MNI ASIA OPEN: FOMC Delivers Not So Hawkish Hold

EXECUTIVE SUMMARY

• MNI FED BRIEF: Powell Needs Inflation Progress Before More Cuts
• MNI FED: Powell Says FOMC Have Cleaned Up The Language
• MNI US: White House Reverses Course & Rescinds Freeze on Federal Grants
• MNI US OUTLOOK/OPINION: Atlanta Fed Nowcast GDP Sharply Downgraded For Q4
• MNI US DATA: Trade Deficit Continues To Balloon, Potentially Front-Running Tariffs

US

MNI FED BRIEF: Powell Needs Inflation Progress Before More Cuts

The Federal Reserve needs additional progress on inflation before considering cutting interest rates again, Chair Jerome Powell said Wednesday. "We will be focusing on seeing real progress on inflation, or some weakness in the labor market, before we consider making (further) adjustments," Powell said during his post-meeting press conference. The chair declined to comment on public comments from Donald Trump about wanting the Fed to lower rates, adding that he's had no contact with the U.S. President.

MNI FED: Chair Powell Says Fed Policy is Meaningfully Restrictive

Powell says longer rates have gone up (despite Fed funds rate cuts) not principally because of expectations about policy or inflation, but due to term premia. Higher rates will probably hold back housing actiivity to some extent if they are persistent. Powell says the Fed doesn't need to be "all the way" at the 2% target before cutting rates. Policy is not highly restrictive, but meaningfully restrictive. I think we need to see further inflation progress.

MNI FED: Powell Says FOMC Have Cleaned Up The Language

Asked about the language change in the Statement, Powell says that they were just cleaning up the language: We took out a reference to since earlier in the year as it related to the labor market, and we just chose to to shorten that sentence. The inter meeting data was good, and there was another inflation reading just before the December meeting. So we've got two good readings in a row that are consistent with 2% inflation. Again, we're not going to overinterpret, two good or too bad, readings, but this was not meant to send a signal.

NEWS

MNI US: White House Reverses Course & Rescinds Freeze on Federal Grants

• Via Jeff Stein at WaPo on X: "White House budget office has officially rescinded the order authorizing a federal freeze on grants, according to document obtained by The Washington Post"
• From the article: "The White House budget office on Wednesday rescinded an order freezing federal grants, according to a copy of a new memo obtained by The Washington Post, after the administration’s move to halt spending earlier this week provoked a backlash."

MNI US: District Judge Blocks Trump's Federal Spending Freeze

A US District Judge blocked a Trump administration freeze on federal spending, ordered by the White House Office of Management and Budget, minutes before it was set to go into effect yesterday. The block will expire Feb 3 at 17:00 ET 22:00 GMT. The order, which covers all government spending except direct payments to individuals, such as Social Security, and Medicare, is widely seen as the most far-reaching of Trump’s executive actions and part of a broader attempt to recalibrate potentially trillions of dollars of federal government spending. The coming week will test to what extent Trump can realize the bulk of his agenda via executive action.

MNI UK: Chancellor Begins Speech On Economic Growth

Chancellor of the Exchequer Rachel Reeves begins her speech centred on gov't efforts to boost economic growth in the coming minutes. A live stream of the event at a Siemens plant in Oxford can be found here. Reeves: “For too long potential has been held back. For too long we have accepted low expectations and decline.” Reeves: "We have begun to turn things around".

MNI FRANCE: Greens & PS Criticise PM's Immigration Comments As Budget Talks Halted

Correction: Date in final sentence. Marine Tondelier, leader of the environmentalist Ecologists, has added her voice to the wave of criticism from the left towards PM Francois Bayrou regarding his comments on immigration from 27 Jan. In an interview with LCI on Monday, Bayrou said “Contributions from foreigners are a positive for a people, so long as they remain proportionate. But as soon as you get the feeling of flooding, of no longer recognizing your own country, its lifestyle and its culture, the feeling of rejection appears.”. 

