MNI ASIA MARKETS ANALYSIS: Late Week Risk-Off Sentiment Grows

HIGHLIGHTS

• Treasuries surged early Friday after weaker than expected economic data (S&P flash Services PMI below 50, soft existing home sales, and a jump in UofM inflation).
• Late risk-off sentiment spurred new highs in Treasuries, stocks tumbled (DJIA down over 750.0 to Jan 21 levels) as wires re-aired a SCMP article over a new Covid strain out of China with "pandemic potential".
• The late rate rally helped projected rate cuts through mid-2025 gain momentum vs. early Friday levels; Bbg US$ index bounced off early lows (BBDXY +2.82 at 1285.75); Crude retreated (WTI -2.18 at 70.30).

MNI US TSYS: Late Risk-Off Support Lends to Weak Data Support

• Treasuries look to finish near session highs Friday, second half support spurred by risk-off sentiment as wires recirculated report of a new Covid strain out of China with "pandemic potential" (SCMP).
• Tsy Mar'25 10Y futures climbed to 109-24 high (+18.5), still shy of initial technical resistance at 110-00 (High Feb 7 and the bull trigger); 10Y yield fell to 4.4042% low; curves mixed: 2s10s -1.123 at 22.205, 5s30s +.956 at 40.929. Heavy volumes (TYH over 3.3M tied to quarterly roll action, June takes lead next Friday).
• Early Treasury support triggered by weaker than expected data: flash S&P PMIs w/ composite at 50.4 (cons 53.2) after 52.7 in Jan, services (49.7 vs cons 53.0, after 52.9); and existing home sales were softer than expected in January at 4.08m (cons 4.13m) after an upward revised 4.29m (initial 4.24m). UofM data showed a worrying rise in long-term inflation expectations alongside a deterioration in consumer sentiment.
• US stocks fell hard, DJIA back to January 21 levels while SPX Eminis and Nasdaq withdrew to last Thursday lows. Trading desks also cited today's call weighted option expiration that has historically leaned toward bearish price action in the week after.
• Late weekend focus on German elections take focus over the weekend, before New Zealand retail sales and German IFO data cross. There is a public holiday in Japan Monday.

SOFR FIXES AND PRIOR SESSION REFERENCE RATES
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SOFR Benchmark Settlements:

• 1M -0.00302 to 4.31930 (+0.00565/wk)
• 3M -0.00706 to 4.32153 (-0.00146/wk)
• 6M -0.01425 to 4.29076 (-0.02023/wk)
• 12M -0.02100 to 4.22342 (-0.05145/wk)

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.33% (-0.02), volume: $2.403T
• Broad General Collateral Rate (BGCR): 4.31% (-0.02), volume: $934B
• Tri-Party General Collateral Rate (TCR): 4.31% (-0.02), volume: $914B
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $98B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $283B

FED Reverse Repo Operation

RRP usage inches up to $68.983B this afternoon from $63.207B on Thursday. Compares to last Friday's $58.770B - the lowest level since mid-April 2021. The number of counterparties at 24 from 23 prior.

US SOFR/TREASURY OPTION SUMMARY

SOFR & Treasury option flow leaned towards upside calls Friday, including decent positioning ahead March Tsy option expiration after the close. Of note, April 10Y puts sold over call spread blocks this morning is a partial unwind of Thursday's +50k TYJ5 108 put vs. 110.5 calls - while going short the 111.5 call. Projected rate cuts through mid-2025 look steady to mildly firmer vs. early Friday levels (*) as follows: Mar'25 at -1.4bp (-0.5bp), May'25 at -8.9bp (-5.8bp), Jun'25 at -20.0bp (-15.7bp), Jul'25 at -26.6bp (-21.1bp).

SOFR Options:
+4,000 SFRU5 95.43 puts w/ SFRZ5 96.75 call strangle 15.0
+6,000 SFRZ5 96.50/97.00/97.50 call strip 31.0, ref 96.04
+3,000 SFRZ5 95.00/95.50 put spds, 4.25 ref 96.04
+10,000 SFRU5 96.12/96.50/96.87 call flys, 3.25 ref 95.96
+5,000 2QH5 96.25/96.50 call spds, 3.5 ref 96.105
+5,000 SFRJ5 95.56/95.62/95.68 put flys, 0.5 vs 95.825/0.05%
Block, 9,105 SFRU5 96.25 calls, 11.5 vs. 95.95/0.27%
Block, 7,500 SFRZ5 96.50/96.75 call spds, 4.0 ref 96.01
5,000 SFRU5 96.00/96.50/97.00 call flys ref 95.94
2,000 0QM5 96.12/96.37 call spds ref 96.07
9,500 SFRM5 95.81/95.87/95.93 call flys ref 95.83
2,000 SFRU5/SFRZ5 95.62/95.75 put spd spds

