Highlights:
- USD recovers further off lows, aided by drifting equities
- UK CPI should do little to sway the MPC in March
- FOMC minutes in focus, language rationale to be scrutinized
- The front-end consolidates yesterday’s sell-off as it awaits a next material driver, fading a hawkish shift in ECB and BoE expectations along with a further push higher for WTI futures.
- The long end meanwhile is dragged lower by renewed losses for EGBs on defense spending themes, aided by notable flow including a ~$1mln DV01 FV/TY steepener after the ~$510k DV01 steepener flagged earlier in London trade.
- Cash yields are 0-3bp higher, led by 20s and 30s, to offer some relative concession ahead of today’s 20Y supply. Last week’s 30Y auction saw a 1.3bp tail whilst last month’s 20Y traded through by 1bp to break two prior tails.
- TYH5 is close to recent session lows of 108-22 (-05) on reasonable cumulative volumes of 385k.
- Moving average studies highlight a dominant downtrend, with support seen at 108-04 (Feb 12 low) closely followed by 108-00 (Jan 16 low).
- Data: Weekly MBA data (0700ET), Housing starts/building permits Jan (0830ET
- Fedspeak: FOMC Minutes (1400ET), Jefferson (1700ET) – see STIR bullet
- Coupon issuance: US Tsy to sell $16bn 20Y bonds - 912810UJ5 (1300ET)
- Bill issuance: US Tsy to sell $60bn 17-week bills (1130ET)
STIR: Fed Rates Fade Hawkish Shifts In ECB and BoE Pricing
- Fed Funds implied rates are little changed overnight as they consolidate yesterday’s climb.
- There is little sign of reaction to Trump’s latest tariffs threats (focused on autos, pharmaceuticals and semiconductors, more details due Apr 2) or hawkish shifts in BoE (CPI) and ECB (Schnabel) pricing.
- Cumulative cuts from 4.33% effective: 0.5bp Mar, 3.5bp May, 13bp Jun, 17.5bp Jul, 26bp Sep and 36bp Dec.
- It’s another quieter US macro calendar, with the FOMC minutes eyed at 1400ET. They will be scrutinized primarily for three things: why the Fed shifted its statement language on inflation; was there any discussion of a rate hike scenario; and was there any further discussion over the potential impact of government policy shifts?
- MNI FOMC Minutes Preview.
- Vice Chair Jefferson also talks on the household balance sheet at 1700ET with both text and Q&A. He last spoke Feb 4, talking on the need for caution along with many of FOMC members: “As long as the economy and labor market remain strong, I see it as appropriate for the Committee to be cautious in making further adjustments… Over the medium term, I continue to see a gradual reduction in the level of monetary policy restraint placed on the economy as we move toward a more neutral stance as the most likely outcome…that said, I do not think we need to be in a hurry to change our stance.”
US TSY FUTURES: OI Points To Short Setting In Belly & Long Cover In Wings
OI data points to a mix of net short setting in the belly/intermediates (FV, TY & UXY) and net long cover in the wings (TU, US & WN) between Friday and Tuesday settlements, with net curve OI effectively unchanged in DV01 equivalent terms.
- The most notable DV01 equivalent adjustment came via apparent net long cover in WN futures.
| 18-Feb-25 | 14-Feb-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 3,930,859 | 3,944,705 | -13,846 | -504,224 |
FV | 6,306,733 | 6,277,209 | +29,524 | +1,209,034 |
TY | 4,903,729 | 4,874,151 | +29,578 | +1,878,644 |
UXY | 2,302,060 | 2,292,781 | +9,279 | +806,563 |
US | 1,978,891 | 1,984,065 | -5,174 | -646,979 |
WN | 1,777,347 | 1,793,020 | -15,673 | -2,950,324 |
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| Total | +33,688 | -207,285 |
STIR: Short Setting Most Prominent In SOFR Futures Over Last Couple Of Days
OI data points to a mix of net short setting and long cover in SOFR futures between Friday and Tuesday settlements.
