CHINA: Bond Curve Flattening Continues 

It has been a volatile session, following the Inauguration of Trump he has been busy signing executive orders, however the market has really only reacted to comments surrounding Canada & Mexico tariffs. Asian equities are trading higher with Hong Kong stocks the top performer following positive TikTok comments from Trump. Tsys futures volumes have surged, while the cash tsys curve has flattened slightly.

• Tsys futures are holding near session's best levels now, brushing off earlier weakness following headlines around 25% tariffs on Canada & Mexico. TU is +02¾ at 102-26¼ while TY is trading +16 at 109-01+, Resistance is seen at 109-06 (Dec 31 high) but gains are deemed corrective from a technical perspective, against a medium-term bear trend with support at 108-00 (Jan 16 low).
• Cash tsys curve has twist flattened, with the belly out-performing, the 7yr leads the way trading -9.5bps to 4.436% just off the ytd lows of 4.413%, while the 10yr is -9.1bps at 4.536%
• Long-end bonds have outperformed recently, flattening yield curves as markets downplayed Donald Trump's tariff threats against Canada and Mexico. The 2s10s spread fell to 31bps, its tightest level since January 3, with technical resistance and charting suggesting a double top may have formed at 42bps, which could limit further steepening for now.
• Fed Funds futures have seen cut expectations build during the Asian session to 43bp for 2025 vs 38bp at the US crossover on Monday and 32bp prior to last week’s CPI report. A next 25bp cut from the FOMC is seen around June/July.
• It is another quiet data session today with just Philadelphia Fed Non-Manufacturing Activity expected out.

• Gold prices continued to rise during the course of Tuesday following a Wall Street Journal Report that incoming President Trump may not implement tariffs immediately, being closely followed by potentially imminent tariffs for Mexico and Canada.
• Trump indicated that a possible tariff on all foreign imports is a possibility he is considering, something that is likely to impact gold.
• The report’s release drove the USD weaker thus supporting gold.
• Gold opened at US$2, 708.2 before moving lower briefly then rallying to $2,726.80 in the Asia trading session.
• Gold remains above all key technical levels with the upward trend entrenched
• Key technical levels are 20-day EMA $2,674.40, 50-day EMA $2,656.22, 100-day EMA $2,616.35 and 200-day EMA $2,510.28.
• Pakistan’s deal with Saudi Arabia to buy a stake in the gold mining project owned by Barrick Gold Corp remains unresolved as Pakistan officials hope to secure some refining activities within the country rather than the raw product leaving for elsewhere.
• The mining sector could be in for a massive year of M&A as BBG reports on rumours that two of the largest global mining companies, Rio Tinto and Glencore are in early stages of merger talks. 

Oil prices have continued to decline today after falling over 1% on Monday. Prices jumped following US President Trump’s statement that he thinks a 25% tariff on imports from Canada and Mexico will be enacted from February 1. The US receives 4mbd from Canada, so tariffs could result in higher US fuel prices. He also declared that the SPR would be refilled, the EV mandate ended and US output increased. 

• WTI is down 0.8% to $76.75/bbl. It fell to $76.09, below initial support at $76.16, before Trump’s statements and then reached $77.18. Brent is only down 0.1% to $80.10/bbl after falling to $79.64 in early trading, holding just above support, and then rising to $80.46.
• Trump declared a “national energy emergency” to be able to increase domestic oil and gas production and reverse Biden’s climate change policies, according to Bloomberg. Uncertainty remains elevated though with no details yet or if he will even be able to use it. Energy permit regulations were also eased, while he said that crude imports from Venezuela would likely be stopped.
• With Trump planning to boost energy production, he said that if the EU wants to avoid tariffs it needs to buy more US oil & gas. EU President von der Leyen has already discussed increased LNG shipments with him.
• He also overturned Biden’s ban on offshore oil & gas drilling but it will require Congressional approval and may face legal challenges.
• The US has tightened sanctions against Russia and Iran by targeting tankers and this may be intensified. Data showed China’s crude imports from Russia in 2024 rose 1% to a record and from Malaysia, which Iranian and Venezuelan crude transits through, rose 28%, while Saudi shipments fell 9%. But that may change with some Chinese ports already preventing vessels carrying Iranian crude from docking.
• Later US January Philly Fed non-manufacturing, UK labour market, euro area/German ZEW and Canada’s December CPI data are released.