Highlights:
- ISM Services, ADP Employment Change to provide next input for Payrolls expectations
- Best wage turnout in 30 years underpins JPY rally through key technical levels
- Trump's Gaza comments could radically alter US Middle-East policy
US TSYS: TY Testing Resistance, Refunding and ISM Services Headline The Docket
- Treasuries have extended yesterday’s rally that received a helping hand from lower-than-expected jobs openings, with today’s gains amidst broader FI rallies including from EGBs and Gilts.
- Today’s calendar focus is primarily on Treasury’s QRA at 0830ET (MNI Refunding Preview here) before ISM services for January at 1000ET. US policy headlines will also be closely watched, especially on US-China trade relations.
- Cash yields are 2.3-4.2bp lower, with declines led by 7s.
- 2s10s is within recent ranges at 28.5bps (-1.6bp).
- TYH5 sits close to session highs of 109-15 (+ 08+) on solid cumulative volumes of 410k.
- It challenges resistance, having cleared 109-10 (50-day EMA) and now eyeing 109-15+ (Feb 3 high). A clear break of the 50-day EMA would strength a short-term bullish case and open 109-31 (Dec 18 high).
- Data: MBA mortgages (0700ET), ADP employment Jan (0815ET), Trade bal Dec (0830ET), S&P Global US serv/comp PMI Jan final (0945ET), ISM services Jan (1000ET)
- Fedspeak: Barkin BBG TV (0730ET), Barkin fireside chat (0900ET), Goolsbee at automotive conference (1430ET), Bowman update on economy and bank regulation (1500ET), Jefferson gives lecture after the close (1930ET) in remarks likely to heavily resemble yesterday’s speech – see STIR bullet.
- Bill issuance: US Tsy $64B 17W bill auction (1130ET)
STIR: Next Fed Cut Fully Priced For July, ISM Services In Focus
- Fed Funds implied rates have extended yesterday’s decline along with broader FI rallies. Expect continued sensitivity to Trump headlines but today’s scheduled macro focus is on ISM Services at 1000ET (after its priced paid series jumped 5.9pts to 64.4 in December for the highest since Feb 2023) plus any spillover from Treasury’s QRA at 0830ET.
- We also have three Fedspeakers scheduled today but only Barkin last spoke prior to Trump’s inauguration. Recent context below.
- Cumulative cuts from 4.33% effective: 4.5bp Mar, 11.5bp May, 22bp Jun, 28bp Jul and 47bp Dec.
- Vice Chair Jefferson (permanent voter) spoke late yesterday for the first time since early October. He appeared broadly in line with the median member: “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.”
- 0730ET – Barkin (non-voter) on Bloomberg TV (no text). He last spoke Jan 15, saying latest CPI data suggest inflation is still declining but the Fed should remain restrictive until inflation returns to 2%. He was encouraged by the drop in the US unemployment rate in December. It’s currently difficult to build Trump policies into forecasts.
- 0900ET – Barkin in fireside chat at Conference Board “2025: A Year In Preview” (no text)
- 1430ET – Goolsbee (’25 voter, text only) at automotive conference (text only). He has already spoken this week, saying the Fed has to be more careful with how fast to cut rates – of note for the most dovish member of the committee.
- 1500ET – Bowman (permanent voter) gives update on economy & bank regulation (text only). One of the most hawkish members of the FOMC, she said Jan 31 that she wants to see inflation progress before adjusting rates and that it’s unlikely rates are exerting “meaningful restraint”.
BOE: MNI BoE Preview - February 2025: Agents Pay Survey in Focus
• It would be a huge surprise to the market if this week’s MPC meeting delivered anything other than a 25bp cut to bring Bank Rate to 4.50%.
• The bar is also high for forward guidance to be meaningfully tweaked. We would be surprised if the vote split wasn’t 8-1 (also the base case for 18/22 sellside previews we read), although there are risks around the vote, particularly from the Agents’ Pay Survey.
• The Agents'; Pay Survey is the single measure with the most potential to cause surprises overall, both this week (to MPR projections, the vote split etc) and to future policy.
• We look at how data has evolved, expectations for the MPR projections as well as summarising over 20 sellside views.
FOR THE FULL PUBLICATION PLEASE USE THE FOLLOWING LINK: MNI BoE Preview - Feb25.pdf
MIDEAST: Trump's Gaza Comments Could Radically Alter US Middle East Policy
US President Donald Trump's comments on 4 Feb regarding the Gaza Strip and the US' intention to 'take over' the territory (see 'POLITICAL RISK: Trump Proposes US Long Term Take Over Of Gaza Strip', 0031GMT) - if pursued - will dramatically alter decades-long US policy stances in the region.
