MNI ASIA MARKETS ANALYSIS: Trump Tariff Threats Weigh on Rates

HIGHLIGHTS

• Treasuries receded early Wednesday following Pres Trump’s tariff threat towards Russia over Ukraine war.
• Lite data with MBA composite mortgage applications increased 0.1%, Leading Indicator fell 0.1% MoM.
• Equities rallied, SPX Eminis nearing early December all-time highs as chip stocks led gainers. 

MNI US TSYS: Decent 20Y Bond Auction Re-Open Helped Treasuries Bounce Off Lows

• Treasuries look to finish weaker Wednesday, off midday lows after the $13B 20Y Bond auction finally broke a string of poorly received sales, trading 1bp through: 4.900% high yield vs. 4.910% WI; 2.750x bid-to-cover vs. prior month's 2.50x.
• Lite data session: MBA composite mortgage applications increased 0.1% last week (sa) to consolidate the 33% jump the week prior; US DEC. LEADING INDICATOR FALLS 0.1% M/M; EST. -0.1% (Bbg).
• Late short covering saw the Mar'25 10Y contract trades 108-20 (-3.5) vs. 108-14 low, well above initial technical support at 108-00/107-06 (Low Jan 16 / 13 and the bear trigger). 10Y yield gained .0122 to 4.5886, curves flatter: 2s10s -.050 at 29.961, 5s30s -2.161 at 38.997.
• Pres Trump’s tariff threat towards Russia weighed on Treasuries earlier in the session while underpinning US$ (BBDXY +.08 t 1302.69 late). Higher core yields have also been supportive of this price dynamic, while a 4bp move for 5-year treasury yields also provided support to the broader dollar index.
• Cross asset roundup: Spot gold has risen by a further 0.4% to $2,756/oz on Wednesday, bringing the yellow metal to its highest level since October 31. WTI lost some ground on the day, with outages on the US gulf coast bearish for oil. However, it has struggled for clear direction, with earlier movement driven by Trump comments towards the war in Ukraine. WTI Mar 25 is down by 0.5% at $75.4/bbl.

SOFR FIXES AND PRIOR SESSION REFERENCE RATES
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SOFR Benchmark Settlements:

• 1M +0.00270 to 4.30483 (+0.00443/wk)
• 3M +0.00630 to 4.29664 (+0.00655/wk)
• 6M +0.01011 to 4.26221 (+0.00840/wk)
• 12M +0.01255 to 4.20721 (+0.01296/wk)

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.29% (+0.00), volume: $2.361T
• Broad General Collateral Rate (BGCR): 4.27% (+0.00), volume: $894B
• Tri-Party General Collateral Rate (TGCR): 4.27% (+0.00), volume: $875B
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $100B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $298B

FED Reverse Repo Operation

RRP usage rebounds to $123.981B this afternoon from yesterday's $96.015B. Compares to Thursday Jan 16 low of $94.489B, the lowest level since mid-April 2021. The number of counterparties remains steady at 44.

US SOFR/TREASURY OPTION SUMMARY

Large Sep'25 SOFR put fly & various Mar'25 10Y Treasury put flows carried over from overnight. Projected rate cuts through mid-2025 running largely steady vs. this morning's levels (*) as follows: Jan'25 at -0.1bp, Mar'25 at -6.4bp, May'25 at -11.9bp (-12.4bp), Jun'25 at -21.6bp (-22.7bp), Jul'25 steady at -26.1bp.

