MNI ASIA OPEN: ISM Services Lower Than Expected, ADP Gains

EXECUTIVE SUMMARY

• MNI US Payrolls Preview: Revisions And Seasonality In Focus
• MNI: Fed's Goolsbee Warns Don't Underestimate Tariffs Effect
• MNI US DATA: Trade Deficit Continues To Widen On Domestic Demand, Tariff Concerns
• MNI US-JAPAN: Trump And Ishiba To Call For "Golden Age" Of Relations - Nikkei
• MNI US DATA: ISM Services Shows Solid If Mixed Activity As Prices Retrace Prior Rise
• MNI US DATA: ADP Surprisingly Firm After Extensive Annual Revisions

US

MNI: Fed's Goolsbee Warns Don't Underestimate Tariffs Effect

President Donald Trump's second-term tariffs could have a bigger more long-lasting impact on inflation than those of his first term, Federal Reserve Bank of Chicago President Austan Goolsbee warned Wednesday, adding the Fed's policy response will depend on the detailed drivers of any inflationary pressures that emerge this year.     

• "Compared to 2018, tariffs may apply to more countries or more goods or at higher rates, in which case the impact could turn out to be larger and longer lasting. We saw in Covid times that the more complex the supply chain, the longer it took to manage. The shocks might have started as transitory but quickly they became transitory, at best," Goolsbee said in remarks prepared for an automotive conference in Detroit, Michigan.

NEWS

MNI US-JAPAN: Trump And Ishiba To Call For "Golden Age" Of Relations - Nikkei

Nikkei reporting that US President Donald Trump and Japanese Prime Minister Shigeru Ishiba will issue a joint statement at a White House summit on Friday, calling for building a "golden age" of bilateral relations. Ishiba will be the second foreign leader, after Israeli Prime Minister Benjamin Netanyahu, to visit Trump at the White House. The meeting is likely to take place in the morning/afternoon as Trump has a dinner with Senate Republicans scheduled to take place at Mar-a-Lago in the evening.

MNI EUR: Focus on Activity Data & BoE Tomorrow

Mixed performance for the Euro against G10 peers on Wednesday, as softer US ISM Services prompts some EURUSD strength, however, the significant yen outperformance has weighed heavily on EURJPY (-1.00%), with price action supported by overnight Japanese wage figures.

MNI CANADA: PM Convenes Canada-US Economic Summit For 7 Feb Following Tariff Pause

Prime Minister Justin Trudeau has announced a Canada-US Economic Summit to take place in Toronto on Friday 7 February. In a press release, the PM's office said the summit will look to expand the work of the newly formed Council on Canada-US Relations and include leaders from trade, business, public policy, and organised labour. 

MNI ECB: Lane Joins de Guindos In Playing Down Role Of Neutral

Lane's speech draws upon familiar themes from the ECB January press conference, with policy needing to track a "middle path" to "balance the risks of moving too slowly against the risks of moving too quickly". The familiar data-dependent and meeting-by-meeting approach was unsurprisingly repeated. What is more notable is that another Executive Board member (after de Guindos earlier) has played down the relevance of the neutral rate in calibrating near-term policy.

(BBG) China Initiates WTO Dispute Complaint Regarding US Tariffs

China has requested World Trade Organization dispute consultations over new tariff measures applied by the United States on goods it exports, according to a WTO statement. China says additional 10% additional ad valorem duties inconsistent with US most-favored-nation obligations

MNI US TSYS: Treasuries Well Bid, Curves Bull Flatten Ahead Friday's Employ Data

• Treasuries look to finish near late session highs Wednesday, lower than expected ISM Services data spurring heavy buying across the board - ISM Services missed expectations at 52.8 (54.0 expected, 54.0 prior), with pullbacks prevalent in some key categories.
• ADP employment was stronger than expected in January at 183k (cons 150k) along with a solidly upward revised 176k (initial 122k) in Dec. Meanwhile, December's goods and services trade deficit was slightly wider than thought at $98.4B.
• No change to Treasury guidance on future issuance in the February Refunding policy statement, a modest dovish surprise vs many expectations that it would be watered down.
• The Mar'25 10Y contract has nearly made it back to pre-Dec 18 FOMC levels, topping at 109-29 high before slipping back to 109-24 (+17.5) after the bell. Curves bull flattened, 2s10s -6.344 to 23.336, 5s30s -2.856 at 39.718; 10Y yield slipped to session low of 4.4001%.
• The Greenback traded weaker on the data (BBDXY off lows at 1297.89 -2.69), Yen outperformance remained the key feature of the day in G10 currency markets, underpinned by the stronger-than-expected Japanese wage data.
• Additional cross asset moves, Gold hit new all-time high of 2882.29, Crude turned lower (WTI -1.49 at 71.21), Stocks reversed early weakness (SPX Eminis +12.0 at 60.75 vs. 6020.25 overnight low.
• Focus remains on Friday's headline employment data for January.

