ITALY DATA: Decent Upward Revision To Q4 GDP, GFCF Growth Solid
Italian Q4 GDP saw quite a notable upward revision to 0.14% Q/Q (to 2dp) from a -0.01% flash reading. This was likely a driving force behind the upward revision to the Eurozone-wide quarterly print (0.1% Q/Q vs 0.0% flash on a rounded basis) in the second release last month.
Looking at the expenditure-level details of the print, which are not available in the flash release:
- Consumption grew 0.2% Q/Q (vs 0.6% prior), contributing 0.11pp to the quarterly GDP print. However, January real retail sales (also released this morning) began the year on a soft note, falling 0.6% M/M SA.
- Government spending growth was 0.2% Q/Q (vs 0.3% prior), contributing 0.03pp to quarterly GDP.
- Gross fixed capital investment was the largest contributor to GDP (0.36pp to the quarterly reading), growing 1.6% Q/Q (the first positive sequential reading since Q4 2023). This was driven by “other buildings and structures” and “Machinery and equipment and weapon systems” components, with dwelling instead dragging.
- Net exports contributed 0.05pp, with export growth at -0.2% Q/Q and imports at -0.4% Q/Q. Export growth has been weak for some time, amid subdued conditions in major trading partners such as Germany.
- Inventory investment was a negative contributor, pulling quarterly growth down by 0.42pp.
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US TSYS: Early SOFR/Treasury Option Roundup: Upside Calls, Curves Twist Flatter
Option desks reported mixed SOFR & Treasury flow overnight, leaning towards upside calls on decent volumes. Underlying futures stronger, near early overnight highs after Pres Trump follows through with 25% tariffs on Mexico & Canada, 10% on China effective February 4. Heavy volumes (TYH5 near 1M at the moment), curves twist flatter as short end lags Bonds (2s10s -7.148 at 26.601). Projected rate cuts through mid-2025 vs. late Friday (*) levels as follows: Mar'25 at -3.7bp (-3.9bp), May'25 at -10.3bp (-11.8bp), Jun'25 at -19.7bp (-22.6), Jul'25 at -24.9bp (-28.5bp).
- SOFR Options
- 11,000 0QK5 97.00 calls ref 96.09
- Block, 1,500 SFRU5 96.62/97.12 2x3 call spds, 2.5 ref 95.975
- 3,500 SFRH5 95.68/95.75/95.81 call flys ref 95.74
- +6,000 SFRJ5 95.68/95.75/95.81/95.87 put condors, 2.75 ref 95.85
- 1,500 0QH5 96.25/96.50/96.75 call flys
- -19,850 SFRH5 95.00/95.62/96.00 broken call flys, 51.5 ref 95.735/0.85%
- 4,000 SFRZ5 96.00/96.37/96.75 call flys, 5 ref 96.01
- 2,000 SFRM5 95.75/96.00/96.12 broken call flys ref 95.85
- 2,250 0QJ5 95.81/95.93 put spds vs. SFRJ5 95.68 puts
- Block, 2,500 SFRU5 95.87/96.00 put spds, 7.0 ref 95.96
- 5,000 SFRZ5 96.50/97.00/97.50 call spds ref 96.04
- Blocks, +9,000 0QG5 96.31 calls, 2.0 to 2.5 ref 96.04 to -.075
- 2,000 SFRM5 96.00/96.25/96.37/96.62 call flys ref 95.875
- Treasury Options:
- -3,000 TYH5 109.25 straddles, 121
- +5,000 TYH5 110/111 call spds, 10-11
- 5,000 TYH5 107 puts, 7 ref 109-02.5
- -7,000 TYH5 108.5/109.75 call spds, 35 ref 108-30 to -30.5
- 4,000 FVH5 108/108.5 call spds ref 106-08.75 to -09
- +20,000 Monday weekly FV 106 puts, 0.5-1.5
US: MNI POLITICAL RISK - Trump Imposes Tariffs On Regional Allies
- President Donald Trump invoked the IEEPA to impose sweeping tariffs on goods imported from Mexico, Canada, and China. Trump threatened tariffs on the EU and additional tariffs on strategic sectors like metals and semiconductors.
- The move, which effectively torpedoes the USMCA, marks the first time the IEEPA has been used to impose tariffs and is likely to face litigation from Democrats.
- Canadian Prime Minister Justin Trudeau announced retaliatory 25% tariffs on more than USD$100 billion of US imports. Canada’s likely future prime minister, Pierre Poilievre – an erstwhile ally of Trump - said Canada should, "retaliate with dollar-for-dollar tariffs” and “never back down.”
- Mexican President Claudia Sheinbaum instructed her Secretary of the Economy “to implement Plan B" and is expected to give a press conference at 10:00 ET 15:00 GMT.
- Leaders from the European Union’s 27 member states will meet in Brussels today, with the bloc promising to “respond firmly” to US trade measures.
- Lawmakers offered a muted response but Republicans in agricultural and manufacturing states are likely concerned about blowback to their states' economies.
- Rohit Chopra has been removed as director of the CFPB.
- The Gaza ceasefire deal may hinge on a meeting between Trump and Netanyahu tomorrow.
- Trump’s hardline rhetoric appears to have drawn concessions from Panama and Venezuela.
- Trump will meet with Japanese Prime Minister Shigeru Ishiba on Friday.
- Poll of the Day: Republicans are optimistic about the economy.
Full article: US DAILY BRIEF
GILTS: Remaining Underpinned
Pullbacks remain shallow in gilts at this stage, with fresh demand for core global FI markets seen in early NY trade, helping underpin UK paper.
- Futures last +67 at 93.44, a fresh session high.
- Fibonacci resistance located beyond session highs at 93.64, with the bullish corrective phase in the contract extending this morning.
- Yields 6.0-8.5bp lower today.
- Gilt bulls have still been unable to close the December 17 opening gap higher in 10-Year yields (4.442%).
- This morning’s bull steepening theme remains intact on the curve.
- Spread to Bunds back from ~211.5bp seen this morning to ~207.5bp last, flat on day.
- Gilts were more hesitant to initially react to the weekend tariff headlines given perceptions surrounding the relative likelihood of U.S. tariffs being levied on both the EU & the UK (higher odds of moves against the EU at present).
