DJIA +0.7% / S&P +0.4% / CCMP +0.2% / US10YR -9pts 4.4221 / CRUDE -2.1% $71.19 / GOLD +0.8% $2,865/ VIX -8.4% $15.77
The US primary market remained active as IBM and Pepsi led issuance, with eight issuers pricing a combined $16.65bn, bringing the week-to-date total to $31.0bn (vs. $33bn estimated). Investment-grade cash spreads were broadly. The Asia primary market remains inactive.
U.S. Treasury yields slid to year-to-date lows across the curve. The January ADP employment report beat expectations, printing 183,000 vs. 150.000 estimated, while ISM Services PMI fell to 52.8 from 54.0 ,weaker than the 54.0 estimate. The Treasury’s Quarterly Refunding Announcement (QRA) left issuance guidance unchanged, reinforcing a strong bid in the long-end, with 10-year yields dropping to 4.40%, down 40bps from early January highs. 2s10s flattened further, breaking through 24bps for the first time since December.
SOFR continued flattening through the golds, with all contracts beyond SFRU5 (Sept 25) closing above 96.00 for the first time since the December FOMC, (implying 4%) Swap spreads widened on the back of unchanged QRA guidance, with long-end spreads leading the move. Fed Governor Bowman hinted at potential easing of bank regulations, further supporting a bid in long-end spreads.
U.S. equities managed modest gains despite Alphabet and AMD underperformance. The S&P rose +0.39%, Nasdaq +0.19%, and the Dow led with a +0.65% increase. Market breadth remained positive, with all sectors closing green except services, consumer discretionary, and materials.
Alphabet (GOOGL) dropped -7.17% following earnings miss, while Nvidia (NVDA) gained +5.28%, helping cushion losses in the tech sector. AAPL claws back losses triggered from renewed trade war tensions, initial weakness compounded as China antitrust watchdog probes Apples in-app spending polices. Market breadth broadly positive with advancers 2:1
Oil continued to weaken, with WTI crude falling -2.06%. The U.S. dollar extended losses, -0.30%.
In Europe, the Eurozone Services PMI was revised down to 51.3, while the composite remained at 50.2. ECB’s Lane noted potential upside risks to inflation but warned against excessive caution that could push inflation below target. Meanwhile, ECB’s Centeno adopted a dovish stance, suggesting rates may need to be cut below neutral levels (albeit neutral or r* is an undefined number)
In Asia, Japan reported strong wage growth, rising 0.6% YoY in December in real terms, largely due to bonus payments. China’s consumer activity picked up during Chinese New Year, with a 6.2% YoY increase in cross-border travel. The film industry saw robust performance, with "Ne Zha 2" on track to be the highest-grossing movie in Chinese history.
EM debt markets remained constructive despite IG spreads widening slightly. Poland issued $5.5bn across two tranches, while Turkey priced a $2.5bn 7-year bond at 7.2%. Ukraine saw a strong session, with bonds up +1.5-2pts following reports of a possible Trump-backed Ukraine peace plan announcement next week.
Latin America saw solid demand for Ecuador and Venezuela debt, while Panama faced pressure due to ongoing pension reform debates. In the primary market, Minera México and BBVA Mexico successfully priced new deals, meeting robust investor demand.
Upcoming Events
· Today’s BOE Decision, 25bp cut is widely expected.
· Friday U.S. January Jobs Report. Consensus is for +158k vs. +256k in December.
· Earnings Reports:
o February 6 Morning: AGCO, APD, BMY, COP, HLT, HON, HSY, KVUE, LLY, LIN, NVT, TPR, YUM
o February 6 Evening: AFRM, AMZN, EXPE, FTNT, MCHP, MHK, PINS, TTWO
· Global Data Releases:
o Australia: December goods trade
o Eurozone: Retail spending (December), German factory orders (December)
o U.S.: Q4 productivity, jobless claims
o Sweden: January CPI
o Fedspeak: Logan, Waller
o ECBspeak: Nagel
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