MNI ASIA OPEN: Fed Gov Waller Champions Rate Cuts
EXECUTIVE SUMMARY
- MNI US DATA: Surprisingly Healthy Initial Jobless Claims
- MNI US: Trump Considering National Emergency To Enact Universal Tariffs, CNN
- MNI: Fed Minutes-Upside Inflation Risks Warrant Slower Easing
- MNI FED: Gov Waller Continues To Forcefully Argue For Cuts, Unconcerned By Tariffs
- MNI US DATA: Softest ADP Employment Growth Since August
US
MNI: Fed Minutes-Upside Inflation Risks Warrant Slower Easing
Federal Reserve officials in December said it was near time to slow the pace of interest rate cuts, citing rising upside risks to inflation and elevated uncertainty over potential changes in trade and immigration policy from incoming Republican leadership, according to minutes of the meeting released Wednesday. The FOMC lowered the fed funds rate to a range of 4.25% to 4.5% at the meeting, a third straight cut, but also trimmed their median forecast for rate reductions next year to two from four in September. The vast majority of officials supported the move, though some officials said there was merit in keeping the rate unchanged, the minutes said.
MNI FED: Gov Waller Continues To Forcefully Argue For Cuts, Unconcerned By Tariffs
Gov Waller's speech (called "Challenges Facing Central Bankers") Wednesday is largely in line with Chair Powell's post-December press conference commentary: further rate cuts are expected if the economy unfolds as expected. But Waller is more forceful on the outlook for cuts than Powell (and apparently more dovish than the median FOMC voter who sees just 50bp of cuts in 2024).
- Waller says: "minimal further progress [on inflation] has led to calls to slow or stop reducing the policy rate. However, I believe that inflation will continue to make progress toward our 2 percent goal over the medium term and that further reductions will be appropriate." Note the "will be". Powell in contrast, albeit speaking for the FOMC as a whole: "we are at or near a point at which it will be appropriate to slow the pace of further adjustments".
NEWS
MNI US: Trump Considering National Emergency To Enact Universal Tariffs, CNN
CNN reporting that US President-elect Donald Trump is considering, “declaring a national economic emergency to provide legal justification" to enact universal tariffs on "allies and adversaries” citing four sources who confirmed that no final decision has been made. According to CNN, the “declaration would allow Trump to construct a new tariff program by using the International Economic Emergency Powers Act [IEEPA] which unilaterally authorizes a president to manage imports during a national emergency.”
MNI US: Deficit Hawks Warn Against Debt Limit Hike Ahead Of Key Trump Meetings
Axios reports that a handful of deficit hawks from the House Freedom Caucus could sink the entire Republican agenda if House Speaker Mike Johnson (R-LA) follows through with plans to attach a debt ceiling hike to a huge multi-item reconciliation bill. Axios notes that Reps. Andy Biggs (R-AZ) and Tim Burchett (R-TN) "have never voted to increase the debt ceiling," with Rep. Rich McCormick (R-GA) noting: "I heard that there are three people that will not vote for a debt ceiling lift, which already kills the bill,"
MNI US: MNI POLITICAL RISK - Trump Scrambles Outlook w/Hawkish Presser
US President-elect Donald Trump delivered a wide-ranging press conference at his Mar-a-Lago resort in Florida yesterday. The most extensively reported comments related to Trump’s refusal to rule out ‘military or economic coercion’ to acquire sovereignty over the Panama Canal, Canada, and Greenland. Inside: A full summary of key comments relating to energy, foreign policy, trade, and legislation.
MNI DENMARK: Greenland PM To Meet w/King Following Trump Jr. Visit
Greenlandic Prime Minister Múte Egede will meet with King Frederik X at 1400CET amid intense national and international political focus on the future of Greenland. The meeting was initially called off by Egede on the evening of 7 Jan citing 'calendar gymnastics' but was this morning reinstated at an earlier time. This followed the controversial visit of Donald Trump Jr. to the capital, Nuuk, on the same day. Speaking at a presser on 7 Jan, US President-elect Donald Trump when asked whether he would rule out using military or economic force to take control of Greenland (or indeed the Panama Canal) Trump responded "No, I can't assure you either of those two. But I can say this: we need them for economic security. We need Greenland for national security purposes."
MNI FRANCE: PS Agree To Talks w/Bayrou Gov't On Budget
On 7 Jan, a meeting of deputies from the centre-left Socialist Party (PS) agreed to engage with the minority gov't of PM Francois Bayrou to try to reach agreement on a state budget for 2025. With under a week to go until Bayrou's general policy speech to the National Assembly on Tuesday 14 Jan, swift progress will be needed in order for an agreement to be reached. It is expected that a budget will be put forward a short time after the policy speech.
