US TSYS: Futures Uptick In Asia-Pac Session After Yesterday’s Volatility
In today's Asia-Pac session, TYM5 is 110-29, 0-02 from closing levels.
- It was another volatile session as the markets assessed more news on tariffs and Ukraine, while digesting JOLTS data ahead of upcoming CPI. Wall Street closed in the red but off its lows.
- US tsys reversed cheaper after yesterday’s Asia-Pac session strength. Geopolitical and trade war headlines provided the impetus. A rebound in bund yields, with German fiscal expansion negotiations underway, assisted the move.
- JOLTS job openings were higher than expected, resulting in a modestly hawkish reaction on the highest TY volumes of the day, but this was dominated by the negative growth angle from President Trump threatening 50% tariffs on Canadian steel and aluminum from tomorrow shortly afterwards.
- A strong 3-year auction and a dip in equities to session lows briefly pushed yields lower. However, a series of headlines reversed the trend, with equities paring losses and US yields rising to session highs. Key developments included reports of Ukraine agreeing to a US ceasefire proposal and indications of a temporary US-Canada/Ontario agreement.
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AUSSIE 3-YEAR TECHS: (H5) Corrective Bounce Fades
- RES 3: 97.190 - High May 5 2023
- RES 2: 96.730/932 - High Sep 17 / 76.4% of Mar-Nov ‘23 bear leg
- RES 1: 96.290/360 High Feb 5 / High Dec 11
- PRICE: 96.200 @ 16:36 GMT Feb 07
- SUP 1: 95.830 - 1.000 proj of the Dec 11 - 20 - 31 price swing
- SUP 2: 95.760 - Low 14 Nov ‘24
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
A bear cycle in Aussie 3-yr futures remains intact and short-term gains are considered corrective. On the upside, a clear reversal higher would signal scope for an extension towards 96.360, the Dec 11 high. The recent move down reinforces the bear theme and the contract has traded through the December low. A deeper sell-off would refocus attention on 95.760, the 14 Nov ‘24 low.
OIL: Crude Continues To Worry About Tariff Impact On Demand
Oil prices were up moderately on Friday but coming off their intraday highs on news that US President Trump plans to announce “reciprocal” tariffs this week to “address the deficit”. This morning he has said that there will be universal 25% tariffs on steel and aluminium imports announced. Increased protectionism is making oil markets nervous because of their impact on global demand. The USD has strengthened in response.
- WTI rose 0.6% on Friday to $71.06/bbl after reaching a high of $71.41. It continues to trade below the 50-day EMA at $72.20 opening support at $70.43. Initial resistance is at $75.18, February 3 high. The benchmark approached oversold territory on Friday, according to Bloomberg.
- Brent is up 0.5% to $74.69/bbl to be down 1.3% this month. It remains below the 50-day EMA at $75.43 opening up support at $74.10, February 6 low. Initial resistance is at $78.80 with the bull trigger at $81.20.
- Oil is struggling with the highly uncertain outlook. It is concerned by the impact of 10% tariffs on US imports from China and China’s retaliatory measures, while 25% tariffs on Mexico and Canada have been delayed the outcome of that dispute remains unclear. Then there is the supply side with tighter enforcement of sanctions on Iran but Trump vowing to boost the US’ production. Before the new US administration 2025 was widely forecast to have a surplus.
- Bloomberg is reporting that Chinese refineries have reduced production rates to levels last seen during Covid with demand remaining soft and lower flows from Russia given the tightening of sanctions, especially on the shadow fleet.
AUSSIE BONDS: Modestly Cheaper After US Payrolls, More Trump Tariffs Due Monday
ACGBs (YM -3.0 & XM -3.5) are modestly cheaper after US tsys came under pressure after solid labour market data.
- US tsys gapped richer after lower-than-expected jobs gains for January, and a small dip in the unemployment rate -- but quickly reversed on robust two-month net revisions along with a smaller-than-expected benchmark revision.
- The combination saw Fed rate cut expectations trimmed again to 37bp of cuts for 2025 vs 43bp pre-data.
- Headlines have crossed from Bloomberg, with US President Trump stating that the US will announce tariffs of 25% on all steel and aluminium imports from Monday. Trump didn't announce a time when these tariffs will take effect.
- Cash ACGBs are 3-4bps cheaper with the AU-US 10-year yield differential at -10bps.
- Swap rates are 2-3bps higher.
- The bills strip flat to -3.
- RBA-dated OIS pricing is slightly firmer across meetings today. A 25bp rate cut is more than fully priced for April (128%), with the probability of a February cut at 89% (based on an effective cash rate of 4.34%).
- Today, the local calendar is empty.
- This week, the AOFM plans to sell A$400mn of the 2.75% 21 May 2041 bond on Wednesday and A$700mn of the 1.50% 21 June 2031 bond on Friday.
