MNI US MARKETS ANALYSIS - Tsy Curve Takes Lead from EGBs
Feb-27 12:07By: Edward Hardy
US
Highlights:
- USD/JPY gains could be base for broader recovery
- Treasury curve sits bear flatter on EGB lead
- GDP revisions, core PCE make for a busy data session
US TSYS: Bear Flatter In EGB Supply Spillover, Heavy Docket Ahead
- Treasuries have pulled firmly away from yesterday’s highs, partly in response to latest Trump tariff threats to the EU but with greater impetus in European hours from spillover coming from EGB supply and higher oil and TTF gas prices.
- Cash yields are 3.3-4.9bp higher on the day, led by 20s.
- 2s10s has lifted to 20bps (+1.3bp) for a little further off yesterday’s recent low of 16bp, having last been sustainably lower prior to the Dec 18 FOMC decision.
- TYM5 trades at 110-16+ (- 12+) but has remained within yesterday’s range throughout.
- Yesterday’s high of 110-29+ pierced retracement resistance at 110-20 and stopped just short of 110-31 (Fibo proj of Jan 13 – Feb 7 – Feb 12 price swing) and the round 111-00, bolstering the recent bullish technical structure. Support meanwhile is seen at 110-00 (Feb 7 high and a recent breakout point).
- Data: GDP/PCE 2nd Q4 release (0830ET), Durable goods Jan prelim (0830ET), Weekly jobless claims (0830ET), Pending home sales Jan (1000ET), KC Fed mfg Feb (1100ET)
- Fedspeak: Barkin (0815ET), Schmid (0915ET), Barr (1000ET), Bowman (1145ET), Hammack (1315ET), Harker (1515ET) – see STIR bullet.
- Bill issuance: US Tsy $80B 4W & $75B 8W bill sales (1130ET)
STIR: Next Fed Cut Seen In July Ahead Of GDP/Claims and Fedspeak
- Fed Funds implied rates have continued to lift off yesterday’s low seen prior to latest Trump tariff threats, aided by broader FI sell-off overnight on European supply and higher oil and gas prices.
- Cumulative cuts from 4.33% effective: 0.5bp Mar, 7bp May, 19.5bp Jun, 27.5bp Jul and 56bp Dec.
- Today’s data docket sees GDP/PCE Q4 revisions, preliminary durable goods orders and jobless claims all at 0830ET along with a solid Fedspeak schedule.
- From a monetary policy angle, we put most focus on Kansas City Fed’s Schmid at 0915ET, one of the most hawkish FOMC members who on Jan 9 noted that rates may be “very close” to their longer-run neutral level (with two rounds of payrolls and CPI reports for Dec and Jan since then).
- 0815ET – Barkin (non-voter, leaning hawk) repeats speech on inflation
- 0915ET – Schmid (’25 voter, hawk) speaks on mon pol and economy (text + Q&A)
- 1000ET – Outgoing VC Supervision Barr (perm. voter) on ovel activity supervision (text + Q&A)
- 1145ET – Bowman (perm. voter, hawk) on community banking (text + Q&A)
- 1315ET – Hammack (non-voter, hawk) on financial stability (text + Q&A)
- 1515ET – Harker (’26 voter but retiring this year, leaning dove) on economic outlook (text + Q&A)
US OUTLOOK/OPINION: GDP Revisions Come Into View
The upcoming US economic calendar is backloaded, with the second release for Q4 national accounts on Thursday before the January PCE report on Friday.
- Real GDP growth is seen confirming what was at the time a softer than expected 2.3% annualized in Q4, whilst there will also be a first estimate for real GDI growth after 2.1% in Q3.
- Much of the relative GDP weakness in Q4 after two quarters averaging 3.0% came from a large drag from inventories. It should continue to show signs of robust domestic demand after personal consumption increased 4.2% annualized in the advance release (Bloomberg cons 4.1).
- However, January’s monthly report (on Friday) is likely to show consumption got off to a much weaker start of 2025. Recall that retail sales were far weaker than expected in January as they slid -0.9% M/M (cons -0.2) along with an even larger miss for the control group at -0.8% M/M (cons 0.3) to more than unwind the previously strong 0.8% M/M increase in December.
- As such, the Bloomberg consensus sees real personal spending growth of -0.1% M/M in Jan after 0.4% in Dec.
- Further within the details, JPMorgan expect nominal personal income growth of 0.4% M/M (to have been boosted by the 2.5% Cost of Living Adjustment for Social Security, with employee compensation rising 0.3% M/M. That should see real disposable personal income increase 0.1% M/M.
