MNI ASIA OPEN: Heavy Short End Sales Weighs on Rate Cut Odds

EXECUTIVE SUMMARY

• MNI US-CHINA: Xi Holds Call w/President-Elect Trump-Xinhua
• MNI FED: Cleveland's Hammack Tells WSJ Fed Can Be "Very Patient" On Cuts
• MNI US DATA: Housing Construction Point To Positive Resi Invt Contribution In Q4
• MNI US DATA: GDPNow Little Swayed By Data Beats But Still Strong At 3%
• MNI US DATA: Industrial Production Sees A Strong Dec But Tepid Q4

US

MNI FED: Cleveland's Hammack Tells WSJ Fed Can Be "Very Patient" On Cuts

Cleveland Fed Pres Hammack (not a 2025 voter) continues to sound hawkish in a WSJ interview, following her surprise dissent in December to the 25bp rate cut. She emphasizes patience in considering future cuts, describing current policy as only modestly restrictive, but also noting that the rise in longer-end yields represents a tightening of financial conditions that will help dampen inflation. Overall she doesn't sound opposed to further cuts per se, but would require significant convincing from the data.

NEWS

MNI US-CHINA: Xi Holds Call w/President-Elect Trump-Xinhua

Xinhua reporting that Chinese President Xi Jinping has held a phone call with US President-elect Donald Trump. This marks the first call between the two men since Trump's election win in November. Earlier it was confirmed that Xi will not be taking up Trump's invite to the presidential inauguration on 20 Jan, but will send his vice-president Han Zheng as a special representative. Trump: "I just spoke to Chairman Xi Jinping of China. The call was a very good one for both China and the U.S.A. It is my expectation that we will solve many problems together, and starting immediately. We discussed balancing Trade, Fentanyl, TikTok, and many other subjects. President Xi and I will do everything possible to make the World more peaceful and safe!"

MNI US: CNN-Trump Inauguration To Be Moved Indoors Due To Freezing Temperatures

Kaitlan Collins at CNN posts on X: "Due to the dangerously cold temperatures expected Monday, President-elect Trump's inauguration is moving indoors, sources tell Alayna Treene, Kate Sullivan and me. Expect Trump and Vance to be sworn in inside the Capitol Rotunda."

• Moving the swearing-in indoors is unlikely to affect the schedule for the inauguration, with the 20th Amendment to the Constitution declaring that the outgoing president's term ends at 1200ET, meaning there will remain a strong effort to get Trump's swearing-in as close to that point as possible, whether indoors or outside. 

MNI US: House Freedom Caucus Complicates Republican Reconciliation Agenda

The conservative House Freedom Caucus has outlined their preferred strategy for legislating the 2025 Republican agenda, pushing against House Speaker Mike Johnson’s (R-LA) plan to include the bulk of the agenda in one huge reconciliation bill. The group’s plan also rejects Johnson’s preferred option of addressing the debt limit in a standalone bipartisan bill. The HFC position will add further uncertainty to Johnson's ambitious mid-April timeline for a House vote on a reconciliation package.

MNI BRIEF: Internat'l Finance Bodies Still Needed - BOE Bailey

Bank of England Governor Andrew Bailey said Friday that with destructive nationalism returning and a growing hostility to global bodies, international institutions like the IMF and World Bank had to be supported and improved. In a speech at King's College, Cambridge, just days ahead of U.S. President Donald Trump's inauguration, Bailey said that many of the challenges. including financial stabiltiy, cannot be fixed within national borders but the environment for international solutions was tougher.  "We may end up with shallow multilateralism, and that may or may not be a helpful outcome," he said.

MNI SOUTH KOREA: Investigators Seek Arrest Warrant For Yoon

Yonhap News reporting that the Senior Civil Servants' Corruption Investigation Office (CIO) is seeking an arrest warrant for suspended President Yoon Suk-yeol. The request comes at the end of the 48-hour period during which Yoon has been detained for questioning over his role in the short-lived imposition of martial law in Dec 2024. Following the end of the questioning period, in which Yoon maintained his right to silence, investigators were obliged to either request a formal arrest warrant or release the president. 

MNI ISRAEL: Security Cabinet Starts Meeting On Gaza Ceasefire Deal

The Security Cabinet is meeting to sign off on the Gaza ceasefire-for-hostages deal after PM Benjamin Netanyahu confirmed that his negotiating team in Doha had approved a final agreement. After the Security Cabinet approves the deal it will then move to the full Cabinet on the evening of 18 Jan. So far the two ultranationalist parties in gov't, Security Minister Itamar Ben-Gvir's Otzma Yehudit (OY) and Finance Minister Bezalel Smotrich's Religious Zionism (RZ) have both raised objections. 

