Highlights:
- BoE look nailed on for another 25bps rate cut
- UK construction PMI points to renewed concerns over UK growth
- Weekly claims data provides last look at labour market ahead of Friday NFP
- Treasuries are modestly lower on the day, helping fully reverse front end gains seen on the soft ISM services report whilst the long end holds onto those gains with help from unchanged guidance in yesterday’s refunding announcement.
- Today’s docket will be viewed in the context of nonfarm payrolls looming large on Friday. MNI Preview here.
- Cash yields are 1-2bp higher on the day, led by 2s.
- 2s10s at 23.0bp (-0.3bp) is at lows since Dec 23.
- TYH5 trades at 109-19+ (-04+) as it slowly retraces from yesterday’s high of 109-29, still firmly within yesterday’s range amidst reasonable cumulative volumes of 340k.
- A bull phase in Treasury futures remains in play and yesterday’s rally reinforces current conditions. Price has traded through the 50-day EMA of 109-10+. This highlights potential for a stronger reversal and sights are on 109-30, a Fibonacci retracement, after which lies 110-03+ (Dec 6 high). To the downside, support at 108-20+ (Feb 4 low).
- Data: Challenger jobs report Jan (0730ET), Productivity/ULCs Q4 (0830ET), Weekly jobless claims (0830ET)
- Fedspeak: Waller (1430ET), Logan (1710ET) – see STIR bullet
- Bill issuance: US Tsy $95B 4W & $90B 8W bill auctions (1130ET)
STIR: Fed Rate Path Pares Weekly Decline, Waller On The Docket
- Fed Funds implied rates are mostly 1-2bp higher for 2025 meetings as they extend yesterday’s late increase to more than reverse the decline seen on the softer ISM Services report. It pares the interweek decline with tomorrow’s nonfarm payrolls report in view.
- Cumulative cuts from 4.33% effective: 4bp Mar, 10bp May, 20bp Jun, 26bp Jul and 45bp Dec.
- Yesterday’s Fedspeak saw Gov. Bowman (permanent voter) have more impact on swap spreads (we’ll touch more on this in due course) rather than monetary policy considerations.
- VC Jefferson said the Fed can be patient on assessing tariff effects, echoing rhetoric from earlier in the week.
- Today’s Fedspeak comes later in the session with Gov. Waller at 143E0ET and Logan at 1710ET.
- 1430ET – Waller (permanent voter) on future of payments. The Q&A-only event seems unlikely to touch on the economic outlook in detail but he’ll still be watched after dovish commentary on Jan 16 had a notable market reaction (three or four cuts are possible in 2025 if data cooperates vs the median dot showing two cuts).
- 1710ET – Logan (’26) voter on future challenges for mon pol, with prepared text whilst Q&A is tbd. She hasn’t spoken publicly since mid-November but is still seen towards the hawkish end of the spectrum and is a contender for one of the dots that pencilled in no cut back in December vs the realized 25bp cut.
GBP: EURGBP Best Vehicle For Hawkish BOE Reaction (1/2)
- While no surprises are expected on the BOE rate decision (due 1200GMT), hawkish details will likely spur a swift sterling turnaround given current session weakness. Given the sensitivity of the dollar to ongoing Trump remarks and the notable 1.41bn worth of GBPUSD 1.2455 expiries rolling off at the NY cut, EURGBP may be the best vehicle to take advantage of any reversal in sentiment.
- As a reminder, it’s the Agent’s annual pay settlement survey that is key for the policy going forward. A number at the top end of the 3-4% range and there is a good chance that come March we see a repeat of the December vote with no additional dissenters joining Dhingra, Ramsden and Taylor in looking for front-loaded sequential cuts.
- EURGBP has pulled further away from trendline resistance in recent weeks (drawn from the 2022 highs). Monday’s gap lower resulted in EURGBP breaking back below the 50-day EMA, where spot has consolidated beneath.