US OUTLOOK/OPINION: Core PCE Seen Around 0.25% M/M In Jan
- Thursday’s Q4 data will also reveal revisions for core PCE inflation estimates (seen at 2.5% after the 2.50% in initial data) although as usual the monthly profile behind those revisions will only be revealed in Friday’s January release.
- Those Q4 revisions will reflect the new seasonal adjustment factors for both CPI and PPI, but longer dated revisions will have to wait for the comprehensive national account revisions due in September.
- As for Friday’s core PCE estimates, Bloomberg consensus points to 0.3% M/M but detailed estimates are centered on the cusp of rounding to 0.2 or 0.3%.
- Indeed, the analysts in the table below eye an average/median of 0.26% M/M whilst Fed Governor Waller cited around 0.25% M/M.
- It should see core PCE inflation round to 2.6% Y/Y, perhaps aided by modest upward revisions, but it wouldn’t take a large miss to round to 2.5% (unless revisions are particularly firm).
- Either way, it’s set to show progress from the 2.8% Y/Y in December as favorable base effects swing into play.
- Recent run rates should continue to look healthier but not fully back to target, with the three-month possibly easing a tenth to 2.1% annualized and the six-month perhaps firming a tenth to 2.4% (a metric Waller mentioned along with the Y/Y which is seen at 2.6%).
- In Waller’s words: "These rates are lower than where they stood in January 2024, which is good, but progress has been slower than I expected on reducing inflation to our 2% target".
EUROPEAN INFLATION: MNI Eurozone Inflation Preview - February 2025
Time For Some Progress On Services?
- The Eurozone February flash inflation round is spread across three days, with Spain kicking off proceedings on Thursday (Feb 27), before France, Italy and Germany report figures on Friday (Feb 28). Together, the four major economies should give a good read on price pressures ahead of the Eurozone-wide print on Monday (Mar 3).
- There is not yet a Bloomberg consensus for the Eurozone data, but analyst forecasts compiled by MNI point to a pullback in headline and core inflation to 2.3% (vs 2.5% prior) and 2.6% (vs 2.7% prior) respectively.
- The ECB’s confidence in the 2025 inflation outlook has been predicated on an easing of labour costs which should filter through into lower services inflation readings. In a recent hawkish interview with the FT, ECB Executive Board member Schnabel suggested services inflation “should start to come down in February”. However, analysts only expect a moderate deceleration to 3.8% Y/Y from 3.9% prior.
- The February flash inflation round shouldn’t impact market pricing for the ECB’s March 6 decision, with a 25bp fully priced well embedded into analyst (and presumably policymaker) consensus. However, a lack of progress on core metrics may still leave Q2 pricing vulnerable if hawks’ (led by Schnabel) bargain for a more cautious approach to future easing after a March cut.
STIR: Mix Of Long Setting & Short Cover Seen In SOFR Futures On Wednesday
OI data points to a mix of net long setting and short cover across much of the SOFR futures strip on Wednesday.
| 26-Feb-25 | 25-Feb-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,033,204 | 1,034,591 | -1,387 | Whites | -13,755 |
SFRH5 | 1,278,646 | 1,278,807 | -161 | Reds | +26,366 |
SFRM5 | 1,152,216 | 1,169,077 | -16,861 | Greens | -14,364 |
SFRU5 | 860,212 | 855,558 | +4,654 | Blues | +1,642 |
SFRZ5 | 1,010,838 | 987,112 | +23,726 |
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SFRH6 | 630,920 | 621,038 | +9,882 |
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SFRM6 | 620,366 | 625,162 | -4,796 |
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SFRU6 | 557,303 | 559,749 | -2,446 |
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SFRZ6 | 756,002 | 788,975 | -32,973 |
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SFRH7 | 427,953 | 433,240 | -5,287 |
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SFRM7 | 451,166 | 438,037 | +13,129 |
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SFRU7 | 316,464 | 305,697 | +10,767 |
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SFRZ7 | 351,196 | 350,400 | +796 |
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SFRH8 | 227,031 | 224,922 | +2,109 |
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SFRM8 | 187,399 | 187,924 | -525 |
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SFRU8 | 131,883 | 132,621 | -738 |
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EUROPE ISSUANCE UPDATE:
UK auction results
- Not the strongest gilt auction for the 15-year 4.375% Jan-40 gilt with the LAP of 95.08 coming in just below the pre-auction mid-price.
- The tail of 0.6bp was the same as seen on the November auction of the 3.75% Jan-38 gilt.
- The price has fallen further below the LAP following the auction with gilt futures also around 10 ticks lower t
- GBP3.25bln of the 4.375% Jan-40 Gilt. Avg yield 4.836% (bid-to-cover 2.89x, tail 0.6bp).
