BUNDS: /SWAPS: Modest Bid On Green's Reaffirming Fiscal Position Fades

Goldman Sachs note that ECB’s report on r* “de-emphasised the usefulness of neutral rate estimates for policy, a sentiment echoed by ECB speakers. This suggests that the ECB will not be overly constrained by these estimates, and as a result will follow the signals of the upcoming data.”

• In terms of the feedthrough to their market views, they note “with tariff risk opening up the possibility of slightly more front-loaded cuts we take profit on our ERM5/Z5 flattener recommendation and now recommend outright receiving June 2025 ECB-dated OIS, which is pricing less than 3 cuts, and is better suited to give exposure to a renewed build-up of trade tensions.”

Note: Resend of an earlier post from our Asia-Pac team

US President Trump said that 25% tariffs on all imports of steel and aluminium imports would be announced today. Again Canada is in the firing line as its steel and aluminium make up the largest shares by far of US imports of these products. However, while the US is the world’s second largest steel importer, according to Tradeimex, it is not a major US import but domestically fabricated metals are the 7th largest sector by value added 

• Steel imports accounted for only 1.1% of total 2023 imports and aluminium was only 0.9%. Thus these tariffs are unlikely to be a major inflationary issue for the US but will still significantly impact certain sectors who use them as inputs to production, such as autos.
• According to Tradeimex, electronics (14.6% of the total), nuclear reactors & machinery (14.5%), vehicles (12.0%), fuel & oil (8.4%) and pharmaceuticals (5.6%) were the largest categories imported into the US in 2023. Steel and aluminium didn’t feature in the top 10 but it is not surprising that Trump has been vocal on autos.
• The main impact is likely to be felt by the key exporters with Canada and Mexico in the top three for both steel and aluminium. In 2023, Canada accounted for 25% of US steel imports and 39% of aluminium, while Mexico was 11% and 7% respectively.
• 10% of aluminium imports came from China and last week the US already announced a 10% universal tariff on all Chinese imports, according to TrendEconomy. It doesn’t feature in the top source of steel imports but they may be coming through a third country, such as Mexico.
• Other APAC countries impacted include Korea, Japan and Taiwan for steel and India, Korea and Australia for aluminium. For Australia, overall aluminium exports accounted for only 4% of total exports and so US tariffs will have a minimal impact. 

US steel imports by source % total 2023

US aluminium & articles imports by source % total 2023

Of note:

EURUSD 2.78bn at 1.0290/1.0325.

USDJPY 1.14bn at 153.00.

USDCAD 1.16bn at 1.4425 (a little far).

EURUSD 1.15bn at 1.0300 (tue).

EURUSD 1.19bn at 1.0300 (wed).

AUDUSD 1.04bn at 0.6200 (wed).

USDJPY 2.25bn at 152.00 (fri).

AUDUSD 1.07bn at 0.6200 (fri).

USDCNY 2.16bn at 7.3000 (fri).

• EURUSD: 1.0250 (2.01bn), 1.0260 (738mln), 1.0275 (615mln), 1.0290 (364mln), 1.0300 (864mln), 1.0315 (557mln), 1.0320 (471mln), 1.0325 (520mln), 1.0350 (380mln), 1.0375 (526mln), 1.0400 (1.31bn).
• USDJPY: 151.75 (551mln), 152.75 (335mln), 153.00 (1.14bn).
• USDCAD: 1.4370 (318mln), 1.4400 (696mln), 1.4425 (1.16bn).