EUROZONE DATA: Potential Tariffs Pose Further Risk To Struggling Auto Sector
- At the Strategic Dialogue on the Future of the European Automotive Industry on January 30, President Von der Leyen announced an action plan to support and protect the auto sector which will be presented March 5th. The president also mentioned that the auto sector accounts for "over 13 million direct and indirect jobs" and contributes "approximately E1 trillion" to EU GDP [around 7% of Europe's GDP]", highlighting the importance of the auto sectors recovery to the economy.
- This will be important in tackling subdued growth. The Eurozone's GDP has remained sluggish with structural weakness still apparent with businesses particularly in the automotive industry struggling to keep up with competitors. The flash estimate for Eurozone GDP was revised up one tenth to 0.1% Q/Q in Q4 (vs 0.0% preliminary estimate), though remains the weakest quarter in 2024. On an annual basis it is estimated at 0.9% Y/Y in Q4, significantly below the 2% averaged in 2017-19 ahead of the pandemic
- Whilst the action plan is promising, members of the automotive industry question its impact given the initial dialogue did not mention concrete steps to help the automotive sector.
- On top of this, US President Trump has announced several tariffs ending exemptions made for allies including the EU previously. This includes a threat of a "in the neighborhood of 25%" tariff on automotives entering the US, which Trump says would come as soon as April 2.
- Trump has consistently called out what he calls the unfair treatment of US automotive exports in foreign markets. The EU for instance, collects a 10% duty on vehicle imports, four times the US passenger car tariff rate of 2.5% (though it collects a 25% tariff on pickup trucks from countries other than Mexico and Canada).
- With the US accounting for a hefty 21% of total Extra-EU vehicle exports (as of November 2024), this poses a potentially significant further challenge for the already struggling automotive industry.
- Though the tariff is likely to have a significant effect, no European-focused tariffs have been implemented in 2025 despite Trump making several threats, so there is also the question around Trump's negotiation tactics.
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STIR: Net Long Cover Seen In SFRU5 Through M6 On Friday
Net long cover in SFRU5 through SFRM6 provided the most meaningful positioning adjustment on Friday, as the SOFR strip twist steepened.
| 17-Jan-25 | 16-Jan-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,081,078 | 1,082,733 | -1,655 | Whites | +17,598 |
SFRH5 | 1,169,577 | 1,156,816 | +12,761 | Reds | -39,738 |
SFRM5 | 1,001,937 | 990,744 | +11,193 | Greens | +11,285 |
SFRU5 | 816,251 | 820,952 | -4,701 | Blues | +889 |
SFRZ5 | 980,033 | 996,989 | -16,956 |
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SFRH6 | 640,434 | 653,868 | -13,434 |
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SFRM6 | 650,621 | 661,612 | -10,991 |
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SFRU6 | 613,217 | 611,574 | +1,643 |
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SFRZ6 | 706,589 | 705,123 | +1,466 |
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SFRH7 | 494,931 | 495,024 | -93 |
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SFRM7 | 407,024 | 400,543 | +6,481 |
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SFRU7 | 296,525 | 293,094 | +3,431 |
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SFRZ7 | 267,835 | 267,531 | +304 |
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SFRH8 | 217,539 | 216,772 | +767 |
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SFRM8 | 171,574 | 170,900 | +674 |
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SFRU8 | 110,081 | 110,937 | -856 |
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FOREX: Potential Tariff Targets See Early Vol Pressure
- Trump's inauguration schedule kicks off in earnest from 1200ET/1700GMT (full details here: https://media.marketnews.com/MNIPOLRISK_Inauguration_Day_Schedule_07a11994f9.pdf ), raising headline risk around a slew of early executive orders that could define the beginning of the Presidency. WSJ writes that Trump's initial agenda will target "mass deportations, tariffs and slashing the size of the federal government".
- As such, potential tariff target currencies are being isolated by heightened vol so far, countering the view that Monday could be a quiet session due to the MLK Day holidays. The front-end of the USD/CAD vol curve has rallied aggressively: overnight vols cleared 20 points for the first time since the election itself to hit the highest since late '22, while USD/MXN vols are north of 30 points, for comfortably a YTD high.
- The downside risk for CAD is underpinned by the bullish undertones for USD/CAD - for which recent S/T weakness has proved corrective in the formation of a flag formation - a bullish continuation signal. Friday’s gains expose 1.4508 next, a Fibonacci projection level. This level looks well within reach on any early punitive tariffs targeting USMCA nations - and the run higher in vols suggests the intraday move in spot could be considerably larger. USD/CAD rallied ~150 pips on the election results in November (and a further 200 pips in the following week).
US TSY FUTURES: Long Cover In TY Futures Dominated On Friday
Net long cover in TY futures provided the only real positioning swing of note during Friday trade.
- Net positioning swings were modest elsewhere, as the curve was subjected to some light twist flattening
| 17-Jan-25 | 16-Jan-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,183,844 | 4,209,457 | -25,613 | -972,782 |
FV | 6,181,136 | 6,175,433 | +5,703 | +237,245 |
TY | 4,694,593 | 4,740,842 | -46,249 | -2,957,624 |
UXY | 2,266,718 | 2,257,136 | +9,582 | +833,347 |
US | 1,908,965 | 1,907,549 | +1,416 | +175,230 |
WN | 1,794,375 | 1,796,521 | -2,146 | -399,371 |
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| Total | -57,307 | -3,083,955 |