SOFR Options:
+7,000 0QG5 96.25/96.31 call spds, 1.0 ref 96.01
+10,000 SFRH5 95.62/95.68 2x1 put spds, 0.25
+5,000 SFRN5 94.87/95.25 put spds, 4.5 vs. 95.95/0.10%
+3,000 SFRM5 95.62/95.75 put spds, 3.75 vs. 95.895/0.10%
+5,000 0QN5 94.87/95.25 put spds, 4.5 vs. 95.99/0.10%
+7,000 SFRU5 96.06/96.31 call spds 7.25 ref 95.98
+4,000 0QM5 96.31/96.56 call spds vs. SFRM5 96.00/96.25 call spds 1.5 net flattener
+2,500 2QM5 97.00/SFRM5 96.56 call spd, 0.5 flattener
2,650 0QU5 96 straddles, 39.5
8,000 SFRH5 95.87/96.00 call spds ref 95.76
42,000 SFRU5 95.37/95.62/95.87 put flys ref 95.975
1,600 SFRZ5 95.25/95.43/95.75 broken put trees ref 96.02

Treasury Options:
Block, 11,000 TYH5 113 calls 1 vs. 108-08.5/0.03%
+50,000 TYH5 102 puts, 1 ref 108-18, total volume over 55,000
2,500 TYJ5 110.5/112.5 call spds vs. 104.5/106.5 put spds ref 108-25
over 10,400 TYH5 107.5 puts, 19 last
over 9,300 TYH5 106.5 puts, 9 last
over 8,900 TYH5 108.5 puts, 41 last
2,500 TYH5 103/104.5/107 broken put flys ref 108-20.5
over 1,900 USH5 112 puts, 51 last

MNI BONDS: EGBs-GILTS CASH CLOSE: Risk Spreads Tighten Alongside Equity Gains

Core European yields rose Wednesday, with periphery/semi-core EGB spreads tightening.

• Bund and Gilt gains peaked in European morning trade, with the periphery/semi-core instruments appearing to lead the way in a session that saw European equities hit fresh record highs.
• The initial core bid faded and yields hit session highs toward the cash close, weighed down in part by higher oil prices following US President Trump's ultimatum to Russia on reaching a deal to end the war with Ukraine, and with US long-end supply looming later in the day.
• In a session with limited data, higher-than-expected UK public sector borrowing figures did little to impact Gilts, while ECB speakers at Davos including Lagarde brought no surprises and no major market reaction. Supply included Spanish and Finnish syndications, and Bund auction.
• The rise in German yields was roughly parallel across the curve at +2bp (5Y outperformed slightly), with the UK curve bear steepening.
• Periphery and semi-core EGB spreads to Bunds tightened, with OATs leading the way for a 2nd consecutive session following strong demand at Tuesday's 15Y syndication.
• Thursday's data slate is sentiment survey-focused, including French and EU confidence, with the UK GfK and CBI reports as well. 

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 2.1bps at 2.236%, 5-Yr is up 1.7bps at 2.335%, 10-Yr is up 2bps at 2.53%, and 30-Yr is up 2.2bps at 2.753%.
• UK: The 2-Yr yield is up 2.1bps at 4.355%, 5-Yr is up 1.4bps at 4.351%, 10-Yr is up 4.2bps at 4.632%, and 30-Yr is up 3.1bps at 5.182%.
• Italian BTP spread down 1bps at 107.1bps / French OAT down 3.2bps at 73.8bps 

MNI EGB OPTIONS: Seemingly No End To Europe Rate Upside

Wednesday's Europe rates/bond options flow included:

• DUG5 106.70/106.80cs, sold at 2.5 in 5k vs 1.25k at 106.675.
• DUH5 106.80/107.00/107.20c ladder, bought for 3 in 5k.
• RXH5 133.50/134.50cs, bought for 17.5 in 8.2k.
• RXH5 133.00/134.00/134.50/135.00c condor, bought for 18 in 1k.
• ERJ5 97.75/97.875/98.00c fly, bought for 2.5 in 3.9k.
• ERM5 98.00/98.25cs, bought for 2.75 in 3.4k.
• ERM5 97.87/97.75/97.62p fly bought for 2.5 in 14.8k, done straight and vs futures
• ERM5 98.00/98.50/99.00c fly, bought for 3 in 10k total
• ERM5 98.00/98.1875/98.375c fly 1x3x2, bought for 3.75 in 5k.
• ERM5 97.75/97.87/98.00c fly, bought for 1.25 in total 17k
• ERM5 97.875/98.00cs, bought for 4.5 in 5k.
• SFIK5 95.75/95.85/95.95c fly vs 95.50/95.40ps, bought the c fly for 0.75 in 5k.