Treasury Options:
+20,000 wk4 TY 111 calls, 1 ref 109-18
Block, +15,000 wk4 TY 110 calls, 5
-3,800 TYK5 108.5/110.5 strangles, 112
Blocks, total -13,700 TYJ5 108 puts 6 over TYJ5 110.5/111.5 call spds
2,800 TYK5 106.5/108.5 put spds ref 109-06.5
1,300 FVH5 106.5 straddles, 10.5 ref 106-16.75
over 8,600 TYH5 109 puts, 1
over 6,000 TYJ5 110 calls, 23 last

MNI BONDS: EGBs-GILTS CASH CLOSE: Bunds Outperform Headed Into Election

European yields fell Friday, with Bunds outperforming Gilts ahead of this weekend's German election.

• Flash February PMI data dictated direction for most of the session. The morning saw weaker-than-expected French and UK PMI reports with an in-line German reading, which was overall taken dovishly.
• A surprise contractionary reading in US Services PMI saw the core rally extend in afternoon trade.
• And once again, US-Ukraine relations saw a risk-off bid for core FI, with periphery EGB spreads widening amid a Bund rally after Pres Trump said that it is not important for Ukraine to attend peace talks.
• The German curve bull flattened, with the UK belly outperforming.
• Periphery spreads closed wider, while OATs underperformed overall after the weak French PMI.
• The German election will be watched closely Sunday (MNI Preview here) - MNI’s core scenario for the sees a moderate ‘grand coalition’ being formed after the election between the Union parties and the SPD, with CDU leader Merz becoming chancellor at the expense of Olaf Scholz.
• Next week's highlights include ECB Q4 Negotiated Wages and French/German/Italian February Flash inflation data.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 4.8bps at 2.105%, 5-Yr is down 6.2bps at 2.241%, 10-Yr is down 6.4bps at 2.47%, and 30-Yr is down 6.8bps at 2.721%.
• UK: The 2-Yr yield is down 3.8bps at 4.227%, 5-Yr is down 4.3bps at 4.253%, 10-Yr is down 3.6bps at 4.571%, and 30-Yr is down 3.5bps at 5.165%.
• Italian BTP spread up 0.2bps at 108.4bps / French OAT up 2.1bps at 75.4bps

MNI EGB OPTIONS: Mixed Sonia Trade, Bund Risk Reversal Highlight Friday

Friday's Europe rates/bond options flow included: 

• DUH5 106.80/107.00/107.20c fly, sold at 1 in 2k.
• RXJ5 132.50 calls paper paid 39-40 on 6K.
• RXJ5 126/136RR, sold the call at half and 0.25 in 10k
• OATH5 123/123.5cs, sold at 35 in 1k.
• SFIH5 95.50/95.60/95.70c fly, sold at 6.5 in 5.5k.
• SFIU5 96.1096.40/96.70c ladder, bought for 5.5 in 4k

MNI FOREX: AUDJPY Extends Declines to 1.00%, EURJPY Tests Below 156.00

• Friday’s session has been a tale of two halves for EURJPY. Initial comments from BOJ Governor Ueda sparked an impressive relief rally for Cross/JPY, as he told parliament the Bank would buy bonds nimbly should yields rise sharply. EURJPY rose sharply higher in tandem, reaching an intra-day high of 158.22.
• However, a multitude of factors have prompted a sharp turnaround, with the cross now testing below the 156.00 mark ahead of the weekend close. The weaker-than-expected French services PMI set the tone for the single currency, and the late weakness for major US equity benchmarks has underpinned the souring risk sentiment, weighing specifically on EURJPY. Price action has been exacerbated by the lower US yields following the soft US data, President Trump proclaiming that it is not important for Zelenskiy to be at the peace talks, and desks citing late reports of “new” coronavirus concerns all adding pressure.
• As such, USDJPY has also slipped to a fresh session low below 149.00, keeping the bearish sentiment for the pair in focus. Price action this week has seen spot narrow the gap substantially to 148.65, a key support.
• Broad risk off is weighing on the likes of AUD, NZD and CAD, all exhibiting losses of around 0.5% and underperforming the more moderate declines for EUR and GBP. AUDJPY losses are now totalling 1% on the session. Risk-off in emerging market FX has been less evident, with the lower treasury yields likely offsetting somewhat.
• German elections take focus over the weekend, before New Zealand retail sales and German IFO data cross. There is a public holiday in Japan Monday.