MNI US TSYS/SUPPLY: Refunding Maintains Guidance, But TBAC Thought Differently

There is no change to Treasury guidance on future issuance in the February Refunding policy statement, a modest dovish surprise vs many expectations that it would be watered down - "Based on current projected borrowing needs, Treasury anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters." However, an interesting note to the Treasury from the Treasury Borrowing Advisory Committee (TBAC), which "uniformly" urged Treasury to modify this guidance - so we wonder how close a call it was for Treasury:

MNI US TSYS/SUPPLY: TIPS Upped, Buyback Program "Broadly Meeting Objectives"

TIPS sizes were increased for the upcoming quarter as follows, as expected: "Over the February to April 2025 quarter, Treasury plans to maintain the February 30-year TIPS new issue auction size at $9 billion, increase the March 10-year TIPS reopening auction size by $1 billion to $18 billion, and increase the April 5-year TIPS new issue auction size to $25 billion." The quarterly auction schedule is here (PDF).

OVERNIGHT DATA

MNI US Payrolls Preview: Revisions And Seasonality In Focus

January’s employment report will receive almost as much attention for comprehensive revisions as for the monthly nonfarm payroll gains, which are expected to slow to 170-180k from December’s strong 256k. January is typically a difficult month to forecast payrolls (estimates range from 135k-225k), with a pronounced seasonal pattern that includes large post-holiday layoffs. PLEASE FIND THE FULL REPORT HERE: USNFPFeb2025Preview.pdf

MNI US DATA: ISM Services Shows Solid If Mixed Activity As Prices Retrace Prior Rise

The January ISM Services Index missed expectations at 52.8 (54.0 expected, 54.0 prior), with pullbacks prevalent in some key categories. That said, with the 7th consecutive monthly reading that is solidly above 50.0, the index continues to suggest robust services sector activity going into 2025.

• Prices paid at 60.4 (65.1 expected) was the main standout as it saw its biggest pullback since March 2024, though this was reversing December's outsized 5.9 point rise. The January level was still higher than any other reading in the 10 months between Feb-Nov 2024 (though the erratic prices movements at the turn of the year seem to persist in ISM services).

MNI US DATA: Final Services PMI As Expected, 31-Month High For Job Creation

The final January releases for the S&P Global US services and composite PMIs were broadly as expected, with a small upward revision from the flash release. Full press release here

• Services: 52.9 (cons 52.9, prelim 52.8) in January final after 56.8 in Dec.
• Composite: 52.7 (cons 52.5, prelim 52.4) in January final after 55.4 in Dec. The 55.4 in Dec was the highest since Apr 2022. 

MNI US DATA: ADP Surprisingly Firm After Extensive Annual Revisions

• ADP employment was stronger than expected in January at 183k (cons 150k) along with a solidly upward revised 176k (initial 122k) in Dec. This upward revision was just a small part of far-ranging revisions, with ADP employment growth now seen to have averaged 200k in Q4 vs a previously thought 151k.
• These upward revisions help reduce what was a particularly large undershoot of private payrolls in December, to -47k from -101k at the time.
• Payrolls data are still of course due to extensive revisions on Friday, but in the latest vintages of data, ADP has had a particularly mixed few months as an indicator for private payrolls, undershooting by -47k in Dec having overshot by 22k in Nov and a huge 212k in Oct.

MNI US DATA: Trade Deficit Continues To Widen On Domestic Demand, Tariff Concerns

December's goods and services trade deficit was slightly wider than thought at $98.4B ($1.6B bigger than expected), and a sharp rise from $78.9B in November (upwardly revised $0.7B). This was easily the biggest monthly nominal deficit since March 2022, and the 2nd largest in history. Since nominal GDP has growth starongly in the last couple of years however, the deficit is closer to 3.4% of GDP, the highest since Q3 2022 but below the 4+% deficits that year and in the early 2000s.