- Net short setting was more dominant in each of the packs through the blues.
| 18-Feb-25 | 14-Feb-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,050,373 | 1,043,712 | +6,661 | Whites | +17,217 |
SFRH5 | 1,231,299 | 1,232,087 | -788 | Reds | +21,045 |
SFRM5 | 1,129,272 | 1,117,209 | +12,063 | Greens | +19,199 |
SFRU5 | 800,598 | 801,317 | -719 | Blues | +18,607 |
SFRZ5 | 1,009,055 | 986,038 | +23,017 |
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SFRH6 | 656,611 | 649,655 | +6,956 |
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SFRM6 | 662,279 | 669,416 | -7,137 |
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SFRU6 | 600,230 | 602,021 | -1,791 |
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SFRZ6 | 751,635 | 733,982 | +17,653 |
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SFRH7 | 466,592 | 470,579 | -3,987 |
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SFRM7 | 435,891 | 430,873 | +5,018 |
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SFRU7 | 303,489 | 302,974 | +515 |
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SFRZ7 | 345,970 | 331,277 | +14,693 |
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SFRH8 | 216,877 | 215,866 | +1,011 |
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SFRM8 | 185,366 | 185,119 | +247 |
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SFRU8 | 118,291 | 115,635 | +2,656 |
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STIR: Year-end ECB Implied Rates Rise 4bps On Schnabel Comments
Hawkish repricing in ECB-dated OIS following Executive Board member Schnabel’s interview with the FT. OIS price 72bps of easing through year-end (vs 76bps before the interview was released).
- Schnabel’s comments were hawkish leaning, but not overly surprising given her traditional stance on monetary policy. In particular she said “we are getting closer to the point where we may have to pause or halt our rate cuts”
- There are 54bps of cuts priced through the June decision (i.e. more than fully pricing 2x25bp cuts across the next three meetings).
- March pricing is unsurprisingly stickier (23.5bps of cuts priced vs 24bps prior), with a 25bp cut comfortably baked into consensus already. Schnabel said the bank will have a discussion on dropping the reference to policy restrictiveness in March, but did not provide any further signals for the decision.
- Euribor futures now -1.5 to -4.5 ticks through the blues.
| Meeting Date | ESTR ECB-Dated OIS (%) | Difference Vs. Current Effective ESTR Rate (bp) |
| Mar-25 | 2.431 | -23.5 |
| Apr-25 | 2.290 | -37.7 |
| Jun-25 | 2.127 | -53.9 |
| Jul-25 | 2.073 | -59.3 |
| Sep-25 | 1.998 | -66.8 |
| Oct-25 | 1.977 | -68.9 |
| Dec-25 | 1.945 | -72.2 |
| Feb-26 | 1.941 | -72.5 |
| Source: MNI/Bloomberg. | ||
EUROPE ISSUANCE UPDATE:
Slovakia syndication: Books open
- EUR Benchmark (MNI expects E2.5-3.5bln) of the new Feb-40 SlovGB. Spread set at MS+130bps (guidance was MS + 140bps area), books in excess of €4.75bn.
Gilt syndication: Announcement
- The DMO has announced that the final transaction of the fiscal year will be the launch of a new index-linked gilt maturing on 22 September 2049. The new gilt will have the ISIN code GB00BT7J0134; it will pay a long first coupon on 22 September 2025.
- The DMO confirms that the transaction is planned to take place in the week commencing 10 March 2025, subject to demand and market conditions.
- This is the week that we had expected and the DMO had previously confirmed it would be a 20-25 year linker due to launch in March.
UK auction results
- The lowest accepted price of 100.213 was a touch below the prevailing pre-auction mid-price of 100.2175. Meanwhile, the bid-to-cover ratio was a little below than the last two auctions of the 4.375% Mar-28 Gilt (3.09x vs 3.20x at the January reopen, 3.12x at the November launch).
- Yield tail of 0.5bps little wider than in January (0.2bps), but tighter than the 1bp seen in November.
- Fairly contained reaction in Gilt futures since the results were published, now -47 ticks on the session at 92.14.
- GBP4.25bln of the 4.375% Mar-28 Gilt. Avg yield 4.294% (bid-to-cover 3.09x, tail 0.5bp).
Germany auction results
- E4.5bln (E3.47bln allotted) of the 2.50% Feb-35 Bund. Avg yield 2.52% (bid-to-offer 2.13x; bid-to-cover 2.76x).
EUROZONE DATA: Vehicle Prod Remains Weak, But Spain Appears To Be Recovering
The Eurozone auto sector continues to see production fall as it struggles to keep up with Chinese competitors and emission targets, particularly in France and Germany where their vehicle production index is the lowest since April 2022.
- The seasonally adjusted December data from three of the four largest eurozone members showed declines in vehicle production. France saw the biggest sequential fall of 11.0% M/M, followed by Germany (-10.0% M/M) and Italy (-3.5% M/M). Spain meanwhile increased 1.5% M/M after -0.5% M/M.
- France's significant decline follows production rising 6.4% in November. This is the largest sequential drop in production since May 2021. The index deteriorated further below its pre covid level and is the lowest seen since April 2022.