(BBG) German Factory Orders Drop in Pre-Election Blow to Scholz
German factory orders dropped the most in three months, highlighting industry’s woes just weeks before Chancellor Olaf Scholz faces elections. Demand fell 5.4% in November from the previous month, far worse than the 0.2% decline economists had predicted in a Bloomberg survey. That’s due to a drop in large-scale orders. Stripping out that element, the gauge would have increased by 0.2%, the statistics office said.
MNI US TSYS: Rates & Stocks Still Prone to Headline Sensitivity
- Markets remain sensitive to headline risk Wednesday, stocks and rates sold off after early headlines reported Trump is considering declaring a state of emergency to enact universal tariffs (opposite reaction from Monday's early rally on WAPO article that suggested a watered down tariff plan). Mar'25 10Y futures breached round number support to 107-28.5 low, 10Y yield hit a high of 4.7280% on the move.
- Rates and stocks bounced after Fed Gov Waller argued for further rate cuts if the economy unfolds as expected, while adding he doesn't see tariffs as being inflationary. Mar'25 10Y futures climbed to 108-09 while curves climbed to new/near 3Y highs (2s10s 42.887, 5s30s 48.363).
- Muted reaction to jobless claims data that were on balance a little better than expected (201k vs. 215k est), ADP employment was softer than expected in December at 122k (cons 140k) after an unrevised 146k in Nov.
- Risk sentiment cooled slightly after the December FOMC minutes underscored a shift toward a slower pace in cutting rates citing rising upside risks to inflation and elevated uncertainty over potential changes in trade and immigration policy from incoming Republican leadership.
- Reminder: Open outcry and CME Globex trading session for interest rate products will have an early close of 1300 ET and 1315ET, respectively on January 9, 2025. All transactions submitted on CME ClearPort will have normal hours. Settlement prices will be derived at 1300ET. Sole data point tomorrow: Challenger Job Cuts at 0730ET; Tsy 4- and 8W bill auctions, and several Fed speakers through the day.
OVERNIGHT DATA
MNI US DATA: Surprisingly Healthy Initial Jobless Claims
The jobless claims data were on balance a little better than expected. New claims hit their lowest single week since Feb’24 and with the four-week average not too far off at its lowest since April, but continuing claims surprised a touch higher. It looks like the trend of companies managing headcount through slower rehiring rather than layoffs is still intact.
- Initial jobless claims surprised lower at 201k (sa, cons 215k) in the week to Jan 4 after an unrevised 211k.
- The four-week average fell 10k to 213k, its lowest since Apr’24 and through the 2019 average.
- Continuing claims on the other hand were a little higher than expected at 1867k (sa, cons 1860k) in the week to Dec 28 after a downward revised 1834k (initial 1844k).
- Timing of the festive period can make seasonal adjustment difficult but the non-seasonally adjusted 305k is at the low end of recent years.
- Note that by state, the 22.4k increase in NY (which drove the 21.3k increase in national claims) to 37.5k was in keeping with typical starts to the year.
MNI US DATA: Softest ADP Employment Growth Since August
- ADP employment was softer than expected in December at 122k (cons 140k) after an unrevised 146k in Nov.
- It’s the softest pace of ADP jobs growth since August.
- The lack of revisions left some large discrepancies with private payrolls in recent months (at least in the latest vintage for both), having undershot payrolls by 63k in Sep, overshoot by a huge 186k in Oct and then undershot again by 48k in Nov.
- The latest ADP employment data show nearly all job creation was in large companies (500+), continuing a recent theme.
MNI US DATA: Higher Long-End Rates Continue To Weigh On Mortgage Activity
- MBA composite mortgage applications extended their recent slide, albeit with a more modest -3.7% last week after a cumulative -22% in the two weeks prior covering the Christmas holiday period (all figures SA).
- Refis saw some very mild stabilization (+1.5% after a two week decline of -36%) with purchases instead leading the decline in the latest week (-6.6% after -13% over two weeks).
