MNI ASIA MARKETS ANALYSIS: Market Sensitivity to Tariff Heads

HIGHLIGHTS

• Markets remain sensitive to tariff talk, rates and stocks sold off after early headlines Trump admin considering new tariff emergency declaration.
• Sentiment improved an hour later as Fed Gov Waller continues to forcefully argue for cuts, adding he was unconcerned by tariffs.
• December FOMC minutes 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.

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.

SOFR FIXES AND PRIOR SESSION REFERENCE RATES
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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.

US SOFR/TREASURY OPTION SUMMARY

SOFR & Treasury option flow looked mixed on net as low delta call interest emerged after better put volumes earlier after underlying futures extended lows/breached technical support (TYH5 107-28.5 low, 10Y yield 4.7280% high) following headlines Trump admin considering new tariff emergency declaration. Dovish comments from Fed Gov Waller tempered the sell-off while curves bounced as short end rates outperformed. In turn, projected rate cuts through mid-2025 firmed off morning lows* as follows: Jan'25 at -1.2bp, Mar'25 -10.2bp (-9.3bp), May'25 -15.4bp (-14.7bp), Jun'25 -24.1bp (-22.8bp).

SOFR Options:
+5,000 SFRH5 96.25 calls 1.5 ref 95.80
+10,000 SFRM5 96.00/96.25 call spds 6.0 ref 95.93
+4,00 SFRM5 96.00/96.12 call spds 3.5 ref 95.925
+16,000 SFRU5 95.87 put vs. -8,000 2QU5/3QU5 95.87 put strip, 34.5-35 net
-3,000 SFRU5/SFRZ5 96.50/97.00 call spd spd 2.75 net
+10,000 SFRH5 95.81 puts 8.5 ref 95.805
+5,000 0QM5 95.50/95.62 put spds 3.5 vs. 95.99/0.06%
Block, 5,000 SFRU5 95.62 puts, 10.0 ref 95.99
2,500 3QG5 95.75 puts ref 95.835
10,000 SFRJ5 95.62/95.75/95.81/95.87 put condors ref 95.90
2,000 2QH5 96.00/96.25/96.50 call flys ref 95.92
5,000 SFRM5 96.25 calls ref 95.905
5,000 SFRZ5 96.00/96.12/96.18/96.31 call condors ref 96.00
4,650 2QH5 96.18/96.31/96.37 broken call flys ref 95.93
1,750 0QM5 96.50/96.87/97.12 broken call flys ref 95.99
2,000 SFRH5 95.00/95.75 put spds ref 95.79

Treasury Options:
1,500 FVH5 105.25/105.5 2x1 call over combo, 16 net
1,520 FVH5 105/105.5/106 put trees ref 106-00.5
3,000 FVH5105.75/106.25 strangles vs. 6,000 FVG5 105.75/106.25 strangles
over 3,100 TYH5 107.5/108 put spds 18 ref 107-31
3,000 USH5 107 puts, 27 ref 111-22
over 30,700 TYG5 107 puts, 17 last ref 108-04.5
5,000 TYG5 109/110 call spds vs. 107.5 puts
Block, -10,000 TYH5 106.5/107.5 2x1 put spds, 5 net 2-legs over ref 108-06

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 EGB OPTIONS: Leaning To Upside Amid Broader Rates Sell-off Wednesday

Wednesday's Europe rates/bond options flow included:

• DUH5 106.80/107.00/107.20 call fly, bought for 2.75 in 3.6k
• RXG5 135c, bought for 4 up to 4.5 in 10k
• RX W2 130.5/129.5ps 3x5 sold the 3 at -7 in 2.7k x 4.5k. (weekly Bund)
• 0RK5/0RM5 98/98.25/98.37 broken c fly strip, bought for 10.75 in 2k
• SFIM5 96.15/96.45/96.75c fly, bought for 2 in 6k total
• SFIU5 96.05/96.25cs vs 95.50/95.30ps, bought the cs for 0.25 in 1k

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.

MNI US STOCKS: Late Equities Roundup: Inside Range Ahead Thursday Close

• Stocks are trading near steady to mixed late Wednesday, off session lows with the DJIA outperforming. Risk sentiment cooled slightly following the December FOMC minutes release, trading accounts mindful of Thursday close for equities in observance of former President Carter's funeral ceremony.
• Currently, the DJIA trades up 9.31 points (0.02%) at 42538.47, S&P E-Minis down 4.25 points (-0.07%) at 5950.75, Nasdaq down 31.5 points (-0.2%) at 19459.07.
• Health Care led gainers for the second day running with Boston Scientific +4.49%, GE HealthCare +3.89% and Medtronic gained 3.27%. Industrials followed in the second half: Howmet Aerospace +2.53%, Transdigm Group +2.17%, Lennox International +2.03%.
• Conversely, Communication Services and Utility sectors continued to underperform in late trade, interactive media and entertainment shares weighed on the former: Warner Bros -3.57%, Paramount -1.38%, Match Group -1.48%. Independent power providers weighed on the Utility sector with AES Corp -5.29%, Vistra -2.21%.

MNI EQUITY TECHS: E-MINI S&P: (H5) Support Remains Exposed

• RES 4: 6194.19 1.236 proj of the Aug 5 - Sep 3 - Sep 9 price swing   
• RES 3: 6178.75 High Dec 6 and key resistance  
• RES 2: 6163.75 High Dec 16 
• RES 1: 6068.25/6107.50 High Jan 6 / High Dec 26        
• PRICE: 5950.00 @ 14:35 GMT Jan 8
• SUP 1: 5911.25/5866.00 Low Jan 3 / Dec 20       
• SUP 2: 5811.65 38.2% retracement of the Aug 5 - Dec 6 bull leg 
• SUP 3: 5784.00 Low Nov 4
• SUP 4: 5698.25 50.0% retracement of the Aug 5 - Dec 6 bull leg

A bear threat in the S&P E-Minis contract remains present despite the most recent move higher. The reversal lower from the Dec 26 high, highlights the end of the Dec 20 - 26 correction. Attention is on 5866.00, Dec 20 low and a key S/T support. Clearance of this level would strengthen a bearish theme. Initial firm resistance is 6107.50, Dec 26 high. A breach of this hurdle would highlight a bull reversal and open key resistance at 6178.75, the Dec 6 high.

MNI COMMODITIES: WTI Falls, Copper Pierces Resistance At 50-Day EMA

• Crude has extended its losses today after EIA crude stock changes came as expected and product inventories saw large builds.
• WTI Feb 25 is down by 1.3% at $73.3/bbl.
• The trend structure in WTI futures remains bullish, despite today’s correction, with sights on key short-term resistance at $76.41, the Oct 8 high. Initial support is seen at the 20-day EMA, at $71.32.
• Spot gold has edged up by 0.3% to $2,657/oz, albeit it is off the session highs of $2,670, which marked the highest level for the yellow metal since Dec 13.
• A bear threat in gold remains present despite the latest recovery. However, a strong climb would signal scope for a move towards resistance at $2,726.2, the Dec 12 high.
• Meanwhile, copper has rallied by a further 1.7% to $427/lb, taking the red metal to its highest level since Dec 12.
• The move comes as Codelco announced a $1.5bn USD-bond issuance to help fund record investments. It will offer two benchmark-size tranches of about $750mn each, one maturing in 10 years and the other in 30 years, according to people familiar with the matter.
• A bearish trend condition in copper futures remains intact and the latest recovery appears corrective.
• However, price has traded through the 50-day EMA, at $420.33, exposing key short-term resistance at $433.50, the Dec 12 high. A break of this level would highlight a reversal. 

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