- Ongoing Eurozone growth concerns and a hawkish BOE would target a move towards 0.8248, Monday’s low. Below here, the Dec 19 low at 0.8223 stands out before the key 2022 low at 0.8203, the weakest point of a multi-year range.
GBPJPY Back Below 190.00, Downside Vulnerable to Dovish Developments (2/2)
- On the other hand, should the Agent’s annual pay settlement survey produce a number at the bottom of the 3-4% range, this could open up the possibility of potential changes to guidance as soon as the March meeting alongside potential additional members preferring sequential cuts.
- GBPJPY looks vulnerable in this scenario, having depreciated back below 190.00 this morning and now piercing the January lows at 189.34. Bearish momentum has been building for this cross since the start of the year, where fiscal worries prompted a clean break of trendline support around 195.00, a level we have not been back above since.
- Moving average indicators are in bear mode, with the 20-day EMA providing solid resistance in recent sessions. Positive Japanese wage data has also added to the hawkish BOJ narrative, assisting a 1.5% move lower for GBPJPY from last Friday’s close.
- Below here, the December low sits at 188.09 and a breach of this level would signal scope for a more significant retracement to 183.72 and 180.11, the lows seen following the global carry unwind episode in August last year.
UK: Daily Express-Starmer Wants To Remove Chancellor Reeves In Reshuffle
The Daily Express reports that Prime Minister Sir Keir Starmer wants to remove Chancellor of the Exchequer Rachel Reeves from her position as part of a major cabinet reshuffle in an effort to boost his gov'ts flagging popularity. The report claims that the PM could move Home Secretary Yvette Cooper to the Treasury.
- Daily Express: "His reshuffle would see Starmer-loyalist Pat McFadden, currently the Chancellor of the Duchy of Lancaster, shift to the Home Office as the government seeks to get a grip on the immigration crisis. Defence Secretary John Healey is also facing the bullet because of an ongoing defence spending row. The merry-go-round means Luke Pollard could replace Healey at the MoD with Labour newbie and former Royal Marine Alistair Carns tipped for a defence role."
- There has been consistent media speculation about Reeves' future at the Treasury following her poorly-received October 2024 budget, the sclerotic growth recorded in recent months, and a spike in gov't borrowing costs amid rising expectations of further tax rises or gov't spending cuts in March.
- Such a reshuffle could revitalise the gov't, giving fresh impetus after several months of being reactive in governing, or risk being seen as weak in changing chancellor (arguably the seniormost gov't minister after the PM) after less than a year in office.
- General election opinion polling continues to show a chaotic picture, with Starmer's centre-left Labour, the main opposition centre-right Conservatives, and Nigel Farage's populist right-wing Reform UK all polling ~25% in late Jan and early Feb.
MIDEAST: Trump On Gaza-US Would Develop Strip, But No Troops Needed
US President Donald Trump posts on the Truth Social platform regarding his Gaza comments: "The Gaza Strip would be turned over to the United States by Israel at the conclusion of fighting. The Palestinians, people like Chuck Schumer, would have already been resettled in far safer and more beautiful communities, with new and modern homes, in the region. They would actually have a chance to be happy, safe, and free. The U.S., working with great development teams from all over the World, would slowly and carefully begin the construction of what would become one of the greatest and most spectacular developments of its kind on Earth. No soldiers by the U.S. would be needed! Stability for the region would reign!!!"
- The US president's comments come after senior officials including White House Press Secretary Karoline Leavitt said Trump had not committed to US boots on the ground, and that Palestinians would only be "temporarily relocated". Secretary of State Marco Rubio said that the Palestinians would only leave for an "interim" period during which debris and unexploded ordnance would be removed. Some reports suggested this was an effort to 'walk back' the president's comments.
- Such comments are likely to keep markets on their toes, even if it does not directly affect the situation on the ground in the Levant in the short-to-medium term where attention will be more closely paid to negotiations on the second phase of a ceasefire in Gaza currently taking place in Doha.
US TSY FUTURES: Long Setting Seen Across The Curve On Wednesday
OI data points to net long setting across the curve during Wednesday’s rally, with a net ~$7.2mln of fresh DV01 equivalent positions added.