- Germany saw a fourth consecutive monthly decline for also its lowest since April 2022.
- Italy also printed a decrease in December of 3.5% M/M, after marginally rising 0.7% in November, making the index the lowest since June 2020.
- More broadly, vehicle production remains below pre covid levels for all four main Eurozone members, though Spain appears to be seeing some recovery withthe highest levels since April 2024 as it closes the gap to 8% below of pre-pandemic levels.
- France and Italy vehicle production continue to deteriorate by a greater magnitude relative to pre-covid levels than Germany. Though, the deterioration in German vehicle production will have a greater impact on its economy given its weighting.
UK DATA: Rather mixed outcome likely changes no ones view for the MPC meeting
Overall for the MPC this is a rather mixed release. The small downside surprise in services inflation (0.15ppt vs their Feb MPR forecast) will be a welcome surprise.
- The MPC has shown through its wider communications that it's not too concerned about energy CPI increasing later this year, but if food prices also increase and core goods prices settle at higher levels, that's going to make it harder to get headline CPI back to target without services coming in lower than pre-pandemic levels on a sustainable basis,
- For March this probably changes no one's view. And it's not a big enough surprise to get a bigger reading for the future yet. But it is more of the same with upside surprises to food and core goods.
UK FISCAL: Military spending unlikely to impact UK finances in the short-term
Over the past few days there has been increasing focus on European nations increasing military spending - partly in response to demands from President Trump that Europe pays its own way in defence, and partly as the potential for an end-game in Ukraine comes into view. Prime Minister Starmer has committed to increase the UK's military spending to 2.5% of GDP (which would be somewhere in the region of a GBP5bln/year increase - but there is still no firm commitment on when we get to 2.5%. However, this may not really impact near-term fiscal matters (dominated by the upcoming OBR forecast update (EFO) due on 26 March) because:
- You can't really immediately increase the number of recruits - you need to be able to have people to train them etc. So this has quite a lag before you can really spend money.
- It takes time to procure things like helicopters, tanks etc. And the companies you are buying these from have long time horizons, so it's hard to spend that money quickly too.
- There's not much point in having troops if they don't have enough munitions etc (a solder whose not able to fire a gun can't really do much).
- We're in a bit of a waiting pattern ahead of both the strategic defence review and the multiyear spending review so its hard to really get any firm commitments on spending at present.
- There is an outside chance this gets announced before 26 March (note that the OBR is due to deliver its second iteration of forecasts to the OBR). And Chancellor Reeves' rhetoric is softening recently regarding whether there will be no fiscal announcements alongside the new forecasts.
- The funding measures under consideration seem to focus on adding extra years to the planned income tax freezes (due to end in 2028 currently), tweaks to cash ISA (tax free savings accounts) and there has been increasing discussion of whether there will be more tweaks to corporate tax rates.
FOREX: USD Bounce Drags EUR/USD Further Off Recovery High
- The RBNZ rate decision spurred initial heavy selling in NZD, as markets responded to the 50bps rate cut to prompt a 0.5678 low in NZD/USD. The move proved short-lived, with the rally off lows coinciding with the RBNZ's signals that the OCR may only have limited room to fall further. As such, a short-covering bounce to 0.5732 has stuck, keeping the NZD the strongest performer in G10 headed into the NY crossover.
- The single currency is the poorest performer so far, pressing EUR/USD back below 1.0450 and through yesterday's lows in the process. The move comes as part of the a broader bounce off lows for the USD Index in a move that looks idiosyncratic relative to broader market risk appetite: the EuroStoxx50 continues to plumb alltime highs.
- UK inflation data came in ahead of expectations, however the details show little evidence that should push any MPC votes in either direction - with the upside surprises stemming from core goods and food prices - leaving UK rates markets primed for the next BoE cut at the June meeting.
- Datapoints are few and far between Wednesday, with US housing starts and building permits the primary releases. This should leave markets with plenty of capacity to digest the FOMC minutes later today - at which traders will be on watch for the rationale behind the Fed's recent shift in statement language concerning inflation.
FOREX: USD Index Creeps to New Daily Highs as Participation Finally Picks Up
Greenback strength continues to show in recent trade - dragging EUR/USD further off the recovery high posted last week at 1.0514. Move looks isolated from broader risk given the USD's gradual strengthening alongside equities since the beginning of the week, however the very recent drift to session lows for the EuroStoxx future (which hit an alltime high yesterday) could be adding some conviction here.
- For the ICE USD Index, price has bumped back above 107.00 meaning markets have steered clear of a test on the uptrending 100-dma of 106.396. This leaves 107.838 as the next notable intraday level: the 38.2% retracement for the downleg posted off the early February high.