- In a meeting with Israeli PM Benjamin Netanyahu at the White House, Trump said that the US should "take over" Gaza with a "long-term ownership position" that could include US troops on the ground, adding "we will do a job with it too. We'll own it". This would upend the US' long-standing support for a two-state solution. Indeed, Trump also said an announcement on the situation in the West Bank would be forthcoming in the next month.
- Asked what proportion of Gazans would be displaced to rebuild, Trump said “all of them”. While Trump's plan has been received with shock in many quarters, it is not the first time he has indicated such intent. In January, Trump said he wanted to "clean out" Gaza, with people being displaced to surrounding countries including Jordan and Egypt.
- Saudi Arabia's foreign ministry said the Kingdom rejects “any infringement on the legitimate rights of the Palestinian people whether through Israeli settlraemMent policies, land annexation or attempts to displace the Palestinian people from their land.” Other Arab nations, as well as Palestinian groups, have decried Trump's announcement.
- It remains to be seen what impact the comments have on discussions on the second phase of a Gaza ceasefire-for-hostages agreement. These talks only got underway on 4 Feb prior to Trump's presser.
STIR: Mix Of Long Setting & Short Cover In Most SOFR Futures On Tuesday
OI data points to a mix of net long setting and short cover in most SOFR futures on Tuesday.
- Net OI swings were relatively limited, once again pointing to a lack of any real conviction, with traders wary of tariff headlines and related risk of two-way price swings.
| 04-Feb-25 | 03-Feb-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,073,967 | 1,082,060 | -8,093 | Whites | -3,188 |
SFRH5 | 1,227,372 | 1,215,014 | +12,358 | Reds | -13,237 |
SFRM5 | 1,081,899 | 1,093,284 | -11,385 | Greens | +17,150 |
SFRU5 | 779,484 | 775,552 | +3,932 | Blues | +4,574 |
SFRZ5 | 944,129 | 942,862 | +1,267 |
|
|
SFRH6 | 672,754 | 671,349 | +1,405 |
|
|
SFRM6 | 625,125 | 640,630 | -15,505 |
|
|
SFRU6 | 590,125 | 590,529 | -404 |
|
|
SFRZ6 | 677,002 | 666,455 | +10,547 |
|
|
SFRH7 | 476,379 | 472,299 | +4,080 |
|
|
SFRM7 | 411,859 | 406,431 | +5,428 |
|
|
SFRU7 | 284,237 | 287,142 | -2,905 |
|
|
SFRZ7 | 270,188 | 267,479 | +2,709 |
|
|
SFRH8 | 216,082 | 216,838 | -756 |
|
|
SFRM8 | 181,891 | 179,036 | +2,855 |
|
|
SFRU8 | 119,874 | 120,108 | -234 |
|
|
FOREX: USDJPY Bear Cycle Extension, Initial Support Holds
- USDJPY downside momentum gained traction on Wednesday, following a break of short-term support at 153.72, the Jan 27 low. The move marks an extension of the bear cycle that started Jan 10. Both sides of the trade have been working in tandem as the USD index extends its pullback to roughly 2.3%, and stronger-than-expected Japanese wage data assists a more hawkish BOJ narrative.
- We previously noted support at 152.55, a Fibonacci retracement, which has held at first attempt. However, should the short-term sentiment extend through US hours, more meaningful support is found at 151.81, the Dec 12 low. Below here, attention would be on 151.06, the 76.4% retracement of the Dec 3 - Jan 10 bull leg.
- SocGen questions if USDJPY can fall much further "if the US economy remains robust, the Fed doesn’t ease much further and Treasury yields remain, essentially, rangebound". They, instead, see a "short-term solution [of] selling EURJPY [...] where the deterioration in Eurozone growth expectations relative to Japan is striking".
- Further weakness in the cross would place attention on 156.99, the Dec 4 low, and 156.18, the Dec 3 low and a key support.
FOREX: Best Wage Growth in Over 30 Years Underpins JPY Convincing Rally
- JPY strength stands out into the Wednesday crossover, with USD/JPY breaking to new pullback lows and taking out both the 200- and 100-dmas in the process. This marks a major technical break lower and expands the downside range, with markets looking to 151.06 as the next significant support. Late January lows at 153.72 were twice tested, a level that coincided with the 50% retracement for the upleg posted off the December low, raising the significance of this morning's price action.
- Japanese wages numbers have proved key here. Nominal wages rose at the fastest pace in over 25 years for the December Y/Y reading - removing another hurdle to the next tightening phase from the Bank of Japan. The next 25bps hike isn't well priced until the September meeting - leaving the front-end of the OIS curve with plenty of room to tighten further should this trend be sustained.