MNI GERMANY: Major Poll Sees CDU-SPD Or CDU-Green Coalitions Possible, AfD Second

The first 'multilevel regression and post-stratification poll' (MRP) from YouGov of the federal election campaign shows the main opposition centre-right Christian Democratic Union (CDU) on course to emerge as the largest party, with 222 of the 630 seats in the Bundestag. If this poll is reflected in the final results, the CDU (and its Bavarian sister party the Christian Social Union) would be able to form a two-party gov't with either Chancellor Olaf Scholz's centre-left Social Democrats (SPD) or Economy Minister Robert Habeck's environmentalist Greens.

MNI US TSYS: Tsy Curves Twist Flatter, Heavy Short End Sales Ahead Inauguration

• Treasuries look to finish mixed Friday, well off early session highs with heavy short end selling weighing across the strip while curves twisted flatter (2s10s -4.357 at 33.679, 5s30s -2.657 at 43.037).
• Massive -46k Mar'25 2Y futures sale triggered a broad based reversal by midmorning, while morning headlines that incoming President Trump held a call with China President Xi elevated volatility. Descriptions of a positive tone for China/US relations provided a boost for the Chinese Yuan.
• A surprise $10B 5-tranche debt issuance from Bank of America contributed to selling in rates.
• Generally positive data: Industrial production surprisingly jumped 0.9% M/M (cons 0.3) in Dec after an upward revised 0.2% M/M (initial -0.1%). Utilities may have helped with their 2.1% M/M increase (strongest since May) but manufacturing production was also stronger than expected with 0.6% M/M (cons 0.2%) after an upward revised 0.4% M/M (initial 0.2%).
• Building permits were a little higher than expected in December at 1483k (cons 1460k) for little change from 1493k in Nov. Housing starts meanwhile, which are more prone to weather disruption, surprisingly jumped to 1499k (cons 1327k) after 1294k in Nov.
• Reminder, the Federal Reserve enters their policy Blackout at midnight tonight through January 30.
• Corporate earnings pick up in earnest next week, headliners expected to announce next Tuesday include KeyCorp, DR Horton Inc, Charles Schwab, Prologis Inc and 3M Co before the market opens, Fifth Third Bancorp, Netflix Inc, Interactive Brokers, United Airlines, Seagate Technology and Capital One Financial after the market closes.

OVERNIGHT DATA

MNI US DATA: Industrial Production Sees A Strong Dec But Tepid Q4

Industrial production bounced in December with solid underlying drivers although it only helps reverse some weakness in late Q3/early Q4. With signs of a recent pick-up in orders, it will be worth watching production in the next few months ahead. 

• Industrial production surprisingly jumped 0.9% M/M (cons 0.3) in Dec after an upward revised 0.2% M/M (initial -0.1%).
• Utilities may have helped with their 2.1% M/M increase (strongest since May) but manufacturing production was also stronger than expected with 0.6% M/M (cons 0.2%) after an upward revised 0.4% M/M (initial 0.2%).
• Whilst these are the strongest monthly increases for industrial and manufacturing production since Feb and May respectively, heavy declines in Sep-Oct continue to dampen recent trend rates at -1% annualized.
• There are some signs of strength ahead though, with core durable goods orders running hotter recently and with strong increases in latest surveys such as the Philly Fed manufacturing index and NFIB.
• Capacity utilization meanwhile surprisingly increased to 77.6% from an upward revised 77.0%, for its highest since August. 

MNI US DATA: Housing Construction Point To Positive Resi Invt Contribution In Q4

• Building permits were a little higher than expected in December at 1483k (cons 1460k) for little change from 1493k in Nov.
• The modest -0.7% M/M decline came as single family units (+1.6% M/M after 0.5%) helped partly offset multi-units pulling back after a sharp increase (-5% M/M after +15.4%).
• Housing starts meanwhile, which are more prone to weather disruption, surprisingly jumped to 1499k (cons 1327k) after 1294k in Nov.
• The 16% increase came as single family units increased 3% M/M after 8% whilst the volatile multi-unit component jumped 62% after -31%, highlighting just how noisy the data can be.
• Looking through some of the noise, the quarterly trend of some stabilization after recent declines should continue to see residential investment set to contribute positively to GDP growth in Q4 after an average -0.15pp annualized through Q2-Q3. Yesterday’s Atlanta Fed GDPNow put this contribution at 0.13pp, due an update later today when also taking IP data into account.  