MNI FX OPTIONS: Expiries for Feb21 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0400(E2.1bln), $1.0442(E632mln), $1.0450-51(E880mln), $1.0485(E719mln), $1.0500-18(E1.1bln)
• USD/CAD: C$1.4500($1.2bln), C$1.4600($1.7bln), C$1.4700($1.6bln)

MNI US STOCKS: Late Equities Roundup: Extending Lows Into Expiration, Other Factors

• Stocks continued to extend lows late Friday with SPX Eminis and Nasdaq at last week Thursday levels while the DJIA retreats to 4 week lows. Currently, the DJIA trades down 773.52 points (-1.75%) at 43579.27, S&P E-Minis down 100.25 points (-1.63%) at 6062.75, Nasdaq down 394.9 points (-2%) at 19665.11.
• Several factors were in play Friday, stocks reversed modest early gains, extended session lows after this morning's weaker than expected economic data (S&P flash Services PMI below 50, Existing home sales were softer than expected while the final University of Michigan consumer survey for February showed a worrying rise in long-term inflation expectations.
• Trading desks also cited today's call weighted option expiration that has historically leaned toward bearish price action in the week after. President Trump reiterating a 25% tariff on cars starting April 2 didn't help either. But wires recirculating a South China Morning Post article regarding new Covid strain with "pandemic potential" triggered renewed risk-off selling vs. buying in Treasuries (TYH5 hit 109-24 high +18.5; yield falling to 4.4042% low.)
• Consumer Discretionary and Industrials continued to underperform in late trade, autos and travel related stocks weighing on the Consumer sector: Norwegian Cruise Line -6.37%, Airbnb Inc -5.65%, Carnival Corp-5.62% and Tesla -4.47%. GE Vernova -8.17%, Builders FirstSource -5.74%, Howmet Aerospace -5.28% and United Rentals Inc -5.21% weighed on the Industrial sector.
• On the positive side, Consumer Staples and Utilities outperformed in the second half, food & beverage shares leading gainers: Hershey Co +4.58%, Conagra Brands +4.31%, Campbell's Company +3.76%, Mondelez International Inc +3.67%. American Water Works +3.11%, Consolidated Edison +3.07%, Dominion Energy +1.92% and Duke Energy +1.86% led gainers in the Utility sector.
• Of note, pharmaceutical stocks rallied on the re-aired Covid headlines, Moderna climbing to 35.90 high from 33.18 low. On the flipside, United Health Care shares were -6.75% as DOJ investigated fraud charges.

E-MINI S&P: (H5) In Retreat

• RES 4: 6205.38 0.764 proj of the Jan 13 - 24 - Feb 3 price swing    
• RES 3: 6200.00 Round number resistance
• RES 2: 6178.75 High Dec 6 and key resistance
• RES 1: 6166.50 High Jan 24                
• PRICE: 6035.00 @ 1435 ET Feb 21
• SUP 1: 6026.25 Low Feb 21          
• SUP 2: 6014.00/5935.50 Low Feb 10 / 3
• SUP 3: 5892.37 76.4% retracement of the Aug 5 - Dec 6 bull leg
• SUP 4: 5842.50 Low Jan 14

S&P E-Minis have faded sharply off intraday highs Thursday, but remain firm and hold the bulk of the recent phase of strength. Attention remains 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.

MONDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
24/02/2025	0900/1000	***	DE	IFO Business Climate Index
24/02/2025	0900/0900		GB	BOE's Lombardelli remarks at BOE BEAR Conference
24/02/2025	1000/1100	***	EU	HICP (f)
24/02/2025	1315/0815		CA	BOC Deputy Gravelle speaks on BOE panel at "The Future of the Central Bank Balance Sheet" conference
24/02/2025	1315/1315		GB	BOE's Ramsden and Saporta panellist on CB Balance sheet during QT
24/02/2025	1330/0830	*	CA	Quarterly financial statistics for enterprises
24/02/2025	1400/1500	**	BE	BNB Business Confidence
24/02/2025	1530/1030	**	US	Dallas Fed manufacturing survey
24/02/2025	1630/1130	*	US	US Treasury Auction Result for 13 Week Bill
24/02/2025	1630/1130	*	US	US Treasury Auction Result for 26 Week Bill
24/02/2025	1800/1800		GB	BOE's Dhingra speech on state of the UK monetary policies
24/02/2025	1800/1300	*	US	US Treasury Auction Result for 2 Year Note