Highlights:
- JPY vols inch to new YTD highs as markets anticipate a BoJ rate hike Friday
- Treasury curve sits bear steeper, tracking EGB performance
- Trump set to address WEF in Davos, tariff comments to be eyed closely
- Treasuries trade bear steeper as US desks filter in, with the earlier sell-off coming through London hours on broader FI moves rather than anything US-centric.
- A lift in oil and European natural gas futures has possibly helped the move along with French supply.
- Today's scheduled focus is likely on the weekly jobless claims report whilst US coupon supply is limited to 10Y TIPS.
- Cash yields are 0.0-2.5bp higher, bear steepening as they continue to pare the flattening seen earlier in the week.
- 2s10s at 33.6bps (+2bp) is at highs since prior to President Trump’s inauguration but still low for January prior to that.
- TYH5 has recently seen session lows of 108-10+ in a move closer to Monday’s low of 108-08+ seen prior to the WSJ ‘no tariffs on day one’ report. Cumulative volumes are light at 255k.
- The medium-term trend condition remains bearish with firmer support seen at 108-00 (Jan 16 low), whilst resistance is seen at 109-04 (Jan 21 high).
- Data: Jobless claims with initial claims covering the payrolls reference period (0830ET), Kansas City mfg Jan (1100ET)
- Coupon issuance: US Tsy $20B 10Y TIPS auction - 91282CML2 (1300ET)
- Bill issuance: US Tsy $95B 4W, $90B 8W bill auctions (1130ET)
STIR: Fed Rates Unchanged, Initial Claims For Payrolls Ref Period Ahead
- Fed Funds implied rates are broadly unchanged overnight, in headline watching mode but with scope for movement on today’s jobless claims data with initial claims covering the payrolls reference period.
- It holds the week’s lean towards a next Fed cut coming in the July rather than June meeting although remains off the Sept seen prior to CPI and Dec seen after payrolls earlier in the month.
- Cumulative cuts from 4.33% effective: 0.5bp Jan, 6.5bp Mar, 12.5bp May, 22bp Jun, 26bp Jul and 39bp Dec.
US TSY FUTURES: Mix Of Long Cover & Short Setting Seen Wednesday
OI data points to a mix of net short setting (TU, FV & TY) and long cover (UXY, US & WN) during Wednesday’s downtick in Tsys.
- The net long cover seen further out the curve was slightly larger from a DV01 equivalent perspective.
- The biggest DV01 equivalent swings came in WN & FV futures.
| 22-Jan-25 | 21-Jan-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,167,111 | 4,155,099 | +12,012 | +454,174 |
FV | 6,190,046 | 6,158,392 | +31,654 | +1,313,659 |
TY | 4,752,136 | 4,742,568 | +9,568 | +610,937 |
UXY | 2,266,119 | 2,270,588 | -4,469 | -388,316 |
US | 1,915,879 | 1,917,503 | -1,624 | -201,107 |
WN | 1,780,425 | 1,792,589 | -12,164 | -2,267,397 |
|
| Total | +34,977 | -478,048 |
STIR: Net Short Setting Dominated On SOFR Strip On Wednesday
OI data suggests that net short setting dominated on the SOFR futures strip on Wednesday, as most contracts finished lower.
- Only isolated pockets of net long cover and a single round of net long setting (SFRU5) were seen.
| 22-Jan-25 | 21-Jan-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,063,021 | 1,074,090 | -11,069 | Whites | +22,435 |
SFRH5 | 1,194,267 | 1,170,150 | +24,117 | Reds | +27,785 |
SFRM5 | 1,017,359 | 1,013,060 | +4,299 | Greens | +17,461 |
SFRU5 | 791,000 | 785,912 | +5,088 | Blues | +4,475 |
SFRZ5 | 1,010,200 | 993,654 | +16,546 |
|
|
SFRH6 | 692,864 | 685,892 | +6,972 |
|
|
SFRM6 | 658,036 | 658,725 | -689 |
|
|
SFRU6 | 621,370 | 616,414 | +4,956 |
|
|
SFRZ6 | 724,560 | 706,189 | +18,371 |
|
|
SFRH7 | 486,904 | 488,348 | -1,444 |
|
|
SFRM7 | 405,489 | 405,086 | +403 |
|
|
SFRU7 | 294,562 | 294,431 | +131 |
|
|
SFRZ7 | 269,519 | 268,221 | +1,298 |
|
|
SFRH8 | 210,535 | 208,658 | +1,877 |
|
|
SFRM8 | 175,949 | 175,028 | +921 |
|
|
SFRU8 | 113,685 | 113,306 | +379 |
|
|
BOJ: MNI BoJ Preview - January 2025: Almost Certain To Hike
EXECUTIVE SUMMARY
- The Bank of Japan (BoJ) will announce its latest monetary policy decision this Friday, with expectations that it will move further along its policy normalisation path. Both market consensus and our analysis suggest a 25bps rate hike as the most likely outcome.