MNI US DATA: GDPNow Little Swayed By Data Beats But Still Strong At 3%

• The Atlanta Fed’s GDPNow for Q4 was unrevised at 3.0% annualized (only lifted from 2.96 to 2.99 unrounded) despite stronger than expected and strong bounces for housing starts and industrial production.
• A modest upward revision for personal consumption was offset by a slightly larger inventory drag.
• The next update isn’t until Jan 28 in what will be the penultimate estimate before the advance Q4 release on Jan 30.
• It implies further robust real GDP growth after the 3.1% in Q3 and 3.0% in Q2.
• Domestic demand contributions continue to look strong, pointing to 3.4pp after the 3.7pp in Q3 was the strongest since 1Q23.
• Within that, consumer spending is seen adding 2.5pp in Q4 to match the strong 2.5pp in Q3. 

MNI CANADA DATA: Foreign Investors Piled Into Canadian T-Bills In November

• Foreign holdings of Canadian securities increased a further C$16.4bn in Nov after two strong months of C$21.6bn in Oct and C$29.7bn in Sept.
• The press release notes it was led by “an unprecedented investment in money market instruments”.
• Indeed, the C$15.3bn of net purchases in T-bills dwarfed the next largest single monthly increase of C$11.8bn from May 2023.  
• It saw net foreign investment in Canadian government bonds sum to C$108bn in the first eleven months of the year vs the previous recent high of C$81bn at this point in 2020. The federal govt bonds equivalent sums to C$89bn vs a previous high of C$52bn.
• Canadian investors meanwhile increased their holdings of foreign securities by C$17.8bn in Nov, the most since Mar 2024. 

MARKETS SNAPSHOT

Key market levels of markets in late NY trade:
DJIA up 382.62 points (0.89%) at 43536.89
S&P E-Mini Future up 65.25 points (1.09%) at 6040.5
Nasdaq up 307.9 points (1.6%) at 19646.26
US 10-Yr yield is down 0.4 bps at 4.6087%
US Mar 10-Yr futures are down 2/32 at 108-17.5
EURUSD down 0.0023 (-0.22%) at 1.0278
USDJPY up 1 (0.64%) at 156.16
WTI Crude Oil (front-month) down $0.78 (-0.99%) at $77.91
Gold is down $11.23 (-0.41%) at $2703.07

European bourses closing levels:
EuroStoxx 50 up 41.37 points (0.81%) at 5148.3
FTSE 100 up 113.32 points (1.35%) at 8505.22
German DAX up 248 points (1.2%) at 20903.39
French CAC 40 up 75.01 points (0.98%) at 7709.75

US TREASURY FUTURES CLOSE

3M10Y +0.087, 30.467 (L: 25.693 / H: 31.372)
2Y10Y -4.578, 33.458 (L: 33.247 / H: 37.803)
2Y30Y -5.442, 56.9 (L: 56.189 / H: 61.919)
5Y30Y -2.909, 42.785 (L: 41.543 / H: 45.56)
Current futures levels:
Mar 2-Yr futures down 2.125/32 at 102-23.625 (L: 102-23 / H: 102-26.75)
Mar 5-Yr futures down 3.25/32 at 106-5.25 (L: 106-03.25 / H: 106-12)
Mar 10-Yr futures down 1.5/32 at 108-18 (L: 108-14.5 / H: 108-27.5)
Mar 30-Yr futures up 3/32 at 113-3 (L: 112-26 / H: 113-20)
Mar Ultra futures up 2/32 at 117-29 (L: 117-18 / H: 118-24)

MNI US 10YR FUTURE TECHS: (H5) Corrective Cycle In Play

• RES 4: 111-20+ High 6 and the bull trigger
• RES 3: 110-25   High Dec 12  
• RES 2: 109-18+ 50-day EMA 
• RES 1: 108-27+109-06 Intraday high / High Dec 31
• PRICE:‌‌ 108-22+ @ 11:17 GMT Jan 17
• SUP 1: 107-06   Low Jan 13 and the bear trigger   
• SUP 2: 107-04   Low Apr 25 ‘24 and a key support 
• SUP 3: 107-00   Round number support
• SUP 4: 106-11   2.00 proj of the Oct 1 - 14 - 16 price swing  

The medium-term trend condition in Treasury futures remains bearish, however Wednesday’s gains and yesterday’s follow through, highlight a stronger S/T corrective cycle. The contract has traded through the 20-day EMA, at 108-17. This exposes 109-06, the Dec 31 high, and 109-18+, the 50-day EMA. A clear break of the 50-day average is required to strengthen a bullish theme. The bear trigger has been defined at 107-06, the Jan 13 low.