Italy auction results
- E3.75bln of the 2.95% Jul-30 BTP. Avg yield 2.93% (bid-to-cover 1.54x).
- E3.00bln of the 3.65% Aug-35 BTP. Avg yield 3.55% (bid-to-cover 1.63x).
- E2.75bln of the 1.10% Apr-33 CCTeu. Avg yield 4.11% (bid-to-cover 1.61x).
FOREX: USD/JPY Recovery Holds, Tariff Talk Keeps CAD Off Lows
- The greenback is firmer against all others early Thursday, however has edged off the best levels of the session, helping GBP/USD remain within range of yesterday's highs at 1.2716. Clearance back above here would resume the bull trend in the pair, opening levels last seen in mid-December.
- Tariff chatter continues to dominate the headlines, but their longer-lasting effectiveness appears to be dwindling. The floating of an extension to the tariff deadline for Canada and Mexico by one month has underpinned sentiment, but even the gains for US equity futures are more minimal at this stage. USD/CAD resumed its climb late yesterday, but the pair holds below yesterday's highs of 1.4368.
- USD/JPY is holding early gains through the first few hours of the London session. Notably, the pair has shown above a down trendline drawn off the Feb12 high on the 15min candle chart (Y149.54 last), the break above which saw volumes pick up, and price action accelerate. This keeps the JPY weaker against all others in G10, and while the progress this morning is inconsequential given the bearish trend that's dominated over the past two months - we look to Y151.75 as the key level for any recovery, marking the 20-day EMA. A break above here would be the first concrete technical signal of a trend change.
- Weekly jobless claims, durable goods orders, secondary GDP and the core PCE price index make for a busy US session, to be followed up swiftly by pending home sales and the Kansas City Fed Manufacturing Activity Index.
- The last of which will be carefully watched for any repetitions from the other regional Fed releases this week, all of which have indicated a sharp increase in business uncertainty as a consequence of tariffs and political uncertainty.
FOREX: EURJPY Base Building, Scope for Stronger Retracement Towards 160.00
- As noted, USDJPY has shown above a down trendline drawn off the Feb12 high, showing early signs of some bullish momentum building for the pair. Underpinning this theme, the December low ~148.65 (although pierced) has held, with multiple attempts below the 149.00 handle proving short-lived.
- Indeed, ING suspect that USDJPY can try and build a floor in the 148.70/149.00 area. They state that unlike last July/August, speculative positioning is now actually getting stretched long yen, potentially suggesting the short-term path of least resistance is higher for Cross/JPY.
- With this in mind, it is worth highlighting that EURJPY has continued to hold trendline support, drawn from the August 2022 lows, while the cross has been unable to close below the 156.00 mark despite multiple tests below.
- Furthermore, a firmer relative stance from US President Trump on EU tariffs appears to be having less of an impact on the resilient Euro. Some desks this week have become less bearish on the single currency, and an important area of resistance has been building around 1.0530 for EURUSD. A break of this level would build signal scope for a stronger reversal higher for EURJPY.
- Initial firm resistance to watch is 158.40 (20-day EMA), and key resistance intersects at 159.95 (50-day EMA), closely matching with the prior psychological pivot at 160.00. Tokyo CPI is due overnight.
OPTIONS: Expiries for Feb27 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0400(E527mln), $1.0425-30(E900mln), $1.0440-50(E1.2bln), $1.0470-75(E1.5bln)
- USD/JPY: Y148.00-10($1.4bln), Y150.00($1.9bln), Y151.00-05($1.2bln)
- GBP/USD: $1.2685-00(Gbp619mln)
- AUD/USD: $0.6345-50(A$690mln)
- USD/CAD: C$1.4200-10($1.1bln), C$1.4325-35($733mln), C$1.4350-70($2.7bln)
COMMODITIES: Recent Sell-Off Continues to Reinforce Bearish WTI Futures Theme
- A bearish theme in WTI futures remains intact and this week’s sell-off reinforces current conditions. The move lower has resulted in a clear breach of support at $70.20, the Feb 6 low. This confirms a resumption of the downtrend that started on Jan 15 and paves the way for an extension towards $67.75, the Dec 20 ‘24 low. Key short-term resistance has been defined at $74.06, the Feb 3 high.
- Despite a pullback, a bull cycle in Gold remains in play. Recent fresh cycle highs once again confirm a resumption of the uptrend and maintain the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull mode position too, highlighting a dominant uptrend and positive market sentiment. Sights are on the $2962.2, a Fibonacci projection. The first key support to watch is $2882.6, the 20-day EMA.