- The BoJ raised rates twice in 2024, first in March and again in July. However, it has maintained a hold since then, largely due to market volatility, including significant yen swings after the July hike. Political uncertainty has also played a role.
- Bloomberg consensus indicates that 31 analysts expect a 25bps hike, one predicts 10bps, and 13 expect a hold. Markets are pricing in a 94% chance of a quarter-point increase.
- Looking ahead, the BoJ is expected to maintain a cautious path, with 25bps hikes every six months.
- In the January Outlook Report, we expect the BoJ to maintain its economic growth forecast but slightly raise its inflation outlook.
- Full preview here:
TURKEY: CBRT Maintain Meeting-by-Meeting Guidance
Highlights from the policy statement:
- Core goods inflation, however, remains relatively low. Indicators for the last quarter suggest that domestic demand stands at disinflationary levels.
- While inflation expectations and pricing behavior tend to improve, they continue to pose risks to the disinflation process.
- The tight monetary stance will be maintained until price stability is achieved via a sustained decline in inflation […] the policy rate will be determined in a way to ensure the tightness required by the projected disinflation path taking into account realized and expected inflation, and the underlying trend.
- The Committee will make its decisions prudently on a meeting-by-meeting basis with a focus on the inflation outlook.
- Monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen.
Full release here.
UK DATA: CPI Changes Delayed a Year
Regarding the UK CPI changes. They have now been delayed until March 2026 rather than coming in in March 2025 as was previously announced. Effectively it means that food prices etc are overstated. But they were overstated this year and last year too - so Y/Y and M/M there should be little distortion in the near-term.
- This is largely going to impact things like supermarket prices. At the moment no discriminatory pricing is included (so things like Clubcard prices and Nectar prices etc aren't included as you have to be a member but can still purchase at the non-member price) and multibuy discounts (buy one get one free etc) are not included.
- Given that these are increasingly prevalent, particularly since this was the way most supermarkets passed on food price cuts over the past couple of years, the ONS had proposed to look at the entire cost of a supermarket shopping basket and then weight it by how many people pay with and without loyalty cards etc and how many people use the multibuy offers.
- This process has been delayed. So effectively means that we have to wait an extra year rather than March this year.
Full ONS explanation and details here.
FOREX: JPY Vols Tipped to New YTD High Ahead of BoJ Decision
- JPY markets remain of interest, with overnight vols capturing the Friday BoJ rate decision. Implied vol expiring Friday is bid, tipped up to 19 points for the first time since mid-December as markets anticipate a 25bps hike to 0.50% in Japan. JPY is suitably slightly firmer early Thursday, but price action is generally contained.
- USD/JPY is just below the Y156.50 mark at typing, with Y156.29 marking soft support ahead of the weekly (post-tariff headlines) low of Y154.78.
- The USD Index holds above the weekly low, but remains comfortably off the year's best levels. That said, the underlying uptrend remains in tact given the stabilisation above the 50-dma support this week. The upswing in near-term momentum remains a key driver here and notably the premium for the 50-dma over the 200-dma is at a new cycle high today (~2.8%) and the largest since late 2022.
- AUD and NZD sit slightly softer as global equities roll slightly off this week's highest levels. European stocks are in very minor negative territory into the NY crossover as prices roll off record highs, dragging risk sensitive stocks with it. Adding to the pressure here is gold prices, which are through yesterday's lows and prompting a softer precious metals backdrop.
- Weekly US jobless claims data and Canadian retail sales are the calendar highlights, although more attention will likely be paid to Trump's video-link appearance at the World Economic Forum in Davos - set for 1600GMT/1100ET.