- Volumes were understandably light on Monday (US Presidents' Day) but the muted theme extended into Tuesday and it's only today that we're seeing markets return to form: EUR futures have seen a decent pick up in interest both at the open today and throughout the morning - with focus now shifting to the FOMC minutes due later today.
OPTIONS: Expiries for Feb19 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0500(E1.6bln)
- USD/JPY: Y152.00($1.3bln), Y152.50($649mln), Y155.00-20($1.7bln)
- AUD/USD: $0.6325(A$558mln), $0.6520(A$880mln)
- NZD/USD: $0.5450(N$1.7bln), $0.5800(N$865mln)
- USD/CNY: Cny7.1800($600mln), Cny7.3400($1.2bln)
EQUITIES: Eurostoxx 50 Futures MA Studies Remain in Bull Mode Setup
- The trend condition in Eurostoxx 50 futures remains bullish, with prices edging to a new alltime high on the continuation contract. The move higher last week confirmed once again, a resumption of the uptrend that started on Nov 21 ‘24. Moving average studies are in a bull mode set-up too, highlighting a dominant uptrend. Support to watch is 5325.83, the 20-day EMA.
- S&P E-Minis continue to climb and the contract maintains a firmer tone. Attention is on resistance at 6162.25, the Jan 24 high. Clearance of this level would expose the key resistance at 6178.75, the Dec 6 ‘24 high. A move above this hurdle would resume the primary uptrend. On the downside, initial key support has been defined at 6014.00, the Feb 10 low. A break would highlight a bearish development.
COMMODITIES: Bear Threat for WTI Futures Present Despite Moderate Recovery
- WTI futures are firmer early Wednesday, however a bear threat remains present given the proximity to recent lows. Earlier this week, price pulled back from the recent high and has again traded below the 50-day EMA - at $71.62. Attention is on $70.20 (pierced), the Feb 6 low. A clear break of it would undermine a bullish theme and confirm a breach of the 50-day EMA. This would strengthen a bearish threat and open $67.75, the Dec 20 ‘24 low. Key S/T resistance has been defined at $74.06, the Feb 3 high. A move above this level would reinstate a bull theme.
- A bull cycle in Gold remains in play and the yellow metal continues to hold on to the bulk of its recent gains. Fresh highs once again confirm a resumption of the uptrend and maintain 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 the $2962.2, a Fibonacci projection. The first key support to watch is $2833.2, the 20-day EMA.
| Date | GMT/Local | Impact | Country | Event |
| 19/02/2025 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 19/02/2025 | 1330/0830 | *** | US | Housing Starts |
| 19/02/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 19/02/2025 | 1800/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |
| 19/02/2025 | 1900/1400 | US | FOMC Minutes | |
| 19/02/2025 | 1900/1400 | *** | US | FOMC Minutes |
| 19/02/2025 | 2200/1700 | US | Fed Vice Chair Philip Jefferson | |
| 20/02/2025 | 0030/1130 | *** |  AU | Labor Force Survey |
| 20/02/2025 | 0700/0800 | ** |  DE | PPI |
| 20/02/2025 | 1000/1100 | ** |  EU | Construction Production |
| 20/02/2025 | 1100/1100 | ** |  GB | CBI Industrial Trends |
| 20/02/2025 | 1330/0830 | * |  CA | Industrial Product and Raw Material Price Index |
| 20/02/2025 | 1330/0830 | *** | US | Jobless Claims |
| 20/02/2025 | 1330/0830 | ** | US | Philadelphia Fed Manufacturing Index |
| 20/02/2025 | 1435/0935 | US | Chicago Fed's Austan Goolsbee | |
| 20/02/2025 | 1500/1600 | ** | EU | Consumer Confidence Indicator (p) |
| 20/02/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 20/02/2025 | 1600/1100 | ** | US | DOE Weekly Crude Oil Stocks |
| 20/02/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 20/02/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 20/02/2025 | 1705/1205 | US | St. Louis Fed's Alberto Musalem | |
| 20/02/2025 | 1800/1300 | ** | US | US Treasury Auction Result for TIPS 30 Year Bond |
| 20/02/2025 | 1930/1430 | US | Fed Governor Michael Barr | |
| 21/02/2025 | 2200/0900 | *** | AU | Judo Bank Flash Australia PMI |
| 20/02/2025 | 2200/1700 | US | Fed Governor Adriana Kugler | |
| 21/02/2025 | 2330/0830 | *** |  JP | CPI |