EQUITIES: Eurostoxx 50 Futures Remain in Bull-Mode Set Up, Highlighting Uptrend
- The trend condition in the Eurostoxx 50 futures contract remains bullish and the recent pullback appears to have been a correction. Note too that moving average studies are in a bull-mode set-up, highlighting a dominant uptrend and positive market sentiment. Sights are on 5574.57 next, a Fibonacci projection. Initial firm support to watch is 5407.46, the 20-day EMA. A clear break of the EMA would signal scope for a deeper retracement.
- The latest move down in S&P E-Minis appears corrective, however, price has breached support at 6014.00, the Feb 10 low. This exposed a key support at 5935.50, the Feb 3 low, that was pierced on Tuesday. A clear break of it would allow for a deeper retracement. MA studies are in a bull-mode condition that suggests the trend direction remains up. A resumption of gains would refocus attention on key resistance at 6178.75, the Dec 6 ‘24 high.
| Date | GMT/Local | Impact | Country | Event |
| 27/02/2025 | 1230/1330 |  EU | Publication of MonPol Meeting Account | |
| 27/02/2025 | 1330/0830 | * |  CA | Current account |
| 27/02/2025 | 1330/0830 | * | CA | Payroll employment |
| 27/02/2025 | 1330/0830 | *** |  US | Jobless Claims |
| 27/02/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 27/02/2025 | 1330/0830 | ** | US | Durable Goods New Orders |
| 27/02/2025 | 1330/0830 | *** | US | GDP |
| 27/02/2025 | 1415/0915 | US | Kansas City Fed's Jeff Schmid | |
| 27/02/2025 | 1500/1000 | ** | US | NAR Pending Home Sales |
| 27/02/2025 | 1500/1000 | US | Fed Governor Michael Barr | |
| 27/02/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 27/02/2025 | 1600/1100 | ** | US | Kansas City Fed Manufacturing Index |
| 27/02/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 27/02/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 27/02/2025 | 1645/1145 | US | Fed Governor Michelle Bowman | |
| 27/02/2025 | 1815/1315 | US | Cleveland Fed's Beth Hammack | |
| 27/02/2025 | 2015/1515 | US | Philly Fed's Pat Harker | |
| 28/02/2025 | 2330/0830 | ** |  JP | Tokyo CPI |
| 28/02/2025 | 2350/0850 | ** | JP | Industrial Production |
| 28/02/2025 | 2350/0850 | * | JP | Retail Sales (p) |
| 28/02/2025 | 0700/0800 | *** |  SE | GDP |
| 28/02/2025 | 0700/0800 | ** | SE | Retail Sales |
| 28/02/2025 | 0700/0800 | ** |  DE | Import/Export Prices |
| 28/02/2025 | 0700/0800 | ** | DE | Retail Sales |
| 28/02/2025 | 0700/0700 |  GB | BOE's Ramsden speech on MonPol in geopolitical fragmentation | |
| 28/02/2025 | 0700/0700 | * | GB | Nationwide House Price Index |
| 28/02/2025 | 0730/0830 | ** |  CH | Retail Sales |
| 28/02/2025 | 0745/0845 | *** |  FR | HICP (p) |
| 28/02/2025 | 0745/0845 | ** | FR | Consumer Spending |
| 28/02/2025 | 0745/0845 | *** | FR | GDP (f) |
| 28/02/2025 | 0800/0900 | ** | CH | KOF Economic Barometer |
| 28/02/2025 | 0855/0955 | ** | DE | Unemployment |
| 28/02/2025 | 0900/1000 | *** | DE | North Rhine Westphalia CPI |
| 28/02/2025 | 0900/1000 | *** | DE | Bavaria CPI |
| 28/02/2025 | 0900/1000 | ** | EU | ECB Consumer Expectations Survey |
| 28/02/2025 | 0900/1000 | *** | DE | Baden Wuerttemberg CPI |
| 28/02/2025 | 1000/1100 | *** |  IT | HICP (p) |
| 28/02/2025 | 1300/1400 | *** | DE | HICP (p) |
| 28/02/2025 | 1330/0830 | *** | CA | GDP - Canadian Economic Accounts |
| 28/02/2025 | 1330/0830 | *** | CA | Gross Domestic Product by Industry |
| 28/02/2025 | 1330/0830 | *** | CA | CA GDP by Industry and GDP Canadian Economic Accounts Combined |
| 28/02/2025 | 1330/0830 | *** | US | Personal Income and Consumption |
| 28/02/2025 | 1330/0830 | ** | US | Advance Trade, Advance Business Inventories |
| 28/02/2025 | 1445/0945 | *** | US | MNI Chicago PMI |
| 28/02/2025 | 1600/1100 | CA | Finance Dept monthly Fiscal Monitor (expected) | |
| 28/02/2025 | 1800/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |
