AMERICAS OIL: Gas Prices are Headed Higher; a 'Ripple Effect' Could Worsen It

The newly minted administration of US President Donald Trump has sent a memo to Republican lawmakers outlining immediate priorities for the Republican government. 

•  The memo is broken down into four sections, 'Make America safe again"; "Make America affordable and energy dominant again"; "Drain the swap"; and "Bring back American values".
• Some key items in the memo: "The Armed Forces, including the National Guard... will be deployed to the border to assist existing law enforcement personnel."
• "President Trump will begin the process of designating cartels as foreign terrorist organizations and use the Alien Enemies Act to remove them."
• "President Trump will declare an energy emergency and use all necessary resources to build critical infrastructure."
• "The President will unleash American energy by ending Biden’s policies of climate extremism, streamlining permitting, and reviewing for rescission all regulations that impose undue burdens on energy production and use, including mining and processing of non-fuel minerals."
• "President Trump will withdraw from the Paris Climate Accord."
• "President Trump’s energy policies will end leasing to massive wind farms..."
• "President Trump will announce the America First Trade Policy."
• Trump is currently delivering his inaugural address, stating that his presidency will face challenges, including a crisis of trust.
• At the conclusion of the speech, Trump will decamp to a room adjacent to the Senate chamber where he will sign the first of up to 200 executive orders prepared for his Day 1 agenda. 

In addition to inflation expectation components noted earlier, the BoC’s Business Outlook Survey pointed to some sequential improvement in demand expectations although excess capacity remains and the BOS indicator is still below average. The pick-up in capex intentions is notable to us considering “prevalent” uncertainty around the incoming Trump administration’s policies but it was in part catch-up of postponed plans. 

• “Overall business sentiment remains subdued, but firms are beginning to anticipate improvements in sales activity. Meanwhile, businesses expect growth in costs to continue to ease and growth in selling prices to stabilize.”
• “After a period of weak demand, firms expect their sales growth to improve over the coming year. This expectation is largely driven by recent interest rate reductions and the anticipation of further cuts ahead.”
• “With lower financing costs and improving demand outlooks, intentions to increase investment have become more widespread among firms. Part of this is a resumption of previous plans that were postponed.”
• That’s despite “Uncertainty about the effects of the new US administration is prevalent, with firms commonly anticipating higher input costs due to trade tensions” but the fact that this is partly catch-up takes some of its gloss off.
• “Most businesses reported having some spare capacity. Because of this, hiring plans remain modest. Binding labour shortages are not widespread, and most firms describe the availability of outside labour as improved compared with one year ago.”
• With signs of improvement in this report at least partly conditional on further rate cuts ahead, Desjardins, for example, continue to see a case for their baseline of rates going to 2.00% in early 2026. 

With the US returning in earnest tomorrow for the first full day of the second Trump Presidency, and the sharp USD swings today, we'd expect focus on Tuesday's expiry schedule to pick up into 10am NY time.

Decent optionality building around the $1.04 handle and above in EUR/USD, while a sizeable strike in USD/JPY at Y156 could limit losses:

• EUR/USD: $1.0300(E2.0bln), $1.0325(E3.3bln), $1.0400(E2.2bln), $1.0415-20(E1.3bln), $1.0450(E921mln), $1.0490-00(E1.4bln)
• USD/JPY: Y153.00($1.5bln), Y156.00-05($2.2bln)
• AUD/USD: $0.6200(A$775mln), $0.6245-50(A$939mln)
• USD/CAD: C$1.4285($703mln)