MNI FOREX: Higher Core Yields/Equities Weighs on JPY, Supportive of EMFX Recovery

• Major equity indices have continued their impressive advance on Wednesday, consistently weighing on the Japanese Yen throughout the US session. This has allowed USDJPY to outperform, rising around 0.75% to 156.65 as we approach the APAC crossover. Higher core yields have also been supportive of this price dynamic, while a 4bp move for 5-year treasury yields also provided support to the broader dollar index.
• USDJPY move extends the rally from Tuesday’s lows to around 1% ahead of Friday’s BOJ meeting, where a hike is broadly expected, especially due to no market turbulence in the aftermath of Trump’s inauguration. Support to watch is 155.00, the 50-day EMA, and 154.48, a trendline drawn from the Sep 16 ‘24 high. Key resistance and the bull trigger remain at 158.87, the Jan 10 high.
• Elsewhere, initial price action saw the Euro extend its most recent strength, pushing to a new 2025 high of 1.0457 against the greenback. The rally was met with firm resistance at the 50-day EMA and the pair has subsequently drifted lower, back to 1.0415.
• Broader risk optimism has been particularly supportive of the emerging market FX basket, highlighted by a significant rally for the Brazilian Real. After breaking the psychological 6.00 mark, USDBRL picked up momentum through the 50-day EMA, extending session lows below 5.92 ahead of the close. All LatAm peers have also trade in a bullish manner.
• Additionally, EURPLN (-0.65%) looks set to close below the key 4.25 handle for the first time since the early onset of the pandemic, with the zloty buoyed by recent hawkish communication from the NBP.
• Canada retail sales and US jobless claims headlines the docket on Thursday, however, the focus may be on any commentary from political leader at the WEF in Davos.

MNI FX OPTIONS: Expiries for Jan23 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0295-00(E2.7bln), $1.0400(E1.9bln), $1.0425-40(E2.1bln)
• USD/JPY: Y155.00($1.7bln), Y156.00($987mln), Y156.15-20($561mln), Y156.50-60($734mln)
• GBP/USD: $1.2500(Gbp713mln), $1.2565(Gbp748mln)
• AUD/USD: $0.6200-05(A$1.8bln), $0.6260(A$695mln), $0.6300(A$1.1bln)
• NZD/USD: $0.5660-75(N$1.2bln)
• USD/CAD: C$1.4390-05($1.6bln), C$1.4450($1.1bln)

MNI US STOCKS: Late Equities Roundup: Holding Near Record Highs, Earnings Resume

• Stocks are drifting near midday highs late Wednesday semiconductor stocks helping SPX Eminis climb back near early December all-time highs (6178.75).
• Currently, the DJIA trades up 110.69 points (0.25%) at 44137.46, S&P E-Minis up 41.25 points (0.68%) at 6126, Nasdaq up 251.1 points (1.3%) at 20009.01.
• Information Technology and Communication Services sectors continued to outperform in the second half, chip stocks supporting the former as noted: Monolithic Power +8.53%, Nvidia +4.63%, Lam Research +3.66%, while Applied Materials gained 3.01%.
• Interactive media and entertainment stocks led gainers in the Communication Services sector: Netflix still up over 10% after some profit taking in the second half as subscriptions soar, Warner Bros +2.35%, Meta +1.77%.
• On the flipside, Utilities and Real Estate sectors continued to underperform in late trade, gas and multi-energy providers weighing on the former: Dominion Energy -4.54%, PG&E -3.01% while Edison International declined 3.63%.
• Investment trusts, particularly health care and industrial REITs weighed on the Real Estate sector: Ventas -2.95%, Healthpeak Properties -2.56% and Prologis -2.0%.
• Earnings expected to be announced after the close include: Steel Dynamics, Discover Financial Services, Hexcel Corp, Alcoa Corp, Knight-Swift Transportation and Kinder Morgan Inc.

