US TSYS: Tsys Curve Twist Steepen, 10yr Hovers At 4.25%, Trump Speaks

NZGBs closed sharply richer, with yields 5-7bps lower and the 2/10 curve steeper. 

• After opening the session slightly weaker after the weekend’s US tariff developments, the local market changed course after US tsys reversed early Asia-Pac session weakness.
• Cash US tsys have twist-flattened, with yields ranging from 4bps higher to 5bps lower. In addition to tariff developments, this week’s focus will be on a heavy slate of corporate earnings, key CPI and PPI inflation data, and January’s headline employment report.
• Swap rates closed 6-8bps lower, with the 2s10s curve steeper.
• RBNZ-dated OIS pricing is flat to 5bps softer across meetings today, and down 4-17bps compared to pre-Q4 CPI levels on 22 January. 49bps of easing is priced for February, with a cumulative 127bps by November 2025.
• Tomorrow, the local calendar will see Building Permits data, ahead of the Q4 Employment Report on Wednesday.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 4.50% Apr-27 bond, NZ$225mn of the 2.00% May-32 bond and NZ$50mn of the 2.75% May-51 bond.

AUDUSD seems to have stabilised after falling sharply following US tariff news over the weekend. The pair fell to 0.6088 but is now around 0.6098 to be down 1.9% on the day. It has now broken below the bear trigger at 0.6131 and round number support at 0.6100 confirming the bearish trend. The USD index is 1.3% higher as 25% tariffs on the US’ largest trading partners are assumed to be inflationary if sustained. 

• Kiwi is also risk-sensitive and has sold off 1.9% against the greenback leaving AUDNZD up 0.2% to 1.1035. The pair has been range trading for most of the APAC session. AUDCAD is down 0.2% to 0.9012 despite the CAD also selling off.
• AUDJPY is down 1.6% to 94.91 after a low of 94.69. AUDEUR is 0.5% lower at 0.5965 and AUDGBP -0.8% to 0.4972.
• Retail sales were stronger than expected at the end of 2024. Q4 volumes rose 1.0% q/q to be +1.1% y/y after 0.5% & 0.2%. December building approvals disappointed with private houses posting their third consecutive monthly decline.
• Equities are selling off with the ASX down 1.8%, Hang Seng -0.4% and Nikkei -2.6%. The S&P e-mini is 1.9% lower. Oil prices are higher with WTI +1.7% to $73.77/bbl off the intraday low of $73.48. Copper is 1.9% lower and iron ore is just under $105/t after falling to $102/t.
• Later the Fed’s Bostic and Musalem speak and US January manufacturing PMI/ISM and December construction print. ECB’s Donnery appears and European January manufacturing PMIs and January CPI are released.

• Gold started this week with a weakening bias, off from Friday’s close of US$2,798.41 to be at $2,772.75 in afternoon trading.
• Last week saw an amazing turnaround from gold to finish 1.00% better for the week after a very poor day, Monday and this week, Gold is showing it doesn’t like Mondays again down -0.90%.
• Whilst gold’s ‘safe haven’ status usually prevails, a strengthening USD on the back of tariff news won over sending gold lower this morning.
• The US announced 25% tariffs on goods from Mexico and Canada, and 10% from China coming into effect from Tuesday.
• The potential for a global trade war is now real and in any period of uncertainty the USD strengthens and already has moved by enough to offset gold’s safe haven status.
• That said, gold started 2025 where it left off last year, performing well and up over 5% year to date. 
•  JPMorgan announced that it plans to deliver US$4bn of gold bullion this month against contracts that expire in February, representing one of the largest physical settlements on record.