MNI ASIA MARKETS ANALYSIS: New Competition Among AI Developers

HIGHLIGHTS

• Chinese AI startup "DeepSeek" rattled markets Monday, the tech heavy Nasdaq -3.65% as leading chip maker stocks tumbled as 25%, in turn spurring heavy risk-on support in rates (TYH5 trading 2.45M after the bell).
• Broad risk-off trade dominated global markets on Monday, prompting notorious safe havens within G10 FX to outperform, while risk sensitive currencies bore the brunt of the waning sentiment.
• WTI has slumped today, as energy markets trade lower in conjunction with the decline in equity markets, following DeepSeek’s Chinese rollout that has undermined US tech stocks.

MNI US TSYS: China AI Startup DeepSeek Rattles Broader Markets

• Heavy risk-off moves occurred Monday as Chinese AI startup DeepSeek rattled broader markets: new competition for US AI developers weighed heavily on chip stocks, the tech heavy Nasdaq falling over 3.65% in late trade, spurred heavy outright buying and short covering across the board in Treasuries.
• After the close, the Mar'25 10Y contract trades +22 at 109-05 vs. 109-12 high, just under initial technical resistance at 109-12.5 (50-day EMA), heavy volumes (TYH5 over 2.5M).
• Despite the rally, curves were mixed by the close, 2s10s -2.053 at 32.906, 5s30s +1.680  at 43.432. Nevertheless, projected rate cuts through mid-2025 regain traction vs. late Friday (*) levels as follows: Jan'25 at -0.7bp (-0.1bp), Mar'25 at -8.3bp (-6.9bp), May'25 at -15.9bp (-13.6bp), Jun'25 at -27.9bp (-24.7bp), Jul'25 at -33.7bp (-28.6bp).
• Focus remains on Wednesday's FOMC policy annc, no move expected, as well as a heavy slate of corporate earnings Tuesday: PACCAR, Sysco Corp, Synchrony Financial, Lockheed Martin Corp, Veradigm, Royal Caribbean, Polaris Inc., Boeing, NextEra Energy, JetBlue Airways, General Motors, Kimberly-Clark Corp, Invesco, Starbucks, Qorvo and Stryker Corp.

SOFR FIXES AND PRIOR SESSION REFERENCE RATES
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SOFR Benchmark Settlements:

• 1M -0.00241 to 4.31300 (+0.01501 total last wk)
• 3M -0.00597 to 4.29687 (+0.00975 total last wk)
• 6M -0.01283 to 4.24623 (+0.00525 total last wk)
• 12M -0.01905 to 4.17975 (+0.00455 total last wk)

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.34% (-0.01), volume: $2.289T
• Broad General Collateral Rate (BGCR): 4.33% (-0.01), volume: $912B
• Tri-Party General Collateral Rate (TGCR): 4.33% (-0.01), volume: $875B
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $97B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $277B

FED Reverse Repo Operation

RRP usage falls back under $100B to a new low of $92.863B this afternoon from Friday's $104.877B. Today's low compares to $94.489B on Thursday Jan 16 - then the lowest level since mid-April 2021. The number of counterparties rises to 26 from 23 prior.

US SOFR/TREASURY OPTION SUMMARY

Heavier two-way SOFR & Treasury options traded Monday, large risk Mar'25 10Y reversal taking advantage of the rally in underlying futures to hedge massive 108.5 call position build over the last couple weeks. Rally in underlying futures spurred by sell-off in tech sector on China's DeepSeek AI startup as competitor to various US AIs. The rally saw projected rate cuts through mid-2025 regain traction vs. late Friday (*) levels as follows: Jan'25 at -0.7bp (-0.1bp), Mar'25 at -8.3bp (-6.9bp), May'25 at -15.9bp (-13.6bp), Jun'25 at -27.9bp (-24.7bp), Jul'25 at -33.7bp (-28.6bp).