- The largest DV01 equivalent positioning adjustments came in TY & US futures.
- The lack of guidance changes surrounding Tsy coupon supply within the latest quarterly refunding announcement and softer-than-expected ISM services data built on a rally that started in pre-NY trade.
- A move lower in oil also factored in throughout the session.
| 05-Feb-25 | 04-Feb-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,108,280 | 4,103,501 | +4,779 | +173,621 |
FV | 6,407,583 | 6,398,488 | +9,095 | +377,352 |
TY | 4,913,873 | 4,877,800 | +36,073 | +2,321,658 |
UXY | 2,313,125 | 2,311,368 | +1,757 | +154,897 |
US | 1,974,101 | 1,953,717 | +20,384 | +2,599,979 |
WN | 1,799,515 | 1,791,486 | +8,029 | +1,560,597 |
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| Total | +80,117 | +7,188,104 |
STIR: Mix Of Net Long Setting & Short Cover In SOFR Futures On Wednesday
OI data points to a mix of net long setting and short cover as most SOFR futures finished higher on Wednesday.
- Net long setting in SFRU5 provided the most meaningful positioning swing.
| 05-Feb-25 | 04-Feb-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,072,973 | 1,073,967 | -994 | Whites | +26,916 |
SFRH5 | 1,224,885 | 1,226,282 | -1,397 | Reds | +10,339 |
SFRM5 | 1,087,471 | 1,081,157 | +6,314 | Greens | -2,932 |
SFRU5 | 802,477 | 779,484 | +22,993 | Blues | +12,157 |
SFRZ5 | 940,282 | 943,452 | -3,170 |
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SFRH6 | 683,221 | 672,753 | +10,468 |
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SFRM6 | 628,844 | 625,125 | +3,719 |
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SFRU6 | 589,447 | 590,125 | -678 |
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SFRZ6 | 679,558 | 677,002 | +2,556 |
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SFRH7 | 468,485 | 476,515 | -8,030 |
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SFRM7 | 413,239 | 411,850 | +1,389 |
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SFRU7 | 285,390 | 284,237 | +1,153 |
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SFRZ7 | 278,908 | 270,185 | +8,723 |
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SFRH8 | 219,354 | 216,082 | +3,272 |
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SFRM8 | 181,581 | 181,891 | -310 |
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SFRU8 | 120,346 | 119,874 | +472 |
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EUROPE ISSUANCE UPDATE:
Spain auction results
- Decent Spanish auction with E6.192bln sold from the E5.5-6.5bln target range. The takeup was skewed towards the 3-year 2.40% May-28 Bono which saw a similar amount sold to at its launch auction in January. * The amount sold of the 7-year Obli was lower than in January with the 30-year takeup a bit higher than in November.
- All the stop prices were in excess of the pre-auction mid-prices.
- E2.587bln of the 2.40% May-28 Bono. Avg yield 2.388% (bid-to-cover 1.64x).
- E1.737bln of the 3.10% Jul-31 Obli. Avg yield 2.705% (bid-to-cover 1.96x).
- E1.867bln of the 4.00% Oct-54 Obli. Avg yield 3.691% (bid-to-cover 1.84x).
- E570mln of the 1.15% Nov-36 Obli-Ei. Avg yield 1.23% (bid-to-cover 2.22x).
France auction results
- Very strong French LT OAT auction - record 10y launch
- E12.999bln of LT OATs sold (top of the target range).
- As we noted in the preview, the allocation was heavily in favour of the new 10-year 3.20% May-35 OAT which saw a record E8.641bln sold. That is the highest ever single line allocation at a French auction - and only the E10bln syndication of the 3.60% May-42 OAT two weeks ago was larger in terms of any French issuance operation. The 3.20% May-35 OAT also saw the second ever highest volume of bids at an auction - second only to the 2.75% Feb-30 OAT at the MT OAT auction two weeks ago.