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA up 27.71 points (0.07%) at 42558.23
S&P E-Mini Future down 3.25 points (-0.05%) at 5950.75
Nasdaq down 38.9 points (-0.2%) at 19450.52
US 10-Yr yield is down 1 bps at 4.6749%
US Mar 10-Yr futures are up 2.5/32 at 108-8
EURUSD down 0.0029 (-0.28%) at 1.0311
USDJPY up 0.36 (0.23%) at 158.41
WTI Crude Oil (front-month) down $0.84 (-1.13%) at $73.41
Gold is up $10.61 (0.4%) at $2659.19
European bourses closing levels:
EuroStoxx 50 down 15.43 points (-0.31%) at 4996.39
FTSE 100 up 5.75 points (0.07%) at 8251.03
German DAX down 10.63 points (-0.05%) at 20329.94
French CAC 40 down 36.93 points (-0.49%) at 7452.42
US TREASURY FUTURES CLOSE
3M10Y -1.477, 35.792 (L: 33.889 / H: 41.363)
2Y10Y +0.657, 39.629 (L: 38.179 / H: 42.887)
2Y30Y +1.563, 63.333 (L: 61.559 / H: 67.466)
5Y30Y +1.489, 46.117 (L: 44.312 / H: 48.363)
Current futures levels:
Mar 2-Yr futures up 1.125/32 at 102-24 (L: 102-21.625 / H: 102-25)
Mar 5-Yr futures up 2.5/32 at 106-2.5 (L: 105-27.5 / H: 106-03.75)
Mar 10-Yr futures up 2.5/32 at 108-8 (L: 107-28.5 / H: 108-09.5)
Mar 30-Yr futures up 1/32 at 112-6 (L: 111-14 / H: 112-11)
Mar Ultra futures down 4/32 at 116-12 (L: 115-12 / H: 116-20)
MNI US 10YR FUTURE TECHS: (H5) Bearish Trend Sequence Intact
- RES 4: 111-20+ High 6 and the bull trigger
- RES 3: 110-25 High Dec 12
- RES 2: 110-04 50-day EMA
- RES 1: 109-04+ 20-day EMA
- PRICE: 108-02 @ 13:11 GMT Jan 08
- SUP 1: 107-28+ Intraday low
- SUP 2: 107-21+ Low May 29 ‘24 (cont)
- SUP 3: 107-19+ 1.618 proj of the Oct 1 - 14 - 16 price swing
- SUP 4: 107-04 Low Apr 25 ‘24 and a key support
The trend condition in Treasury futures is unchanged and remains bearish. This week’s fresh cycle low confirms a resumption of the downtrend. Price has traded through the 108-00 handle exposing 107-19+ next, a Fibonacci projection. Note too that moving average studies remain in a bear-mode position highlighting a dominant downtrend. Key short-term resistance is seen at 109-04+, the 20-day EMA.
SOFR FUTURES CLOSE
Mar 25 steady at 95.790
Jun 25 +0.015 at 95.915
Sep 25 +0.025 at 95.990
Dec 25 +0.030 at 96.025
Red Pack (Mar 26-Dec 26) +0.030 to +0.040
Green Pack (Mar 27-Dec 27) +0.015 to +0.025
Blue Pack (Mar 28-Dec 28) +0.010 to +0.015
Gold Pack (Mar 29-Dec 29) +0.005 to +0.010
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00021 to 4.29764 (-0.01779/ wk)
- 3M +0.00387 to 4.28903 (-0.00466/wk)
- 6M +0.01239 to 4.25796 (+0.01601/wk)
- 12M +0.02416 to 4.20968 (+0.04497/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.27% (+0.00), volume: $2.322T
- Broad General Collateral Rate (BGCR): 4.26% (+0.00), volume: $858B
- Tri-Party General Collateral Rate (TGCR): 4.26% (+0.00), volume: $842B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $99B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $284B
FED Reverse Repo Operation
RRP usage continues to recede, $185.144B this afternoon from $208.296 Tuesday. Compares to $98.356B on Friday, December 20 - the lowest level since mid-April 2021. The number of counterparties slips to 48 from 56.
MNI PIPELINE: Corporate Issuance Roundup: Over $23B to Price Wednesday
$23.15B to Price Wednesday, $119.65B total for the week
- Date $MM Issuer (Priced *, Launch #)
- 01/08 $6B *World Bank 7Y +54
- 01/08 $4.25B *IADB 5Y SOFR+42
- 01/08 $3B *Ontario 5Y SOFR+58
- 01/08 $2B *Indonesia $900M 5Y 5.3%, $1.1B 10Y 5.65%
- 01/08 $1.75B #Deutsche Bank $1.25B 4NC3 +105, $500M 4NC3 SOFR
- 01/08 $1.5B *Kommunalbanken 5Y +48
- 01/08 $1.5B #CoE Dev Bank 5Y SOFR+42
- 01/08 $1.4B #HF Sinclair $650B 6Y +135, $750M 10Y +162.5
- 01/08 $1.25B #Santander UK 6.25NC5.25 +125
- 01/08 $500M #Northwestern Mutual 5Y +50
- 01/08 $500M Novelis 5NC2
- 01/08 $Benchmark AIIB 5Y +47a
- 01/08 $Benchmark Codelco 10Y +170, 30Y +190
- May price Thursday
- 01/09 $Benchmark NWB 5Y SOFR+50a
MNI BONDS: EGBs-GILTS CASH CLOSE: Long-End UK Rout Continues
Gilts led a long-end selloff in the European government bond space Wednesday.