SOFR Options:
+4,000 SFRN5 96.37/96.75 call spds 5.5 ref 96.08
-10,000 SFRH5 95.87/96.00 call spds 2.25 ref 95.805
+5,000 SFRM5/SRFU5 95.75/96.00 call spd spds 1 net/Sep over
+5,000 SFRG5 95.75 puts 1.75 ref 95.80
-2,500 SFRN5 95.75/96.37 strangle 14.75 ref 96.08
-2,000 SFRN5 95.62/96.37 strangle 15.0 ref 96.075
+2,500 SFRK5 95.62/95.75 2x1 put spds 1.0 ref 95.965
+5,000 SFRM5 95.68/95.81 2x1 put flys, 4.5
+20,000 SFRJ5 95.75 puts 2.25 ref 95.96
Block/screen, +30,000 SFRU5 96.37/96.62 call spds 4.5 ref 96.06
5,700 SFRG5 95.68/95.75/95.81 put flys ref 95.805
13,000 0QH5 95.50 puts ref 96.16
2,000 0QH5 96.06/96.18/96.50 broken put flys ref 96.155
4,000 SFRH5 95.87/95.93 call spds ref 95.815
Block/screen 6,000 SFRG5 95.68/95.75/95.81/95.87 put condors, 2.75-3.0
3,000 SFRH5 95.68/95.75/95.81 put trees
+6,250 SFRH5 95.62/95.68/95.75 put flys, 2.25 ref 95.805
+5,000 SFRU5 96.25/96.62 call spds, 7.5 ref 96.065
1,500 SFRZ5 96.00 puts ref 96.115
1,500 SFRM5 96.12/96.37/96.68 broken call trees ref 95.955

Treasury Options:
+20,000 wk5 TY 107.25 puts, cab-7
Update, over 49,000 TYH5 107 puts, 8-9 ref 108-31.5 to -30
Block/screen, +70,000 TYH5 108.5/110.5 put over risk reversals, 17 net vs.109-03/0.60% (+33k at 15/screen) ** reminder - nice hedge for some acct that bought some +75,000 TYH5 108.5 calls Friday at 41 ref 108-14.5, adding to +100k+ from 27-29 on Jan 14, just prior to CPI-tied bounce in underlying).
1,500 USH5 107/109/111 put flys ref 114-17
4,000 FVJ5 108 calls, 11.5 ref 106-22
4,000 FVH5 106.5/107.5 call spds
10,000 FVH5 107.5/108.5/109.5 call flys ref 106-17.5
+17,500 wk5 TY 110 calls, 6-10
3,350 wk1 TY 107/107.5 put spds ref 109-03

MNI BONDS: EGBs-GILTS CASH CLOSE: Yields Pull Back On Tech-Led Equity Weakness

European yields fell Monday though finished off session lows, mirroring intraday movements in equities.

• U.S. equity weakness (less pronounced in Europe), triggered by Chinese tech firm DeepSeek's AI advancements weighing on U.S. tech megacaps, saw bonds supported for most of the session.
• However, yields finished up from intraday lows as stocks recovered. 10Y Gilts closed 3bp up from the session lows, with Bunds bouncing 4bp.
• Even so, German curve bull steepened, with the UK's more mixed with belly outperformance. Periphery/semi-core EGB spreads to Bunds widened slightly; RAGBs slightly underperformed peers following an Austrian dual-tranche syndication mandate.
• In data, January German IFO came in a little stronger than expected, but Expectations unexpectedly fell. Market reaction was limited.
• Focus for the week remains on Thursday's ECB decision, as well as multiple data points including Eurozone country-level preliminary inflation data for January.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 4.1bps at 2.249%, 5-Yr is down 4bps at 2.341%, 10-Yr is down 3.8bps at 2.531%, and 30-Yr is down 3.4bps at 2.751%.
• UK: The 2-Yr yield is down 3.7bps at 4.288%, 5-Yr is down 5.4bps at 4.283%, 10-Yr is down 4.4bps at 4.585%, and 30-Yr is down 4.7bps at 5.143%.
• Italian BTP spread up 1.5bps at 110.2bps / French OAT up 0.2bps at 74bps   

