, location, and representation to be determined.”
- Neither readout mentioned the war in Ukraine, with officials noting ahead of yesterday's summit that the ongoing format is primarily designed to resolve issues in the bilateral relationship and take steps to restore diplomatic and commercial ties.
FOREX: NZD/USD Circling YTD Lows as Trump Unnerves Risk
- The recovery off lows for USD/JPY continues early Friday, with the pair showing above the mid-week high at Y150.30, narrowing the gap with Y150.95 resistance - the 38.2% retracement for the downleg posted off the mid-February high of Y154.80.
- The greenback trades well, helping EUR/USD and GBP/USD remain well off the week's best levels (and in the case of GBP/USD, the YTD high). NZD/USD is extending losses following the close below the 50-dma yesterday, with Trump's resolute approach to tariffs yesterday adding extra weight to risk sentiment.
- While NZD may have been able to shrug off Canadian and Mexican tariff pressures, the uncertainty surrounding a doubling of tariffs on China (from 10% to 20%) as soon as next week has unnerved markets, and will keep markets pondering a revisit to the YTD lows of 0.5516 in the near-term.
- MNI Chicago PMI is the calendar highlight Friday - which may take on greater importance given the particularly interesting regional Fed activity indices we've had this week, which are flagging heightened business uncertainty around both prices and international trade in the light of tariff threats.
- Personal income/spending and PCE price indices for January are also due - with the inflation gauge expected to come in broadly unchanged from the December print - keeping the Fed on track for two further 25bps rate cuts in 2025.
FOREX: NZDUSD Extends Weekly Decline to 2.5%
- Latest tariff developments have prompted a solid 1.2% recovery for the USD index from the week’s lows as markets digest the potential impact of a more protectionist US trade policy. While Thursday’s headlines might have prompted more aggressive moves for the likes of MXN, CAD and CNH in theory, it is the risk sensitive AUD and NZD which have significantly underperformed. Weekly losses now total 2.33% and 2.53% respectively, with the doubling of China tariffs adding to the bearish momentum
- Both AUD & NZD are sensitive to the global growth outlook and are highly exposed to China. In 2024, not only was China their largest trade destination but it accounted for around 34% of Australian goods exports and almost 20% of NZ’s.
- The additional tariffs on China (from 10% to 20%) as soon as next week has seen NZDUSD slide back below 0.5600 in recent trade, and a daily close here would be the weakest since mid-Jan. Price action will keep markets pondering a revisit to the YTD lows of 0.5516 in the near-term.
- For AUDUSD, the steep sell-off yesterday and the follow through today is signalling scope for a deeper retracement. Downside momentum is bolstered by spot comfortably back below the 20- and 50-day EMAs, exposing support at 0.6171, the Feb 4 low. A break of this level would suggest scope for test of the bear trigger at 0.6088, the Feb 3 low.
OPTIONS: Expiries for Feb28 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0390-00(E4.0bln), $1.0430-50(E912mln), $1.0460-65(E651mln), $1.0500(E1.2bln), $1.0550(E1.7bln), $1.0600(E1.0bln)
- USD/JPY: Y149.50($800mln), Y150.00($1.2bln), Y151.30($749mln)
- AUD/USD: $0.6400-20(A$985mln), $0.6500-10(A$1.2bln)
- NZD/USD: $0.5615(N$627mln)
- USD/CAD: C$1.4290-00($1.5bln), C$1.4360-80($1.3bln), C$1.4400($1.4bln), C$1.4495-00($1.5bln)
- USD/CNY: Cny7.2500($769mln)
EQUITIES: Latest Pullback in Eurostoxx 50 Futures Still Considered Corrective
- The trend condition in the Eurostoxx 50 futures contract remains bullish and - for now - the latest pullback is considered corrective. The contract has pierced support at the 20-day EMA. at 5413.51. A clear break of this EMA would signal scope for a deeper retracement - note that the 50-day EMA lies at 5258.43 and also represents a key area of support. For bulls, a resumption of gains would open 5574.57 next, a Fibonacci projection.
- The latest move down in S&P E-Minis still appears corrective, however, price has breached a number of important supports this week; 6014.00, the Feb 10 low, and 5935.50, the Feb 3 low. The sharp move down signals scope for a deeper retracement and has exposed the next key support at 5809.00, the Jan 13 low. A breach of this level would highlight a stronger reversal. On the upside, initial firm resistance to watch 6038.96, the 50-day EMA.
COMMODITIES: Bull Cycle in Gold Remains in Play Despite Recent Shallow Pullback
- A bearish theme in WTI futures remains intact and this week’s sell-off reinforces current conditions. The move lower has resulted in a clear breach of support at $70.20, the Feb 6 low. This confirms a resumption of the downtrend that started on Jan 15 and paves the way for an extension towards $67.75, the Dec 20 ‘24 low. Key short-term resistance has been defined at $74.06, the Feb 3 high.
- Despite a pullback, a bull cycle in Gold remains in play. Note that the yellow metal has traded through the 20-day EMA, at $2882.1. This signals scope for a deeper short-term retracement, possibly towards the 50-day EMA, at $2802.4 and a key area of support. For bulls, a resumption of gains would refocus attention on the next objective at $2962.2, a Fibonacci projection. This would also open the $3000.0 handle.
| Date | GMT/Local | Impact | Country | Event |
| 28/02/2025 | 1300/1400 | *** |  DE | HICP (p) |
| 28/02/2025 | 1330/0830 | *** |  CA | GDP - Canadian Economic Accounts |
| 28/02/2025 | 1330/0830 | *** | CA | Gross Domestic Product by Industry |
| 28/02/2025 | 1330/0830 | *** | CA | CA GDP by Industry and GDP Canadian Economic Accounts Combined |
| 28/02/2025 | 1330/0830 | *** |  US | Personal Income and Consumption |
| 28/02/2025 | 1330/0830 | ** | US | Advance Trade, Advance Business Inventories |
| 28/02/2025 | 1445/0945 | *** | US | MNI Chicago PMI |
| 28/02/2025 | 1600/1100 | CA | Finance Dept monthly Fiscal Monitor (expected) | |
| 28/02/2025 | 1800/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |
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