- For the other OATs on offer, due to the smaller volumes sold the bid-to-covers were all incredibly strong (ranging from 4.29x to 5.73x). The stop prices on all of these were much higher than the secondary market mid-price and the discount between the low price and the average price was 0.01 for the 1.25% May-36 OAT and 0.02 for the other two issues (so very tight tails).
- OAT futures were already moving higher ahead of the bidding deadline, with the strength of the auction pushing futures even higher but not quite managaing to make a new intraday day.
- E8.641bln of the 3.20% May-35 OAT. Avg yield 3.15% (bid-to-cover 2.23x).
- E1.589bln of the 1.25% May-36 OAT. Avg yield 3.2% (bid-to-cover 5.73x).
- E1.604bln of the 1.25% May-38 OAT. Avg yield 3.33% (bid-to-cover 4.83x).
- E1.165bln of the 3.25% May-55 OAT. Avg yield 3.66% (bid-to-cover 4.29x).
Finland ORI Operation
- E227mln of the 2.875% Apr-29 RFGB. Avg yield 2.368% (bid-to-cover 7.89x).
- E175mln of the 1.50% Sep-32 RFGB. Avg yield 2.626% (bid-to-cover 5.00x).
FOREX: Construction PMI Underscores Weak S/T UK Growth Concerns
- GBP is the poorest performer in G10 ahead of the BoE decision at 1200GMT/0700ET, with a particularly soft UK Construction PMI (48.1 vs. Exp. 53.5) adding extra weight. The response to the data sees GBP/USD narrow the gap with both 1.24 handle support and 1.2380, the Tuesday low. GBP/JPY and GBP/CAD possibly more eyecatching as they break to new weekly lows - opening support in GBP/JPY at 189.34, the mid-January low and S/T bear trigger.
- Interestingly, Construction PMI is not usually a market mover, even if it diverges from expectations - but this price action underpins how sensitive prices are becoming to growth and the near-term trajectory of the UK economy after last Autumn's budget (and ahead of the Spring fiscal statement...)
- The BoE are expected to cut the bank rate by a further 25bps in an 8-1 vote, and we highlight the particular importance of the Agents' Pay Survey as a factor in the thinking of the MPC.
- The greenback is the firmest performer in G10, aided by the bounce off lows for US yields after they hit a pullback low of 4.4001% yesterday. The USD bounce has helped USD/JPY edge off a new YTD low at 151.82 posted overnight, but price action looks largely corrective at these levels.
- Outside of the BoE, today's weekly jobless claims provides the last look at the US labour market ahead of Friday's NFP print, while the central bank speaker slate see ECB's Vujcic & Escriva, Fed's Waller & Logan and BoE's Bailey at a dinner event.
EQUITIES: Bearish Threat in Eurostoxx 50 Futures Remains Despite Recovery
Eurostoxx 50 futures have recovered from Monday’s low. However, the sharp reversal lower earlier this week does highlight a potential bearish threat that would signal the start of a corrective cycle. Price has traded through the 20-day EMA, at 5180.60. A resumption of the bear leg would pave the way for a move towards the 50-day EMA, at 5073.75. Key resistance and the bull trigger is at 5327.00, the Jan 31 high. A break resumes the primary uptrend. Monday’s initial sell-off in the S&P E-Minis contract and breach of support at 5948.00, the Jan 27 low, continues to highlight a possible short-term reversal threat. If correct, it suggests that the latest bounce is a correction. A resumption of weakness would open 5892.37, a Fibonacci retracement point. On the upside, a stronger rally would expose key resistance at 6178.75, the Dec 6 high.
- Japan's NIKKEI closed higher by 235.05 pts or +0.61% at 39066.53 and the TOPIX ended 6.79 pts higher or +0.25% at 2752.2.
- Elsewhere, in China the SHANGHAI closed higher by 41.171 pts or +1.27% at 3270.659 and the HANG SENG ended 294.53 pts higher or +1.43% at 20891.62.
