BASIC INDUSTRIES: Smurfit Westrock (SW Baa2[P]/BBB/BBB[P]): 4Q24 Results

As opposed to multiple analyst Fed view changes following Friday's payrolls report, a strong Canadian jobs report released simultaneously hasn't drawn the same response. There remain various views for terminal rates of 2.25% (bottom of BoC's 2.25-3.25% neutral estimates) or possibly below, in contrast to the market where OIS currently points to only 42bp of cuts to 2.86% in 2025. 

• BMO: "The solid job gains will prompt some meaningful doubt on whether the Bank of Canada will cut again in January following the hyper aggressive 100 bps of cuts in Q4. The fact that the Fed looks to move to the sidelines for a spell, and the Canadian dollar is struggling mightily may also chill the BoC for now."
• CIBC: "With rates still above the mid-point of the neutral range, unemployment elevated relative to a year ago, and huge uncertainty emanating from the threat of US tariffs, we continue to forecast a 25bp reduction at the January meeting and a 2.25% trough for the overnight rate later this year."
• Desjardins: "We remain of the view that the Bank will cut the overnight policy rate by another 25 basis points later this month, then take a break in March. After that, it should continue a gradual pace of rate cuts through the rest of the year." 
• GS: "While today's data was firm on net, we continue to expect four 25bp cuts for a 2.25% terminal rate by mid-year."
• JPM: "We still look for another 25bp rate cut by the BoC later this month, but risks have shifted from continuing with 50bp moves to potentially pausing."
• National: " Given these many uncertainties and the BoC's desire to create conditions conducive to above-potential growth (and a stabilization of the labour market), we continue to believe that the BoC will have to cut its policy rate to the lower end of its neutral range (between 2.25% and 3.25%) by the summer. This assumes that today's report is not the new norm for the Canadian labour market." 
• RBC: "We continue to expect that ultimately the BoC will need to cut the overnight rate to slightly 'stimulative' levels this year - below the 2.25% to 3.25% the BoC currently estimates as the likely range for the current neutral rate.
• Scotia: "If it were only up to jobs, the BoC would be on the sidelines but more important information lies ahead on tariffs and Canada’s response."
• TD: "Today's report has shifted the discussion around the January BoC decision, but we do not believe it will keep the Bank from cutting another 25bps to 3.00%. The unemployment rate is still sitting well above NAIRU, and the 6m employment trend continues to lag reported population growth. The path from January onwards looks more uncertain with stronger momentum entering 2025, but with global trade risks set to intensify over the coming months we continue to look for the BoC to end the cycle below neutral."

Aside from some decent SOFR call plays, better put volume on net reported in SOFR & Treasury options overnight. Underlying futures mildly lower/off lows. Projected rate cuts through mid-2025 continue to retreat, current vs. late Friday levels* as follows: Jan'25 steady at -0.7bp, Mar'25 -4.7bp (-6.3bp), May'25 -8.4bp (-10.5bp), Jun'25 -15.9bp (-18.2bp), Jul'25 -17.7bp (20.2bp).

• SOFR Options:
  • 5,000 SFRG5/SFRH5 95.87/96.06 call spd spds
  • 3,500 2QJ5 96.25/96.87 call spds ref 95.74
  • over 26,000 SFRU5 95.87/96.06 call spds vs. 95.25 puts ref 95.835
  • 2,000 SFRU5 96.50/97.00 call spds ref 95.835
  • +10,000 SFRU5 95.50/95.62 put spds, 3.5 ref 95.835 to -.85
  • 1,500 0QJ5/3QJ5 95.25 put spds 
  • Block, 4,100 SFRU5 96.12 puts, 45.5 ref 95.85
  • Block, 3,156 0QU5 96.12 puts, 58.0 ref 95.80
  • 5,200 0QG5 95.87/96.12/96.25 broken put trees ref 95.845
  • 3,000 SFRM5 95.75 puts ref 95.82
  • 2,000 SFRM5 96.12/96.37 call spds ref 95.825
• Treasury Options:
  • 2,500 FVH5 105.5/105.75/106/106.25 call condors
  • over 6,300 TYG5 108.5 calls, 6 last
  • 2,000 TYH5 106 puts, 28 last
  • 3,000 TYH5 106/107 put spds ref 107-08.5
  • 1,500 TYG5 107.5/109 put spds, 114 ref 107-08.5
  • over 4,700 FVH5 104.5 puts, 17 last
  • 4,600 FVG5 105.5 puts, 24.5 last
  • 4,400 FVH5 105 puts, 28 ref 105-11
  • 3,500 FVZH5 101.75 puts ref 105-14

• In the FI space, the trend in Bund futures remains bearish and last week’s extension reinforces this theme. The contract has cleared key support at 132.00, the Nov 6 low. The breach strengthens a bearish theme and sights are on the 130.00 handle next. Key short-term resistance is at 133.26, the 20-day EMA. Gains would be considered corrective and allow an oversold condition to unwind. First resistance is at 131.71, the Jan 9 high.
• The trend condition in Gilt futures is unchanged, it remains bearish and last week’s fresh cycle lows reinforce current conditions. The latest move down also highlights an acceleration of the trend. Sights are on 88.87 next, a 2.764 projection of the Dec 20 -27 - Jan 2 price swing. Initial resistance is at 90.31, last Thursday’s intraday high. Resistance at the 20-day EMA, is at 92.13. The EMA is seen as an important hurdle for bulls.