OPTIONS: Expiries for Jan23 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0295-00(E2.7bln), $1.0400(E1.9bln), $1.0425-40(E2.1bln)
- USD/JPY: Y155.00($1.7bln), Y156.00($987mln), Y156.15-20($561mln), Y156.50-60($734mln)
- GBP/USD: $1.2500(Gbp713mln), $1.2565(Gbp748mln)
- AUD/USD: $0.6200-05(A$1.8bln), $0.6260(A$695mln), $0.6300(A$1.1bln)
- NZD/USD: $0.5660-75(N$1.2bln)
- USD/CAD: C$1.4390-05($1.6bln), C$1.4450($1.1bln)
EQUITIES: Recent Gains for Eurostoxx 50 Futures Result in Breach of Resistance
- A bull cycle in the Eurostoxx 50 futures contract remains intact and the contract traded higher on Wednesday. Recent gains have resulted in a breach of 5054.00, the Jan 8 high, to confirm a resumption of the uptrend. The focus is on a climb towards 5261.57, a Fibonacci projection point. Key short-term support has been defined at 4931.00, the Jan 13 low. Initial firm support lies at 5053.69, the 20-day EMA.
- S&P E-Minis have traded higher this week, marking an extension of last week’s bull phase. 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 key resistance. Initial firm support to watch is 5961.75, the Jan 16 low.
COMMODITIES: Move Lower in WTI Futures Allows Overbought Trend to Unwind
- The trend structure in WTI futures remains bullish despite the latest pullback. The move down is allowing an overbought trend reading to unwind. The latest strong impulsive climb resulted in a breach of $75.91, the Oct 8 high. Attention is on $79.48, the Apr 12 ‘24 high. A clear break of this hurdle would strengthen the bullish theme and open 80.63, a 3.236 projection of the Nov 18 - 22 - Dec 6 price swing. Support to watch is the 20-day EMA, at $74.20.
- 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 $2660.9, the 50-day EMA. A reversal lower and a breach of this average would reinstate a bearish threat.
| Date | GMT/Local | Impact | Country | Event |
| 23/01/2025 | 1330/0830 | ** |  CA | Retail Trade |
| 23/01/2025 | 1330/0830 | *** |  US | Jobless Claims |
| 23/01/2025 | 1330/0830 | ** | CA | Retail Trade |
| 23/01/2025 | 1500/1600 | ** |  EU | Consumer Confidence Indicator (p) |
| 23/01/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 23/01/2025 | 1600/1100 | ** | US | DOE Weekly Crude Oil Stocks |
| 23/01/2025 | 1600/1100 | ** | US | Kansas City Fed Manufacturing Index |
| 23/01/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 23/01/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 23/01/2025 | 1800/1300 | ** | US | US Treasury Auction Result for TIPS 10 Year Note |
| 24/01/2025 | 2200/0900 | *** |  AU | Judo Bank Flash Australia PMI |
| 24/01/2025 | 2330/0830 | *** |  JP | CPI |
| 24/01/2025 | 0001/0001 | ** |  GB | Gfk Monthly Consumer Confidence |
| 24/01/2025 | 0030/0930 | ** | JP | Jibun Bank Flash Japan PMI |
| 24/01/2025 | 0300/1200 | *** | JP | BOJ Policy Rate Announcement |
| 24/01/2025 | 0700/0800 | ** |  SE | PPI |
| 24/01/2025 | 0700/0800 | ** | SE | Unemployment |
| 24/01/2025 | 0800/0900 | ** |  ES | PPI |
| 24/01/2025 | 0815/0915 | ** |  FR | S&P Global Services PMI (p) |
| 24/01/2025 | 0815/0915 | ** | FR | S&P Global Manufacturing PMI (p) |
| 24/01/2025 | 0830/0930 | ** |  DE | S&P Global Services PMI (p) |
| 24/01/2025 | 0830/0930 | ** | DE | S&P Global Manufacturing PMI (p) |
| 24/01/2025 | 0900/1000 | ** | EU | S&P Global Services PMI (p) |
| 24/01/2025 | 0900/1000 | ** | EU | S&P Global Manufacturing PMI (p) |
| 24/01/2025 | 0900/1000 | ** | EU | S&P Global Composite PMI (p) |
| 24/01/2025 | 0930/0930 | *** | GB | S&P Global Manufacturing PMI flash |
| 24/01/2025 | 0930/0930 | *** | GB | S&P Global Services PMI flash |
| 24/01/2025 | 0930/0930 | *** | GB | S&P Global Composite PMI flash |
| 24/01/2025 | 1000/1100 | EU | ECB's Lagarde in dialogue on the global economic outlook | |
| 24/01/2025 | 1100/1100 | ** | GB | CBI Distributive Trades |
| 24/01/2025 | 1100/1200 | EU | ECB's Cipollone in panel discussion on the effects of CB digital currencies | |
| 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 |
1714 words