- The greenback is the worst performer in G10, as markets pick up on the prevailing theme from the late Tuesday session. The scale of the short-term USD Index pullback is noteworthy, but is yet to challenge to the underlying uptrend. It's when the index drops through 106.969 that markets will become more concerned - particularly if tied with a convicingly dovish turn in Fed pricing for 2025.
- ISM services data crosses later today after the final PMIs for January. The employment subcomponent should take particular focus given the proximity to Friday's payrolls print, for which today's ADP Employment Change should also feature. Markets expect services to remain the stronger driver of US growth, while ADP is seen ticking higher to +150k from +122k.
- Central bank speak picks up today after a quieter start to the week. Lane speaks from the ECB, while Barkin, Goolsbee and Bowman represent the FOMC.
OPTIONS: Expiries for Feb05 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0300-05(E1.4bln), $1.0315-35(E1.8bln), $1.0400(E570mln), $1.0500(E1.4bln)
- USD/JPY: Y153.15-25($2.0bln)
- USD/CAD: C$1.4240($954mln), C$1.4500($710mln), C$1.4530($847mln), C$1.4600($1.5bln)
EQUITIES: Eurostoxx 50 Futures Fully Reverse Monday's Sell-Off
- Eurostoxx 50 futures have recovered from Monday’s low. However, the sharp reversal lower earlier this week signals the end of the recent bull run - for now - and the start of a corrective cycle. Price has traded through the 20-day EMA, at 5170.66. A resumption of the bear leg would pave the way for a move towards the 50-day EMA, at 5065.54. On the upside, key resistance and the bull trigger has been defined at 5327.00, the Jan 31 high.
- Monday’s initial sell-off in the S&P E-Minis contract and breach of support at 5948.00, the Jan 27 low, strengthens a bearish threat and cancels - for now - a recent bullish theme. An extension down would open 5892.37, a Fibonacci retracement point. Initial resistance is at 6069.00, Tuesday’s intraday high. Gains are considered corrective, however, a stronger rally would expose key resistance at 6178.75, the Dec 6 high.
COMMODITIES: WTI Futures Continue to Trade Just Ahead of Support at 50-Day EMA
- Last week’s move down in WTI futures marked 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 $72.30 (pierced). A clear break of the 50-day average would suggest scope for a deeper retracement. On the upside, a 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. Last week’s extension higher and 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 $2867.5 next, a Fibonacci projection. The first key support to watch is $2698.4, the 50-day EMA. The 20-day EMA is at $2746.5.
| Date | GMT/Local | Impact | Country | Event |
| 05/02/2025 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 05/02/2025 | 1315/0815 | *** | US | ADP Employment Report |
| 05/02/2025 | 1330/0830 | ** |  CA | International Merchandise Trade (Trade Balance) |
| 05/02/2025 | 1330/0830 | ** | CA | International Merchandise Trade (Trade Balance) |
| 05/02/2025 | 1330/0830 | ** | US | Trade Balance |
| 05/02/2025 | 1330/0830 | *** | US | Treasury Quarterly Refunding |
| 05/02/2025 | 1400/1500 |  EU | ECB's Lane at Euro area in 2025 event and Q&A | |
| 05/02/2025 | 1400/0900 | US | Richmond Fed's Tom Barkin | |
| 05/02/2025 | 1445/0945 | *** | US | S&P Global Services Index (final) |
| 05/02/2025 | 1445/0945 | *** | US | S&P Global US Final Composite PMI |
| 05/02/2025 | 1500/1000 | *** | US | ISM Non-Manufacturing Index |
| 05/02/2025 | 1500/1000 | ** | US | housing vacancies |
| 05/02/2025 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 05/02/2025 | 1800/1300 | US | Chicago Fed's Austan Goolsbee | |
| 05/02/2025 | 2000/1500 | US | Fed Governor Michelle Bowman | |
| 06/02/2025 | 0030/1130 | ** |  AU | Trade Balance |
| 05/02/2025 | 0030/1930 | US | Fed Vice Chair Philip Jefferson | |
| 06/02/2025 | 0645/0745 | ** |  CH | Unemployment |
| 06/02/2025 | 0700/0800 | ** |  DE | Manufacturing Orders |
| 06/02/2025 | 0700/0800 |  SE | Flash CPI | |
| 06/02/2025 | 0830/0930 | ** | EU | S&P Global Final Eurozone Construction PMI |
| 06/02/2025 | 0930/0930 | ** |  GB | S&P Global/CIPS Construction PMI |
| 06/02/2025 | 1000/1100 | ** | EU | Retail Sales |
| 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 |
2031 words