OUTLOOK: Price Signal Summary - Gold Bulls Remain In The Driver's Seat
Mar-27 11:57
* On the commodity front, the trend condition in Gold is unchanged, it remains bullish and the yel...
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OPTIONS: Expiries for Feb25 NY cut 1000ET (Source DTCC)
Feb-25 11:56
- EUR/USD: $1.0390-00(E1.2bln), $1.0450-55(E560mln)
- USD/JPY: Y149.00($751mln), Y149.75-80($790mln)
- USD/CNY: Cny7.3500($1.1bln)
US TSYS: Bunds Lend Added Support to Tsys, Trade Uncertainty Spreads
Feb-25 11:53
- Treasuries resume climb to highest levels since mid December overnight, gaining additional support in early London trade as Bunds rallied. Bunds reversed weakness to extending highs as Pres Trump trade policy continues to unsettle rates, weigh on equities.
- Currently, Mar'25 10Y futures trades +11.5 at 110-07.5 vs. 110-09 high, focus on initial technical resistance at 110-19 (76.4% retracement of the Dec 6 - Jan 13 bear leg) followed by 110-25 (High Dec 12 ‘24). Initial firm support to monitor is 109-09, the 50-day EMA. A move below this average is required to highlight a potential reversal.
- Tsy 10Y yield has slipped to 4.3328% low (-.0675), curves mixed: 2s10s -.581 at 21.769, 5s30s +1.618 at 43.424. Heavy futures volume (TUH5 1.5M already) tied to Mar/Jun roll with latter taking lead quarterly this Friday.
- Bbg US$ index inching lower (BBDXY -0.46 to 1286.81) paring overnight gains after Pres Trump mention of Canada & Mexico tariffs are "on time, moving forward" late Monday.
- Projected rate cuts through mid-2025 steady to firmer vs. lat eMonday levels (*) as follows: Mar'25 at -0.7bp (-0.5bp), May'25 at -8.2bp (-7.1bp), Jun'25 at -20.7bp (-18bp), Jul'25 at -28.6bp (-25.6bp).
- Focus on regional Fed data (Philly, Richmond, Dallas) & Fed speakers today, House price index at 0900ET, Consumer Confidence at 1000ET. US Treasury auctions $75B 6W Bills at 1130ET, $70B 5Y Notes (91282CMQ1) at 1300ET.
CHINA: PBoC Must Tread Lightly, Supporting FX While Avoiding Ire (2/2)
Feb-25 11:50
- Late last week, the NYT reported Trump is eyeing a "bigger, better" trade deal with China that goes beyond reworking their trade relationship to encompass "substantial" investments, purchase commitments and even nuclear security.
- Any agreements made between China and the US will be taken in the context of the 'Phase One' agreement signed in Jan'20 which allowed for FX rate flexibility as a release valve for internal/external economic imbalances - and could limit criticism of fluctuation in FX rates over the medium-term.
- As such, in light of the Phase One deal, the PBoC must tread lightly in protecting the real economy, but avoiding any critiques of FX policy. While the bank could look beyond USD liquidity tweaks (leaning more heavily on the counter-cyclical factor), tweaks to both the FX RRR (last used in 2023) and deposit requirements on FX forwards may become trickier given the headline-grabbing, more direct nature of the measures. This may mean the tools only come into play in the even of a disorderly CNY sell-off.
- The formal installation of 25% aluminium and steel tariffs may be the next flashpoint for tensions here. Coming into effect on March 12th, the measures are seen as indirectly targeting Chinese imports to the US given concerns China are "flooding" the global market and harming US manufacturing in the process.