• The goods deficit expanded sharply, to $122.0B ($104.0B Nov), a nominal record and around 4.4% of GDP, while the services surplus dipped slightly to $24.5B ($25.1B Nov), around 1% of GDP. Good exports fell 4.2% with imports rising 4.0% (the latter to a record), with services exports / imports up 0.5% / 1.4%, respectively. Overall goods and services exports were down 2.6% with imports up 3.5% for a second consecutive month.

MNI US DATA: Mortgage Applications Track Sideways

• MBA composite mortgage applications increased 2.2% (sa) last week after -2.0% the week prior, with refis (12%) offsetting some recent weakness for new purchases (-3.5%).  
• Composite applications have broadly moved sideways since jumping 33% early in January, although are still only 48% of average 2019 levels (new purchases 61%, refis 34%).
• The 30Y conforming rate dipped 5bps to 6.97%, down from the recent high of 7.09% from the week to Jan 10 but holding most of the push higher from recent lows of 6.13% in September. 

MNI CANADA DATA: Canada Dec Trade Balance +CAD0.7B, First Surplus Since Feb 2024

• Canada's trade balance moves to surplus in Dec. +CAD0.708B, following 9 consecutive months of deficit. Nov. -CAD0.986B
• U.S. trade balance in Dec. widened to +CAD11.3B from +CAD8.2B in Nov. President Trump has delayed imposition of tariffs he threatened on Nov. 25 to March 4.
• For the full year 2024, trade surplus with the U.S. narrowed for the 2nd year to +CAD102.3B amid sluggish exports and soaring imports. That's compared to +CAD108.3B in 2023 and +CAD119.4B in 2022.
• Excluding US, Dec trade balance expanded to -CAD10.6B in Dec from -CAD9.2B in Nov.
• Canada trade deficit in 2024 widens to -CAD7.2B from -CAD0.6B in 2023. Increase in imports was driven by consumer goods and farm, fishing and intermediate food. 

MARKETS SNAPSHOT

Key market levels of markets in late NY trade:
DJIA up 315.28 points (0.71%) at 44868.86
S&P E-Mini Future up 21.75 points (0.36%) at 6084.5
Nasdaq up 29.4 points (0.1%) at 19681.25
US 10-Yr yield is down 8.4 bps at 4.4261%
US Mar 10-Yr futures are up 16/32 at 109-22.5
EURUSD up 0.0026 (0.25%) at 1.0405
USDJPY down 1.62 (-1.05%) at 152.72
WTI Crude Oil (front-month) down $1.48 (-2.04%) at $71.22
Gold is up $19.57 (0.69%) at $2862.34

European bourses closing levels:
EuroStoxx 50 up 6.53 points (0.12%) at 5271.12
FTSE 100 up 52.52 points (0.61%) at 8623.29
German DAX up 80.23 points (0.37%) at 21585.93
French CAC 40 down 14.72 points (-0.19%) at 7891.68

US TREASURY FUTURES CLOSE

3M10Y -8.908, 10.397 (L: 8.055 / H: 19.999)
2Y10Y -5.75, 23.93 (L: 22.929 / H: 29.856)
2Y30Y -7.133, 46.087 (L: 44.998 / H: 53.3)
5Y30Y -2.964, 39.61 (L: 39.224 / H: 43.34)
Current futures levels:
Mar 2-Yr futures up 1.625/32 at 102-28.75 (L: 102-26.25 / H: 102-30.25)
Mar 5-Yr futures up 8.25/32 at 106-26.5 (L: 106-15.75 / H: 106-30.5)
Mar 10-Yr futures up 16/32 at 109-22.5 (L: 109-02.5 / H: 109-29)
Mar 30-Yr futures up 1-10/32 at 116-2 (L: 114-16 / H: 116-13)
Mar Ultra futures up 1-31/32 at 121-22 (L: 119-14 / H: 122-04)

MNI US 10YR FUTURE TECHS: (H5) Cleanly Tops 50-day EMA

• RES 4: 110-25   High Dec 12
• RES 3: 110-19   76.4% retracement of the Dec 6  - Jan 13 bear leg   
• RES 2: 109-30   61.8% retracement of the Dec 6  - Jan 13 bear leg 
• RES 1: 109-29   High Feb 5
• PRICE:‌‌ 109-26.5 @ 1425 ET Feb 5
• SUP 1: 108-20+ Low Feb 4  
• SUP 2: 108-06/107-06 Low Jan 23 / 13 and the bear trigger
• SUP 3: 107-04   Low Apr 25 ‘24 and a key support
• SUP 4: 106-11   2.00 proj of the Oct 1 - 14 - 16 price swing  

Treasury futures extended the rally into Wednesday trade, hitting a weekly high at 109-27. The contract is building on recent gains having cleanly topped resistance at the 50-day EMA of 109-10. This strengthens the short-term bullish case and highlights potential for a stronger reversal. This would open 109.30, a Fibonacci retracement. On the downside, initial support to watch is 108-20+, Tuesday’s low. Clearance of it would signal a reversal. 