- Across Europe, Germany's DAX trades higher by 174.34 pts or +0.81% at 21754.59, FTSE 100 higher by 94.45 pts or +1.1% at 8718.1, CAC 40 up 57.14 pts or +0.72% at 7947.42 and Euro Stoxx 50 up 37.18 pts or +0.71% at 5307.54.
- Dow Jones mini up 84 pts or +0.19% at 45110, S&P 500 mini up 12.25 pts or +0.2% at 6104.25, NASDAQ mini up 36.25 pts or +0.17% at 21827.
COMMODITIES: Recent Weakness in WTI Futures Marks Extension of Corrective Cycle
Recent weakness in WTI futures marks an extension of the current corrective cycle. The 20-day EMA has been breached and attention is on support around the 50-day EMA, at $72.27 (pierced). A clear break of the 50-day average would suggest scope for a deeper retracement. On the upside, a clear reversal higher would refocus attention on $79.48, the Apr 12 ‘24 high and a key resistance. A bull cycle in Gold remains in play. This week’s appreciation confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull mode position too, highlighting a dominant uptrend. Sights are on $2889.9 next, a Fibonacci projection. The first key support to watch is $2705.1, the 50-day EMA. The 20-day EMA is at $2758.0.
- WTI Crude up $0.44 or +0.62% at $71.46
- Natural Gas down $0 or 0% at $3.358
- Gold spot down $9.18 or -0.32% at $2856.6
- Copper up $4.25 or +0.96% at $449.95
- Silver down $0.28 or -0.87% at $32.098
- Platinum up $3.59 or +0.36% at $985.76
| Date | GMT/Local | Impact | Country | Event |
| 06/02/2025 | 1200/1200 | *** |  GB | Bank Of England Interest Rate |
| 06/02/2025 | 1200/1200 | *** | GB | Bank Of England Interest Rate |
| 06/02/2025 | 1230/1230 | GB | BOE MPR press conference | |
| 06/02/2025 | 1330/0830 | *** |  US | Jobless Claims |
| 06/02/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 06/02/2025 | 1330/0830 | ** | US | Preliminary Non-Farm Productivity |
| 06/02/2025 | 1400/1400 | GB | Decision Maker Panel data | |
| 06/02/2025 | 1500/1000 | * |  CA | Ivey PMI |
| 06/02/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 06/02/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 06/02/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 06/02/2025 | 1900/1400 | *** |  MX | Mexico Interest Rate |
| 06/02/2025 | 1930/1430 | US | Fed Governor Christopher Waller | |
| 06/02/2025 | 2200/1700 | CA | BOC Governor speech at BIS conference | |
| 06/02/2025 | 2210/1710 | US | Dallas Fed's Lorie Logan | |
| 07/02/2025 | 2330/0830 | ** |  JP | Household spending |
| 07/02/2025 | 0700/0800 | ** |  DE | Trade Balance |
| 07/02/2025 | 0700/0800 | ** | DE | Industrial Production |
| 07/02/2025 | 0745/0845 | * |  FR | Foreign Trade |
| 07/02/2025 | 0745/0845 | FR | Wages Data for Q4 | |
| 07/02/2025 | 0800/0900 | ** |  ES | Industrial Production |
| 07/02/2025 | 0845/0945 |  EU | ECB's De Guindos remarks in 'VI Encuentro Economico-Asegurador' conference | |
| 07/02/2025 | 1215/1215 | GB | BOE's Pill at National MPC Agency briefing | |
| 07/02/2025 | - | EU | ECB to publish report on R* | |
| 07/02/2025 | 1330/0830 | *** | CA | Labour Force Survey |
| 07/02/2025 | 1330/0830 | *** | US | Employment Report |
| 07/02/2025 | 1425/0925 | US | Fed Governor Michelle Bowman | |
| 07/02/2025 | 1500/1000 | ** | US | Wholesale Trade |
| 07/02/2025 | 1500/1000 | ** | US | U. Mich. Survey of Consumers |
| 07/02/2025 | 1700/1200 | US | Fed Governor Adriana Kugler | |
| 07/02/2025 | 2000/1500 | * | US | Consumer Credit |