MNI US TSYS: FOMC Delivers Not So Hawkish Hold

• Treasuries gapped lower after the FOMC left the target rate steady at 4.25-4.5 but removed reference to making progress towards inflation reaching goal. Guidance unchanged. The apparent hawkish shift in the statement saw the US$ climb to near early session highs, while stocks extended lows as the prospect of lower rates moved further out the curve.
• Chairman Powell dispelled the initial hawkish take as he explained we "were just cleaning up the language: We took out a reference to since earlier in the year as it related to the labor market, and we just chose to to shorten that sentence."
• Stocks bounced off lows after Chairman Powell said "the Labor Market is not a source of significant inflationary pressures. Inflation is eased significantly over the past two years, but remains somewhat elevated relative to our 2% longer-run goal."
• Treasuries recovered to steady/mildly mixed as Powell stated "inter meeting data was good, and there was another inflation reading just before the December meeting. So we've got two good readings in a row that are consistent with 2% inflation. Again, we're not going to overinterpret, two good or too bad, readings, but this was not meant to send a signal."
• Cross asset update: BBG US$ index reversed initial gain to currently 1301.58 (+.39) vs. 1303.92 post FOMC; Gold well off lows (2757.14 -6.34); stocks pare losses with SPX Eminis at 6069.0 vs. 6042.25 low.

OVERNIGHT DATA

MNI US DATA: Trade Deficit Continues To Balloon, Potentially Front-Running Tariffs

The US goods trade deficit widened much more than expected in December, to $122.1B ($105.5B expected), from $103.5B in November. That came on both a large drop in exports ($7.8B to $167.5B) and a rise in imports ($289.6B, up $10.8B). The standout items in the imports column are industrial supplies (up 18.9% M/M SA and 22.9% Y/Y NSA), with other categories growing by less than the 3.9% M/M SA headline imports growth (including outright contractions in food, autos, and "other" goods, and just 1.7% M/M growth in capital goods and 3.1% in consumer goods).

MNI US DATA: New Purchase Mortgage Applications Resisting Higher Rates

• MBA composite mortgage applications dipped 2% last week (sa) after a flat week that consolidated a previous 33% jump at the start of the year.
• The latest decline was driven by refis (-6.8% after -2.9%) whilst new purchase applications only inched lower (-0.4% after 0.6%).
• New purchase applications stand at 63% of 2019 averages for some of their highest levels since mid-2023 vs just 30% for refis.
• The recent moves came as the regular 30Y mortgage rate held steady at 7.02%, broadly consolidating its recent rise to 7.09% for highs since Mar 2024. 

MNI US OUTLOOK/OPINION: Atlanta Fed Nowcast GDP Sharply Downgraded For Q4

The Atlanta Fed's GDPNow forecast for Q4 - the final reading for the quarter ahead of Thursday's official GDP release - has been downgraded significantly. They now see 2.3% growth, down from 3.2% yesterday. As we had flagged earlier today, the much larger than expected goods trade deficit reading for December would be negative for GDP - while inventories also came in on the weak side:

• "After this morning’s Advance Economic Indicators release from the US Census Bureau, the nowcast of fourth-quarter real gross private domestic investment growth decreased from 0.1 percent to -0.9 percent, while the nowcast of the contribution of net exports to fourth-quarter real GDP growth fell from 0.10 percentage points to -0.61 percentage points."
• The 2.3% forecast equals the lowest for the quarter made by the Atlanta Fed, and compares to a high of 3.4% reached on Dec 11. It's also below the 2.7% consensus. Note, Q3 GDP was 3.1%. 

MARKETS SNAPSHOT

Key market levels of markets in late NY trade:
DJIA down 136.83 points (-0.31%) at 44713.52
S&P E-Mini Future down 31.75 points (-0.52%) at 6065
Nasdaq down 101.3 points (-0.5%) at 19632.32
US 10-Yr yield is up 0.2 bps at 4.5344%
US Mar 10-Yr futures are up 1.5/32 at 109-2.5
EURUSD down 0.0015 (-0.14%) at 1.0415
USDJPY down 0.33 (-0.21%) at 155.21
WTI Crude Oil (front-month) down $0.84 (-1.14%) at $72.93
Gold is down $8.04 (-0.29%) at $2755.42

European bourses closing levels:
EuroStoxx 50 up 34.95 points (0.67%) at 5230.66
FTSE 100 up 23.94 points (0.28%) at 8557.81
German DAX up 206.95 points (0.97%) at 21637.53
French CAC 40 down 24.89 points (-0.32%) at 7872.48

US TREASURY FUTURES CLOSE

3M10Y +0.202, 23.759 (L: 19.409 / H: 28.677)
2Y10Y -1.855, 31.475 (L: 31.277 / H: 34.153)
2Y30Y -1.856, 55.675 (L: 54.526 / H: 58.558)
5Y30Y -0.47, 43.894 (L: 41.361 / H: 45.056)
Current futures levels:
Mar 2-Yr futures down 1/32 at 102-27.375 (L: 102-24.875 / H: 102-29.625)
Mar 5-Yr futures up 0.25/32 at 106-16.25 (L: 106-08.5 / H: 106-20.5)
Mar 10-Yr futures up 1.5/32 at 109-2.5 (L: 108-22 / H: 109-09)
Mar 30-Yr futures up 4/32 at 114-7 (L: 113-20 / H: 114-22)
Mar Ultra futures up 4/32 at 119-3 (L: 118-12 / H: 119-24)