SOFR FUTURES CLOSE

Mar 25 +0.005 at 95.750
Jun 25 +0.010 at 95.90
Sep 25 +0.015 at 96.020
Dec 25 +0.025 at 96.10
Red Pack (Mar 26-Dec 26) +0.035 to +0.055
Green Pack (Mar 27-Dec 27) +0.060 to +0.080
Blue Pack (Mar 28-Dec 28) +0.080 to +0.090
Gold Pack (Mar 29-Dec 29) +0.090 to +0.095

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

• 1M +0.00053 to 4.30786 (-0.00522/wk)
• 3M +0.00003 to 4.30191 (-0.00034/wk)
• 6M -0.00263 to 4.25910 (+0.01079/wk)
• 12M -0.00393 to 4.18877 (+0.02847/wk)

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.33% (-0.02), volume: $2.344T
• Broad General Collateral Rate (BGCR): 4.31% (-0.02), volume: $909B
• Tri-Party General Collateral Rate (TCR): 4.31% (-0.02), volume: $894B
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $104B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $281B

FED Reverse Repo Operation: Second Consecutive New Low

RRP usage extends to new low of $78.788B this afternoon from $85.654B Tuesday. Today's usage compares to previous low of $92.863B on Monday, January 27 - the lowest level since mid-April 2021. The number of counterparties falls to 28 from 34 prior.

MNI PIPELINE: Late Corporate & Supra-Sovereign US$ Debt Issuance Update

At least $28.25B domestic/foreign corporate and supra-sovereign debt to price Wednesday, still waiting on $2.5B Republic of Turkiye 7Y to price

• Date $MM Issuer (Priced *, Launch #)
• 02/05 $5.5B #Republic of Poland $2.75B 5Y +75, $2.75B 10Y +105
• 02/05 $4.75B #IBM $1B 3Y +45, $1B 5Y +60, $850M 7Y +70, $900M 10Y +80, $1B 30Y +105
• 02/05 $3.5B #PepsiCo $500M 2Y +22, $750M 3Y +27, $1B 5Y +40, $1.25B 10Y +60
• 02/05 $3B #UBS $1.5B PerpNC5.5 7%, $1.5B PerpNC10 7.125%
• 02/05 $2.5B #US Bancorp $1.3B 6NC5 +80, $1.2B 11NC10 +100
• 02/05 $2.5B #IDA 10Y SOFR+61
• 02/05 $2B *Citigroup PerpNC5 6.95%
• 02/05 $1B #Citadel Finance 5Y +170
• 02/05 $1B #Minera Mexico 7Y +140
• 02/05 $1B *KFW 4% 2026 TAP SOFR+20
• 02/05 $1B #BBVA Mexico 10NC5 7.625%
• 02/05 $500M #Healthpeak LLC 10Y +102
• 02/05 $2.5B Republic of Turkiye 7Y 7.2%
• Expected Thursday:
  • 02/06 $Benchmark IFC 4.5Y SOFR+36a

MNI BONDS: EGBs-GILTS CASH CLOSE: Gilt Rally Resumes

European curves flattened Wednesday, with Gilts outperforming.

• EGBs and Gilts benefited in early trade amid a lack of meaningful headline flow and softer oil prices and equities (tech earnings, US tariff concerns in the background), with Gilts outperforming on solid demand at a green bond auction.
• The rally extended in afternoon trade as the day's key data report, US ISM Services, came in on the soft side of expectations.
• ECB Chief Economist Lane drew a modestly hawkish reaction as he flagged risks that disinflation could take longer than expected; Centeno noted that the ECB may have to cut below neutral.
• The German curve twist flattened, with the UK's bull flattening as 10Y Gilt yields saw one of their biggest drops in several months (8.5bp), hitting the lowest level since mid-December. EGB periphery EGB spreads were mixed.
• French OAT saw slightly tighter spreads to Bunds on the day though they underperformed BTPs, as PM Bayrou's government survived a no-confidence vote.
• The Bank of England decision will be Thursday's focus (with apologies to German factory orders). MNI's preview (link) looks for a 25bp cut on an 8-1 vote, with any meaningful tweaks to forward guidance unlikely. Attention will be paid to other matters including the Agents' Pay Survey, and the MPR projections. 

