STIR: BLOCK: March'25 SOFR Midcurve Put Spread

• On the commodity front, Gold is trading closer to its recent highs. A bull cycle is in play and the recent breach of resistance at $2726.2, the Dec 12 high, reinforces current conditions. Sights are on $2790.1, the Oct 31 all-time high. A break of this hurdle would confirm a resumption of the primary uptrend. On the downside, the first key support to watch is $2675.2, the 50-day EMA. A reversal lower and a breach of this average would reinstate a bearish threat. The 20-day EMA is at $2708.1.
• In the oil space, Monday’s move lower in WTI futures marks an extension of the current corrective cycle. The 20-day EMA has been breached and attention turns to support around the 50-day EMA, at $72.22. A clear break of the 50-day average would suggest scope for a deeper retracement. On the upside, a reversal higher would focus attention on $79.48, the Apr 12 ‘24 high and a key resistance.

• Treasuries have pared minor gains seen in Asia hours to leave them almost exactly unchanged overnight ahead of today’s FOMC decision.
• Today’s data should be very much secondary, perhaps tweaking GDP tracking at the margin in the final updates ahead of tomorrow’s GDP Q4 advance, with focus firmly be on the Fed and any headlines alluding to Trump administration policy.
• There are also some important tech names due to report after the close, including Tesla, Microsoft, IBM and Meta Platforms.
• Cash yields sit between 0.3bp higher (7s) to 0.1bp lower (long end).
• 2s10s at 33.9bp (+0.0bp) remains within recent ranges.
• TYH5 sits at 109-04 (+ 03+) having inched back from an earlier high of 109-09, on modest cumulative volumes of 275k.
• It’s at the high end of the week’s range, with Monday’s high of 109-12 having stopped just short of resistance at 109-12+ (50-day EMA). Clearance is required to strengthen a bullish theme working against a medium-term bearish trend condition, whilst support is seen at 108-00 (Jan 16 low).
• Data: MBA mortgages (0700ET), Advance goods trade Dec (0830ET), Wholesale/retail inventories Dec P/Dec (0830ET)
• Feds: FOMC decision (1400ET), Powell press conference (1430ET)

This is a repost of a note sent yesterday

Markets remain highly sensitive to US President Trump’s communications since his inauguration last Monday, particularly with respect to trade policy. Colombia has been the most recent country targeted by tariff threats, though Trump’s primary focus has been on Mexico, Canada, the EU and China.

• The President has threatened a 25% universal tariff rate on imports from Canada and Mexico from February 1 (Saturday), alongside a 10% tariff on goods from China.
• While not targeted with specific actions yet, the EU has also been subject to Trump jawboning.
• Using IMF data on goods trade, we define a country’s US trade intensity as the proportion of US imports and exports relative to total imports and exports, expressed as a %.
• The charts below highlight the importance of the US to Mexican and Canadian goods trade.
• Mexico ran a 12.3% (of domestic GDP) trade surplus with the US in 2023, corresponding to USD219bln, while Mexico’s US trade intensity was 62%.
• In Canada, the USD149bln trade surplus with the US represented 7% of GDP, while US trade intensity was 63%.
• China and the EU have a smaller US trade intensity and run smaller goods trade surpluses as a % of GDP. However, the nominal trade surplus with the US remained sizeable at USD340bln for China and USD168bln for the EU.
• Canada's sensitivity to trade policy developments will likely be in focus at today's BOC decision. See here for MNI’s comprehensive preview of that event.