MNI EGB OPTIONS: More Mixed Rates Trade Versus Previous Week, But Upside Still Prevalent

Monday's Europe rates/bond options flow included: 

• OEH5 117/116.75ps, sold at 11 in 13k.
• RXH5 132.5/134/135/136.5c condor, bought for 35 in 10k.
• ERM5 97.75/97.93cs, sold at 6.25 in 15k (ref 97.745).
• ERM5 97.6875/97.75cs vs ERJ5 97.75/97.8125cs, bought for 0.75 and 1 in 68k since Friday, 65k on Friday and 3k now.
• ERU5 97.62/97.75/97.87c fly, bought for 1.75 in 7k.
• 0NM5 96.10/96.30/96.50c fly, sold at 2 in 16k.

MNI FOREX: Safe Haven FX in Favour as Equities Consolidate Session Declines

• Broad risk-off trade dominated global markets on Monday, prompting notorious safe havens within G10 FX to outperform, while risk sensitive currencies bore the brunt of the waning sentiment.
• The assumption that US firms will remain market-leaders in artificial intelligence was challenged this weekend with the rise of China's Deepseek - a product demonstrating that not only can AI be rolled out extremely cheaply and effectively, but also that the US' targeted chips sanctions are failing to contain China's tech industry.
• The USDJPY (-1.10%) selloff picked up momentum following the clean trendline break, drawn from the September lows, bolstered by the breach of a cluster of lows just below the 155 handle.
• Barring a meaningful reversal, the pair looks set to close below its 50-day EMA, which intersects today at 155.15. This would represent the first close below this average since December 09 and is a meaningful bearish development technically. This paves the way for an extension towards 152.55, a Fibonacci retracement point, and 151.81, the Dec 12 low.
• AUD (-0.55%) and NZD (-0.47%) are among the poorest performers, with the effect compounded by Trump's tariff sabre-rattling toward Colombia over the weekend. The USD Index is near last week's lows, holding close to the lowest levels of 2025. The Fed decision mid-week looks key here - as Powell's messaging on rates across this year is set to steer price action.
• Emerging market currencies have been heavily impacted, with notable 2% declines for the likes of the Mexican peso and the South African rand against the dollar providing a key insight to the sensitivities surrounding global equity sentiment and tariff related developments.
• US durable goods and consumer confidence highlights Tuesday’s docket, before G10 central bank decisions kick off on Wednesday.

MNI OPTIONS: Expiries for Jan28 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0400(E1.0bln), $1.0460($697mln), $1.0500(E1.4bln), $1.0520-30(E929mln), $1.0550(E792mln)
• AUD/USD: $0.6300-10(A$2.0bln)

MNI US STOCKS: Late Equities Roundup: New Competition for AI Stocks Weighs on Nasdaq

• New competition for US AI developers weighed heavily on chip stocks Monday as China's DeepSeek AI startup rattled the tech sector and broader markets in general, Consumer Staples and Health Care sector helped major indexes bounce off lows by midday.
• The DJIA continued to gain in the second half, up 222.64 points (0.5%) at 44645.39, S&P E-Minis down 108.5 points (-1.77%) at 6023.5, the tech heavy Nasdaq fell 710.1 points (-3.6%) at 19242.01.
• Semiconductor makers racked up double digit losses in the the first half: Broadcom -18.46%, Nvidia -17.28%, Micron -14.08%, Monolithic Power -10.71%, while KLA Corp, Applied Materials and Teradyne trade 7-8% in the second half.
• Independent energy provider Vistra weighed heavily on the Utility sector as shares of the stock fell over 28% after Bank of America analysts rated the company at neutral.
• On the positive side, Health Care and Consumer Staples shares led gainers: HCA Healthcare +6.01%, AbbVie +4.01%, while PepsiCo gained 4.11%, Coca-Cola +3.38%.
• Earnings Update: Nucor and Western Alliance Bank announce after Monday's close. Tuesday: PACCAR, Sysco Corp, Synchrony Financial, Lockheed Martin Corp, Veradigm, Royal Caribbean, Polaris Inc., Boeing, NextEra Energy, JetBlue Airways, General Motors, Kimberly-Clark Corp, Invesco, Starbucks, Qorvo and Stryker Corp.

