OIL: Mideast Tanker Surplus Widens on Week

A new survey from Reuters/Ipsos found that 47% of Americans approved of Trump's presidency as he returned to the White House this week, “a sign of a polarized nation” but “higher than it was throughout most of his 2017-2021 term.”

• The report notes that although voters largely disapproved of Trump's handing of January 6 pardons, “Respondents looked more warmly on Trump's approach to other issues. Some 46% of respondents approved of his job handling immigration, an issue many Americans would like to see as the new administration's top priority.”

Figure 1: Presidential Approval Ratings, Trump and Biden 2016-

Source: Reuters

Core European yields rose Wednesday, with periphery/semi-core EGB spreads tightening.

• Bund and Gilt gains peaked in European morning trade, with the periphery/semi-core instruments appearing to lead the way in a session that saw European equities hit fresh record highs.
• The initial core bid faded and yields hit session highs toward the cash close, weighed down in part by higher oil prices following US President Trump's ultimatum to Russia on reaching a deal to end the war with Ukraine, and with US long-end supply looming later in the day.
• In a session with limited data, higher-than-expected UK public sector borrowing figures did little to impact Gilts, while ECB speakers at Davos including Lagarde brought no surprises and no major market reaction. Supply included Spanish and Finnish syndications, and Bund auction.
• The rise in German yields was roughly parallel across the curve at +2bp (5Y outperformed slightly), with the UK curve bear steepening.
• Periphery and semi-core EGB spreads to Bunds tightened, with OATs leading the way for a 2nd consecutive session following strong demand at Tuesday's 15Y syndication.
• Thursday's data slate is sentiment survey-focused, including French and EU confidence, with the UK GfK and CBI reports as well. 

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 2.1bps at 2.236%, 5-Yr is up 1.7bps at 2.335%, 10-Yr is up 2bps at 2.53%, and 30-Yr is up 2.2bps at 2.753%.
• UK: The 2-Yr yield is up 2.1bps at 4.355%, 5-Yr is up 1.4bps at 4.351%, 10-Yr is up 4.2bps at 4.632%, and 30-Yr is up 3.1bps at 5.182%.
• Italian BTP spread down 1bps at 107.1bps / French OAT down 3.2bps at 73.8bps  

• USDCAD has seen an almost 90pip range so far today but it’s small compared to the past two sessions on tariff-induced swings.
• At 1.4357, it’s comfortably within wide technical levels with a key support at 1.4261 from the Jan 20 low vs resistance at 1.4516 from Jan 21 high.
• Tariff headline watching remains at the fore, with question marks over the potential magnitude and scope of tariffs, with particular attention on whether oil and auto sectors receive carve outs if tariffs do look likely to go ahead on Feb 1 (see below charts on relative sensitivity to Canadian exports to the US , plus imports from the US in case of Canadian retaliation).  
• Next week’s BoC decision is secondary against this backdrop, with 22bp of cuts priced vs ~19bp before yesterday’s CPI as it didn’t show a strong enough report to overwhelmingly justify a pause.
• That clearly leaves a very strong likelihood of a 25bp cut to 3.00% for a little more firmly within the Bank’s 2.25-3.25% estimated range for neutral policy.