MNI US 10YR FUTURE TECHS: (H5) Resistance At The 50-Day EMA Remains Exposed

• RES 4: 110-25   High Dec 12
• RES 3: 110-19   76.4% retracement of the Dec 6  - Jan 13 bear leg.   
• RES 2: 109-31   High Dec 18 
• RES 1: 109-12   50-day EMA
• PRICE:‌‌ 109-05+ @ 10:40 GMT Jan 29
• SUP 1: 108-00/107-06 Low Jan 16 / 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  

A bullish short-term cycle in Treasury futures highlights a corrective phase and the contract is holding on to its recent gains. Attention is on 109-12, the 50-day EMA - a level tested on Monday. A clear break of this EMA would strengthen a bullish theme and open 109-31, the Dec 18 high. The medium-term trend condition remains bearish. The bear trigger is 107-06, the Jan 13 low. Initial support has been defined at 108-00, the Jan 16 low.

SOFR FUTURES CLOSE

Mar 25 -0.030 at 95.755
Jun 25 -0.035 at 95.915
Sep 25 -0.030 at 96.030
Dec 25 -0.020 at 96.095
Red Pack (Mar 26-Dec 26) -0.01 to +0.005
Green Pack (Mar 27-Dec 27) +0.010 to +0.015
Blue Pack (Mar 28-Dec 28) +0.015 to +0.015
Gold Pack (Mar 29-Dec 29) +0.010 to +0.015

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

• 1M +0.00127 to 4.31159 (-0.00382/wk)
• 3M +0.00386 to 4.29075 (-0.00909/wk)
• 6M +0.00719 to 4.23682 (-0.02224/wk)
• 12M +0.01158 to 4.15062 (-0.04828/wk)

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.35% (+0.01), volume: $2.283T
• Broad General Collateral Rate (BGCR): 4.34% (+0.02), volume: $888B
• Tri-Party General Collateral Rate (TGCR): 4.34% (+0.02), volume: $865B
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $95B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $255B

FED Reverse Repo Operation

RRP usage inches up to $121.842B this afternoon from $112.760B yesterday. Compares to Monday's usage of $92.863B - the lowest level since mid-April 2021. The number of counterparties rises to 35 from 28 prior.

PIPELINE

No new corporate issuance heading into Wednesday's FOMC after $15.5B Priced Tuesday:

• Date $MM Issuer (Priced *, Launch #)
• 01/28 $3B *JPMorgan PerpNC5 6.5%
• 01/28 $3B *American Express $1.45B 6NC5 +75, $300M 6NC5 SOFR+102, $$1.25B 11NC10 +90
• 01/28 $2.5B *Toronto-Dominion Bank $1.25B 3Y +62, $500M 3Y SOFR+82, $750M 7Y +87
• 01/28 $2B *Carnival Corp 8NC3 6.125%
• 01/28 $2B *Arab Republic of Egypt $1.25B 5Y 8.625%a, $750M 8Y 9.45%
• 01/28 $1.75B *Capital One 11NC10 +162
• 01/28 $750M *Ziraat Bank 5Y 7.375%
• 01/28 $500M *Aircastle 5Y +108

MNI BONDS: EGBs-GILTS CASH CLOSE: Early Yield Drop Reverses On Higher Energy Prices

European core yields saw an early drop reverse late in the session, leaving them a little higher Wednesday.

• Bunds and Gilts strengthened after an overnight trade, in line with a US Treasury rally that kicked off late Tuesday after a solid 7Y bond auction.
• However, a rise in European natural gas prices to 15-month highs amid supply issues and lower temperature forecasts in the region, applied pressure on the space toward the cash close.
• Spanish Q4 GDP came in firmer-than-expected; UK Chancellor Reeves' policy speech was longer-term focused, with little in the way of short-term implications or market movement.
• The German curve bear steepened modestly, with the UK's bear flattening.
• Periphery EGB spreads tightened. OATs underperformed the rest of the space, with spreads widening rift amid discord between the French government and Socialists.
• Focus after hours is on the Federal Reserve decision and communications, and of course Thursday sees the ECB decision (a 25bp cut remains nearly 100% priced - MNI's preview is here). We also get Spanish January flash inflation data (MNI's Eurozone inflation preview went out today, PDF here).