MNI EQUITY TECHS: E-MINI S&P: (H5) Monitoring Support

• RES 4: 6200.00 Round number resistance  
• RES 3: 6178.75 High Dec 6 and key resistance 
• RES 2: 6163.75 High Dec 16
• RES 1: 6162.28 High Jan 24            
• PRICE: 6038.50 @ 07:25 GMT Jan 27
• SUP 1: 6008.86/5961.75 50-day EMA / Low Jan 16        
• SUP 2: 5943.94 61.8% retracement of the Jan 13 - 24 bull leg
• SUP 3: 5892.37 76.4% retracement of the Aug 5 - Dec 6 bull leg
• SUP 4: 5809.00 Low Jan 13 and a key support 

The S&P E-Minis contract is starting the week on a bearish note, extending the pullback from Friday’s high. Key short-term support to watch lies at 5961.75, the Jan 16 low. For now, the move down appears corrective, however, a breach of 5961.75 would strengthen a bearish threat and signal scope for a deeper retracement. This would open 5943.94, a Fibonacci retracement. Key resistance is unchanged at 6178.75, the Dec 6 high.

MNI COMMODITIES: WTI Slumps, Precious Metals Decline Amid Equity Market Sell-Off

• WTI has slumped today, as energy markets trade lower in conjunction with the decline in equity markets, following DeepSeek’s Chinese rollout that has undermined US tech stocks.
• WTI Mar 25 is down by 2.1% at $73.1/bbl.
• The trend structure in WTI futures is still bullish despite the recent pullback. The move down appears corrective and is allowing an overbought trend reading to unwind.
• Having pierced the 20-day EMA, next support is at the 50-day EMA, at $72.15.
• A reversal higher would highlight the end of the correction and refocus attention on $79.48, the Apr 12 ‘24 high and a key resistance.
• Meanwhile, Henry Hub is trading down today as indications for warmer weather spark a sell off.
• US Natgas Feb 25 is down by 9.0% at $3.67/mmbtu.
• Elsewhere, spot gold has fallen by 1.2% to $2,738/oz, as precious metals have been caught up in the sell-off in equity markets.
• A bull cycle for gold remains in play, with sights still on $2,790.1, the Oct 31 all-time high. On the downside, the first key support to watch is $2,671.4, the 50-day EMA.

TUESDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
28/01/2025	0745/0845	**	FR	Consumer Sentiment
28/01/2025	0900/1000	**	EU	ECB Bank Lending Survey
28/01/2025	1000/1000	*	GB	Index Linked Gilt Outright Auction Result
28/01/2025	1330/0830	**	US	Durable Goods New Orders
28/01/2025	1355/0855	**	US	Redbook Retail Sales Index
28/01/2025	1400/0900	**	US	S&P Case-Shiller Home Price Index
28/01/2025	1400/0900	**	US	FHFA Home Price Index
28/01/2025	1400/0900	**	US	FHFA Home Price Index
28/01/2025	1430/1530		EU	ECB's Cipollone in panel on future of markets
28/01/2025	1500/1000	***	US	Conference Board Consumer Confidence
28/01/2025	1500/1000	**	US	Richmond Fed Survey
28/01/2025	1530/1030	**	US	Dallas Fed Services Survey
28/01/2025	1630/1130	**	US	US Treasury Auction Result for 2 Year Floating Rate Note
28/01/2025	1630/1130	*	US	US Treasury Auction Result for Cash Management Bill
28/01/2025	1700/1800		EU	ECB's Lagarde to mee t with Ursula von der Leyen
28/01/2025	1800/1300	**	US	US Treasury Auction Result for 7 Year Note
29/01/2025	0030/1130	***	AU	CPI Inflation Monthly
29/01/2025	0030/1130	***	AU	CPI inflation