MNI EQUITY TECHS: E-MINI S&P: (H5) Breaches Resistance

RES 4: 6178.75 High Dec 6 and key resistance   

• RES 3: 6163.75 High Dec 16 
• RES 2: 6148.00 High Dec 18
• RES 1: 6114.75 Intraday high           
• PRICE: 6116.00 @ 14:19 GMT Jan 22
• SUP 1: 5961.75 Low Jan 16        
• SUP 2: 5879.50/5809.00 Low Jan 15 / 13 and key S/T support
• SUP 3: 5784.00 Low Nov 4
• SUP 4: 5698.25 50.0% retracement of the Aug 5 - Dec 6 bull leg

S&P E-Minis are trading higher this week, marking an extension of last week’s bull phase. Gains undermine a recent bearish theme. The contract has traded through the 50-day EMA and attention is on resistance at 6107.50, the Dec 26 high. It has been pierced, a clear break would strengthen a bullish theme. This would open 6178.75, the Dec 6 high and key resistance. Initial support to watch is 5961.75, the Jan 16 low. 

MNI COMMODITIES: Gold Extends Gains, Crude Edges Down

• Spot gold has risen by a further 0.4% to $2,756/oz on Wednesday, bringing the yellow metal to its highest level since October 31.
• The gains come as President Trump widened his tariff threats to include China and the EU, with talk of a 10% tariff being imposed on China.
• The clear break of key short-term resistance at $2,726.2, the Dec 12 high, this week strengthens a bullish theme and signals scope for an extension near-term. Sights are on $2,790.1, the Oct 31 all-time high.
• Meanwhile, WTI lost some ground on the day, with outages on the US gulf coast bearish for oil. However, it has struggled for clear direction, with earlier movement driven by Trump comments towards the war in Ukraine.
• WTI Mar 25 is down by 0.5% at $75.4/bbl.
• The prospect of 25% tariffs on imports from Canada starting February 1 is an upside risk to US fuel prices.
• The trend structure in WTI futures remains bullish despite the latest pullback, with attention on $79.48, the Apr 12 ‘24 high.
• Support to watch is the 20-day EMA, at $74.20.
• Henry Hub has surged today, supported by updated weather forecasts of colder temperatures ahead.
• US Natgas Feb 25 is up by 5.8% at $3.97/mmbtu.

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
23/01/2025	0745/0845	**	FR	Manufacturing Sentiment
23/01/2025	0900/1000	***	NO	Norges Bank Rate Decision
23/01/2025	1000/1000	**	GB	Gilt Outright Auction Result
23/01/2025	1100/0600	***	TR	Turkey Benchmark Rate
23/01/2025	1100/1100	**	GB	CBI Industrial Trends
23/01/2025	1330/0830	**	CA	Retail Trade
23/01/2025	1330/0830	***	US	Jobless Claims
23/01/2025	1500/1600	**	EU	Consumer Confidence Indicator (p)
23/01/2025	1530/1030	**	US	Natural Gas Stocks
23/01/2025	1600/1100	**	US	DOE Weekly Crude Oil Stocks
23/01/2025	1600/1100	**	US	Kansas City Fed Manufacturing Index
23/01/2025	1630/1130	*	US	US Bill 08 Week Treasury Auction Result
23/01/2025	1630/1130	**	US	US Bill 04 Week Treasury Auction Result
23/01/2025	1800/1300	**	US	US Treasury Auction Result for TIPS 10 Year Note
24/01/2025	2200/0900	***	AU	Judo Bank Flash Australia PMI
24/01/2025	2330/0830	***	JP	CPI
24/01/2025	0001/0001	**	GB	Gfk Monthly Consumer Confidence
24/01/2025	0030/0930	**	JP	Jibun Bank Flash Japan PMI
24/01/2025	0300/1200	***	JP	BOJ Policy Rate Announcement