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 0.6bps at 2.278%, 5-Yr is up 1.6bps at 2.381%, 10-Yr is up 1.8bps at 2.583%, and 30-Yr is up 2.4bps at 2.804%.
• UK: The 2-Yr yield is up 2.1bps at 4.331%, 5-Yr is up 1.5bps at 4.325%, 10-Yr is up 0.8bps at 4.622%, and 30-Yr is up 0.3bps at 5.177%.
• Italian BTP spread down 1.6bps at 107.9bps / French OAT up 2.5bps at 74.6bps  

MNI FOREX: USD Index Steady as Fed Keeps Guidance Unchanged

• The USD index has broadly continued to consolidate its short-term recovery from the Monday lows on Wednesday. The greenback had a brief pop on the release of the Fed statement, where the FOMC decided to remove the reference to inflation making progress towards the goal, despite it remaining somewhat elevated.
• However, Chair Powell explained that this was merely “cleaning up the language” and was not intended to send a signal. The US dollar quickly pared gains across the board, and has settled close to unchanged levels from pre-announcement.
• Overall, AUDUSD remains the weakest in G10 following a softer Q4 CPI print overnight, that has firmed up market pricing for a February rate cut from the RBA. A brief spell of equity weakness also weighed on the Aussie, prompting AUDUSD to print a 0.6210 low. The pair looks set to extend its losing streak to three sessions, having held firm resistance at the 50-day EMA late last week. A continuation lower for AUDUSD, would bring the focus back on 0.6131, the Jan 13 low and the bear trigger.
• For the majors, EURUSD has held a relatively contained range post-Fed, unable to breach the early European highs around 1.0430, as markets have one eye on the ECB decision and press conference tomorrow, and initial Eurozone inflation data scheduled across the following two sessions.
• For USDJPY, 155.00 is providing some short-term support, as markets continue to trade in a more stable manner following the DeepSeek induced selloff on Monday. A short-term technical bear threat still remains present.
• Alongside the ECB on Thursday, US Q4 growth data takes focus on the economic calendar, with annual GDP expected to come in at 2.7%.

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
30/01/2025	0630/0730	**	FR	Consumer Spending
30/01/2025	0630/0730	***	FR	GDP (p)
30/01/2025	0700/0800	**	SE	Retail Sales
30/01/2025	0700/0800	**	DE	Import/Export Prices
30/01/2025	0800/0900	**	SE	Economic Tendency Indicator
30/01/2025	0800/0900	***	ES	HICP (p)
30/01/2025	0800/0900	**	CH	KOF Economic Barometer
30/01/2025	0900/1000	***	IT	GDP (p)
30/01/2025	0900/1000	***	DE	GDP (p)
30/01/2025	0930/0930	**	GB	BOE M4
30/01/2025	0930/0930	**	GB	BOE Lending to Individuals
30/01/2025	1000/1100	**	EU	Unemployment
30/01/2025	1000/1100	*	EU	Consumer Confidence, Industrial Sentiment
30/01/2025	1000/1100	***	EU	EMU Preliminary Flash GDP Q/Q
30/01/2025	1000/1100	***	EU	EMU Preliminary Flash GDP Y/Y
30/01/2025	1000/1000	**	GB	Gilt Outright Auction Result
30/01/2025	1000/1000	**	GB	Gilt Outright Auction Result
30/01/2025	1315/1415	***	EU	ECB Deposit Rate
30/01/2025	1315/1415	***	EU	ECB Main Refi Rate
30/01/2025	1315/1415	***	EU	ECB Marginal Lending Rate
30/01/2025	1330/0830	*	CA	Payroll employment
30/01/2025	1330/0830	***	US	Jobless Claims
30/01/2025	1330/0830	**	US	WASDE Weekly Import/Export
30/01/2025	1330/0830	***	US	GDP
30/01/2025	1345/1445		EU	ECB Governing Council Meeting press conference
30/01/2025	1500/1000	**	US	NAR Pending Home Sales
30/01/2025	1530/1030	**	US	Natural Gas Stocks
30/01/2025	1630/1130	*	US	US Bill 08 Week Treasury Auction Result
30/01/2025	1630/1130	**	US	US Bill 04 Week Treasury Auction Result
31/01/2025	2330/0830	*	JP	Labor Force Survey
31/01/2025	2330/0830	**	JP	Tokyo CPI
31/01/2025	2350/0850	**	JP	Industrial Production
31/01/2025	2350/0850	*	JP	Retail Sales (p)
31/01/2025	0030/1130	*	AU	Producer price index q/q