BUND TECHS: (M5) Bearish Impulsive Wave Extends

• RES 4: 134.54 61.8% retracement of the Dec 2 - Jan 14 bear leg            
• RES 3: 134.29 High Dec 20
• RES 2: 133.73 50.0% retracement of the Dec 2 - Jan 14 bear leg
• RES 1: 133.58 High Feb 3                  
• PRICE: 132.95 @ 05:30 GMT Feb 4 
• SUP 1: 132.14 20-day EMA       
• SUP 2: 131.00 Low Jan 16 / 24            
• SUP 3: 131.00/130.28 Low Jan 16 / Low Jan 15 and the bear trigger
• SUP 4: 130.44 Low Jul 5 ‘24 (cont)     

Bund futures traded higher Monday and the contract is holding on to the bulk of its recent gains. Price is through resistance at 132.22, the Jan 22 high, and has cleared both the 20- and 50-day EMAs. The break higher confirms a resumption of the corrective bull cycle that started Jan 14. This signals scope for an extension towards 133.73, a Fibonacci retracement point. Firm short-term support has been defined at 131.00, the Jan 16 / 24 low.

Mexico and Canada are highly exposed to the US and have reached deals to delay 25% tariffs by 30 days. China didn’t come to an agreement and a 10% trade tax has been imposed on all US imports from China. It has retaliated with export controls on certain minerals, an anti-trust investigation into Google, and 10-15% tariffs on oil, coal, LNG and agricultural machinery imports from the US. The key though is that the US is less exposed to trade restrictions than all the regions it is targeting. 

• US goods exports account for around 7% of GDP compared with 26% for China & Canada and 20% for the EU. Mexico is a lot closer at 8%. Thus the US can weather a trade war better than the others.
• US merchandise exports to China account for around 7% of its total and only 0.5% of GDP. In comparison, China’s shipments to the US are worth over 14% of its exports and around 2.8% of GDP. Thus it is not surprising that China didn’t respond to the US’ universal 10% tariff with a universal tariff of its own.

US merchandise exports by destination % total 2024

• Around 13.5% of US imports are from China worth about 1.5% of GDP. Mexico and Canada together are around 28% of imports and over 3% of GDP. Again it is not surprising that the latter could find common ground with the US and that the US felt it didn’t have to form a deal with China. While a 10% tax on Chinese imports will lift prices, particularly in certain sectors, overall it is less likely to be an issue for the US economy than 25% on NAFTA members.
• Just under 20% of US imports come from the EU worth 2% of US GDP and 18% of US exports go to the region worth 1.3% of GDP. There is likely room to negotiate a deal with the EU too.

US merchandise imports by source % total 2024

Source: MNI - Market News/Refinitiv

The USD index sits close to session highs at the time of writing. The USD BBDXY index is above 1310, as seemingly no deal has been reached to delay the US tariffs on China imports. China has just announced counter tariffs of its own and also announced an anti-trust probe into Google. This includes 10% tariffs on oil and agricultural machines from the US and 15% on US LNG and coal exports. These will come into effect on Feb 10 per the China FinMin. 

• AUD and NZD are both down over 0.70%, although up slightly from lows seen post tariff headlines. AUD/USD was last 0.6180, session lows rest at 0.6171. For NZD/USD we are just under 0.5590, while EUR is down by 0.60%, to 1.0275/80. We are still also above Monday intra-session lows.
• USD/CNH got to highs of 7.3365, but sits back under 7.3300 in latest dealings.
• USD/JPY has fallen back to 155.00, as risk aversion in the equity space (US futures back into the red, after spending much of the day in positive territory). Regional equities are still mostly in the green, but off best levels for the session.
• The latest risk off move have seen us tsys yields now trade little changed for the session after initially rising 1-2bps. The 10yr yield was last -.0.8bps at 4.547%.
• Looking ahead, the US response will be gauged to China's tariff hikes. Note we also have: Fed’s Bostic and Daly speak later and US December JOLTS job openings and orders print. France’s December budget statistics and January Spanish unemployment are also out.