- A combination of weaker global long-duration bonds and UK-specific structural issues saw Gilts sell off sharply for a second consecutive session: 10Y yields hit the highest since 2008, with 30Y at fresh post-1998 highs.
- Bunds weakened in sympathy, with the softness in global core FI exacerbated by solid US jobless claims data, as well as dollar gains on overnight reports that Pres-elect Trump would make an emergency tariff declaration.
- Heavy supply also weighed, including Gilt, Bund, and Italian issuance, with French/Spanish auctions anticipated Thursday.
- German Factory orders and retail sales missed versus consensus but this did not move markets.
- Both the UK and German curves bear steepened. Semi-core/periphery EGB spreads narrowed slightly, however.
- Thursday sees the aforementioned supply, plus multiple data points including UK BRC shop price index, DMP inflation expectations, and KPMPG/REC jobs report, along with German trade/regional CPI.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 0.5bps at 2.201%, 5-Yr is up 2bps at 2.298%, 10-Yr is up 6.6bps at 2.549%, and 30-Yr is up 4.7bps at 2.764%.
- UK: The 2-Yr yield is up 4.5bps at 4.516%, 5-Yr is up 7.4bps at 4.523%, 10-Yr is up 11.3bps at 4.796%, and 30-Yr is up 10.9bps at 5.355%.
- Italian BTP spread down 1.7bps at 113bps / French OAT down 1.8bps at 80.5bps
MNI FOREX: Notable Sterling Weakness, GBPUSD Approaches 2024 Lows
- Despite the US Dollar being off its best levels of the session, the DXY is registering 0.5% gains on Wednesday. Broadly, yesterday’s US data has been a factor for the renewed optimism, although gains were exacerbated by reports that Trump is considering a national economic emergency declaration to allow for a new tariff program.
- Standing out in G10 FX has been sterling’s underperformance, particularly notable given the moves came alongside significant pressure on UK gilts, prompting 30-year yields to rise to the highest level since 1998.
- GBPUSD fell to the lowest level since April, with momentum picking up through the early European lows of 1.2440, prompting the pair to trade down to 1.2321. The trend condition in GBPUSD remains bearish and the sharp sell-off on Jan 2 confirmed a resumption of the medium-term downtrend. Should this short-term sentiment persist, the immediate focus will be on the 2024 lows at 1.2300 and 1.2266, the Nov 14 2023 low.
- In tandem, EURUSD eroded the rally from earlier in the week, and is now ~130 pips off the week’s highs and notably back below the prior breakdown point of 1.0335. The bear trigger has been defined at 1.0226, the Jan 2 low.
- The underperformance for UK assets has prompted a solid uptick for EURGBP on Wednesday, and a firm break above resistance at 0.8311, the 50-day EMA. We have reached a high of 0.8352 so far.
- In emerging markets, USDZAR has advanced 1.2% on the session, and made a fresh 7-month high in the process. Today’s gains have confirmed a resumption of the dominant uptrend. Sights are on the nearby round figure/Jun 6 high of 19.0000/19.0054, where a break would open 19.2696, the Apr 23 high.
- Australia retail sales and China CPI/PPI highlight Thursday’s calendar. Tomorrow is a US federal holiday for Jimmy Carter’s funeral before Friday’s employment report.
THURSDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 09/01/2025 | 0700/0800 | ** |  DE | Trade Balance |
| 09/01/2025 | 0700/0800 | ** | DE | Industrial Production |
| 09/01/2025 | 0900/1000 | *** | DE | North Rhine Westphalia CPI |
| 09/01/2025 | 0930/0930 |  GB | Decision Maker Panel data | |
| 09/01/2025 | 1000/1100 | ** |  EU | Retail Sales |
| 09/01/2025 | 1400/0900 |  US | Philly Fed's Pat Hrker | |
| 09/01/2025 | 1600/1600 | GB | BOE's Breeden Speech at University of Edinburgh | |
| 09/01/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 09/01/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 09/01/2025 | 1745/1245 | US | Fed's Barkin | |
| 09/01/2025 | 1835/1335 | US | Fed Gov Bowman | |
| 10/01/2025 | 2330/0830 | ** |  JP | Household spending |