SOFR FUTURES CLOSE

Mar 25 -0.005 at 95.770
Jun 25 -0.015 at 95.895
Sep 25 -0.035 at 95.965
Dec 25 -0.045 at 96.005
Red Pack (Mar 26-Dec 26) -0.045 to -0.035
Green Pack (Mar 27-Dec 27) -0.03 to -0.015
Blue Pack (Mar 28-Dec 28) -0.01 to -0.005
Gold Pack (Mar 29-Dec 29) steady

SOFR FIXES AND PRIOR SESSION REFERENCE RATES
​​​​​​​
SOFR Benchmark Settlements:

• 1M +0.00168 to 4.30400 (-0.00214/wk)
• 3M -0.00308 to 4.29009 (+0.00308/wk)
• 6M -0.00832 to 4.25381 (+0.00923/wk)
• 12M -0.01376 to 4.19425 (+0.01592/wk)

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.29% (+0.01), volume: $2.318T
• Broad General Collateral Rate (BGCR): 4.27% (+0.01), volume: $884B
• Tri-Party General Collateral Rate (TGCR): 4.27% (+0.01), volume: $864B
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $109B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $309B

FED Reverse Repo Operation

RRP usage rebounds from yesterday's $94.489B, the lowest level since mid-April 2021, to $118.327B this afternoon. The number of counterparties slips to 32 from 34.

MNI PIPELINE: Corporate Bond Issuance Roundup: $10B BoA 5Pt Launched

Surprise $10B Bank of America 5pt debt issuance launched recently - rate locks contribute to today's sell pressure in rates. Note, BoA supply is the largest since January 6 when Saudi Arabia issued $12B over 3 tranches.

• Date $MM Issuer (Priced *, Launch #)
• 01/17 $10B #Bank of America $2.5B 4NC3 +65, $750M 4NC3 SOFR+83, $2.75B 6NC5 +75, $500M 6NC5 SOFR+101, $11NC10 +90
• 01/17 $1B *Kommuninvest WNG 3Y SOFR+34
• 01/17 $1B #Saskatchewan WNG 5Y SOFR +56

MNI FOREX: USD Index Ending on Front Foot Amid Trump/Xi Headline Induced Volatility

• Volatility in FX markets on Friday was stoked by headlines surrounding a meeting between President-Elect Trump and China President Xi. Descriptions of a positive tone for China/US relations provided a boost for the Chinese Yuan. USDCNH fell from around 7.3580 to 7.3330 very quickly, before then stabilising ~7.3450 ahead of the close.
• EURJPY had the most impressive move following the news and the more optimistic risk sentiment. After oscillating around the psychological pivot of 160.00, the pair rose a little over 100 pips to a 161.01 high, which coincided with EURUSD having a sharp move higher from 1.0265 to 1.0330 in short order.
• Since then, the US dollar has traded on the front foot, and the USD index is tracking close to session highs around 109.30, and only down a moderate 30 pips on the week. The bullish trend for the greenback remains broadly intact as President-Elect Trump’s inauguration swiftly approaches.
• This dynamic led USDJPY back above 156.00 into the close, up 0.65% on the day. The 50-day EMA had been touted as an important technical level for the pair, and this average managed to support USDJPY well overnight. The pair briefly tested the post US data highs from Thursday at 156.35, having recovered ~135 pips from the Friday APAC lows.
• GBPUSD underperformance stands out on Friday, registering a daily low of 1.2161 on the back of weaker-than-expected UK retail sales. These followed yesterday's disappointing activity data and should, on the margin, underpin ongoing UK growth / fiscal concerns.
• On Monday, US President-elect Donald Trump will be sworn in as the 47th President of the United States. The market could experience significant turbulence if Trump follows through with plans to sign up to 100 executive orders on Day 1. Focus will also be on next week’s BOJ meeting.

MONDAY/TUESDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
20/01/2025	0700/0800	**	DE	PPI
20/01/2025	1000/1100	**	EU	Construction Production
20/01/2025	-		EU	ECB's Lagarde and Cipollone in Eurogroup meeting
20/01/2025	1530/1030	**	CA	BOC Business Outlook Survey
21/01/2025	0700/0700	***	GB	Labour Market Survey
21/01/2025	1000/1100	***	DE	ZEW Current Expectations Index
21/01/2025	-		EU	ECB's De Guindos in ECOFIN Meeting
21/01/2025	1330/0830	***	CA	CPI
21/01/2025	1330/0830	**	US	Philadelphia Fed Nonmanufacturing Index
21/01/2025	1630/1130	*	US	US Treasury Auction Result for 26 Week Bill
21/01/2025	1630/1130	*	US	US Treasury Auction Result for 13 Week Bill
21/01/2025	1800/1300	*	US	US Treasury Auction Result for Cash Management Bill
21/01/2025	1800/1300	**	US	US Treasury Auction Result for 52 Week Bill
22/01/2025	2145/1045	***	NZ	CPI inflation quarterly
22/01/2025	0001/0001	*	GB	Brightmine pay deals for whole economy