COMMODITIES: Powell commenting on what would drive the FOMC to move rates

• Stocks remain weaker Monday, an additional round of late session (risk-off) selling after Pres Trump mentions "IRAN IS BUILDING UP AGAIN .. WILL KNOCK IRAN OUT IF THEY ARE BUILDING UP AGAIN" Bbg reported.
• Currently, the DJIA trades down 200.04 points (-0.41%) at 48511.65, S&P E-Mini Futures down 26.25 points (-0.38%) at 6953.25, Nasdaq down 136.2 points (-0.6%) at 23457.14.
• Materials, IT and Discretionary sector shares led declines in late trade, mining stocks unwinding support after Gold fell sharply from Friday's record high of 4533.21 to 4330.00 today: Newmont -5.68%, Albemarle -3.21%, Freeport-McMoRan -2.55% and DuPont de Nemours -1.48%.
• Concerns over AI-related valuations weighed on Tech stocks (again): HP -2.28%, ON Semiconductor -2.24%, Sandisk Corp -2.14%, Palantir Technologies -1.91% and NVIDIA -1.76%
• Meanwhile, luxury travel related shares trade weaker: Norwegian Cruise Line -2.85%, Tesla -2.66%, Wynn Resorts -1.91%, Royal Caribbean Cruises -1.84% and MGM Resorts -1.58%.
• On the positive side, Utilities and Energy sector shares led advances ahead midday: Expand Energy +1.98%, Devon Energy +1.60%, Diamondback Energy +1.41% and Exxon Mobil +1.25%. Meanwhile: PG&E gained +1.55%, Edison International +1.41%, Southern Co +1.00% and Dominion Energy +0.83%.

Fed funds futures show a slightly softer implied rate path through the next year, with the end-2026 FF contract implying a 3.03% rate - about 61bp lower than current effective levels. That's about 3bp more easing through the year compared with Friday's close, 9bp vs the immediate aftermath of the strong Q3 GDP report out on Dec 23, and 15bp vs the Dec 10 peak ahead of the last Fed meeting.

• The next cut still isn't seen until after Chair Powell's term as Fed Chair expires in mid-May however, with roughly 21bp of cuts priced through April's FOMC, and 50bp of easing fully priced through the next 3 meetings (Jun, Jul, Sep).
• Near-term catalysts before holidays thin out trade again for New Year's Eve and New Year's Day are relatively limited: Tuesday we get the Chicago Fed's advance estimate of December unemployment ahead of next week's nonfarm payrolls release for the month, as well as MNI Chicago PMI, and the minutes to the FOMC's December meeting.
• We'll publish a preview of the minutes on Tuesday morning ahead of their release in the afternoon. These releases are not often market movers but we will be watching for confirmation that there is a very high bar in the upcoming releases to a follow-up cut in January (only 4bp easing is priced), as well as for any discussion over whether to shift administered rates (eg IORB) in order to keep a lid on effective policy rates.

European yields fell Monday in a modest bull flattening move.

• In the restart of trade from the Christmas holidays for EGBs and Gilts (the latter of which traded for an abbreviated session on Dec 24), yields caught down to a slight rally in US Treasuries and pullback in crude oil.
• The core FI bid was aided by a retracement in equities following opening gains, though periphery EGBs shrugged off the broader (modest) risk-off move.
• There were no data nor central bank speakers of note.
• On the day, Bunds slightly outperformed Gilts with bull flattening in both the UK and German curves.
• Periphery/semi-core EGB spreads tightened, with BTPs leading the way.
• Spanish flash December inflation data highlights Tuesday's docket - it's seen moderating Y/Y (see MNI's full Eurozone inflation preview here).

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2.7bps at 2.115%, 5-Yr is down 3.4bps at 2.43%, 10-Yr is down 3.3bps at 2.829%, and 30-Yr is down 2.9bps at 3.459%.
• UK: The 2-Yr yield is down 1.3bps at 3.72%, 5-Yr is down 2bps at 3.952%, 10-Yr is down 2.1bps at 4.486%, and 30-Yr is down 2.3bps at 5.216%.
• Italian BTP spread down 1.6bps at 67.5bps / French OAT down 0.7bps at 69.7bps