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 0.6bps at 2.057%, 5-Yr is down 1.5bps at 2.155%, 10-Yr is down 3bps at 2.366%, and 30-Yr is down 4.7bps at 2.599%.
• UK: The 2-Yr yield is down 3.1bps at 4.15%, 5-Yr is down 6.4bps at 4.124%, 10-Yr is down 8.5bps at 4.437%, and 30-Yr is down 10.2bps at 5.023%.
• Italian BTP spread down 1.5bps at 108.5bps / French OAT down 0.4bps at 71.6bps   

MNI FOREX: Economic Data Weighs Heavily on USDJPY, Bear Cycle for Extends

• Yen outperformance remains the key feature of the day in G10 currency markets, as USDJPY looks to consolidate a 1.25% move lower, extending the most recent bearish theme for the pair. Moves have been underpinned by the stronger-than-expected Japanese wage data, fostering a more hawkish BOJ narrative, as well as core yields extending their slide lower in the aftermath of weaker US ISM Services data.
• USDJPY took out a number of supports throughout the session, including a key Fibonacci retracement at 152.55. This further expands the downside range, and the pair is now on track for the lowest daily close since December 10th, narrowing the gap to more meaningful support at 151.81, the Dec 12 low. Below here, attention would be on 151.06, the 76.4% retracement of the Dec 3 - Jan 10 bull leg.
• Following the US data, EURUSD managed to match the 50-day EMA resistance to the pip (at 1.0442), which has helped EURJPY to extend session lows in late trade, currently down 0.9% on the session, comfortably back below the pivotal 160.00 mark. Price action sees the cross narrow the gap to Monday’s lows of 157.97.
• Elsewhere, a solid showing for equities has kept the US dollar on the back foot, and the firmer risk sentiment has in turn boosted the likes of AUD and NZD which are up 0.6% and 0.75% respectively.
• Resistance levels in GBPUSD at 1.2503 (50-day EMA) and 1.2523 (Jan 27 high), have been breached Wednesday. This cancels a recent bearish threat and instead reinstates the bull cycle that started Jan 13. The break higher paves the way for a climb towards 1.2610, a Fibonacci retracement.
• German factory orders and UK construction PMI are highlights of a quiet Thursday calendar, before the Bank of England decision takes focus. US jobless claims and Fed speakers will also garner interest.

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
06/02/2025	0645/0745	**	CH	Unemployment
06/02/2025	0700/0800	**	DE	Manufacturing Orders
06/02/2025	0700/0800		SE	Flash CPI
06/02/2025	0830/0930	**	EU	S&P Global Final Eurozone Construction PMI
06/02/2025	0930/0930	**	GB	S&P Global/CIPS Construction PMI
06/02/2025	1000/1100	**	EU	Retail Sales
06/02/2025	1200/1200	***	GB	Bank Of England Interest Rate
06/02/2025	1200/1200	***	GB	Bank Of England Interest Rate
06/02/2025	1230/1230		GB	BOE MPR press conference
06/02/2025	1330/0830	***	US	Jobless Claims
06/02/2025	1330/0830	**	US	WASDE Weekly Import/Export
06/02/2025	1330/0830	**	US	Preliminary Non-Farm Productivity
06/02/2025	1400/1400		GB	Decision Maker Panel data
06/02/2025	1500/1000	*	CA	Ivey PMI
06/02/2025	1530/1030	**	US	Natural Gas Stocks
06/02/2025	1630/1130	**	US	US Bill 04 Week Treasury Auction Result
06/02/2025	1630/1130	*	US	US Bill 08 Week Treasury Auction Result
06/02/2025	1900/1400	***	MX	Mexico Interest Rate
06/02/2025	1930/1430		US	Fed Governor Christopher Waller
06/02/2025	2200/1700		CA	BOC Governor speech at BIS conference
06/02/2025	2210/1710		US	Dallas Fed's Lorie Logan
07/02/2025	2330/0830	**	JP	Household spending