US: White House Walks Back Canada/Mexico Tariff Postponement, Per Reports
Feb-26 21:17
Helping explain why MXN and CAD retraced almost all their sharp mid-afternoon gains: multiple outlets (Axios, Politico) report that the 25% US tariffs on Canada and Mexico due to come into place on March 4 are still on track - and there is no delay to April 2 as President Trump said earlier.
- Commerce Secretary Lutnick said something to this effect, and various media cite a White House source confirming that the tariffs are still on for next week as it stands.
- Per Axios: "Trump told reporters on Wednesday that the 25% tariff on imports from North American allies would take effect on April 2. Commerce Secretary Howard Lutnick quickly added that the "big transaction" would be April 2, but the "fentanyl-related" tariffs would be re-evaluated at the end of the 30-day pause on March 4."
- "April 2 is the deadline for reciprocal tariffs that Trump previously announced, a senior White House official clarified to Axios. That official added that the 25% tariffs specific to Canada and Mexico were still on pause until next week, as originally thought. The administration has not made a decision whether to extend that pause or not."
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ECB VIEW: Rabobank Still Expect Fewer Cuts Than The Median This Cycle
Jan-27 20:52
- Ahead of Thursday's ECB decision, Rabobank write that President Trump has not materially changed the outlook for the Eurozone economy for now, and so, "there is no reason to expect the ECB to change course at this juncture.”
- "The Governing Council increasingly expects inflation to converge to the 2% target in the course of 2025. This allows for another 25bp cut at the January policy meeting. However, uncertainty remains high.”
- “So, even though the ECB may be inclined to cut further in the coming months, we believe the ECB also wants to keep its flexibility. Lagarde will probably refrain from giving any guidance.”
- Rabobank see three 25bp cuts, to 2.25% in April, "based on our premise that underlying inflation will be a bit stickier than the ECB expects.”
- Specifically: “We still see the remaining gap between underlying inflation and the ECB’s target close more slowly than the Governing Council seems to anticipate." That could see the ECB "opt to delay the cut we have pencilled in for April until June.”
- “However, more so than the risk of delays, we see the risk that the ECB’s intended cycle to (about) 2% could be cut short. Much hinges on the policies of the new US administration, and just because Trump has not acted on his threats yet, that does not mean that he will not impose tariffs on Europe or other countries.”
US TSYS: China AI Startup DeepSeek Rattles Broader Markets
Jan-27 20:34
- Heavy risk-off moves occurred Monday as Chinese AI startup DeepSeek rattled broader markets: new competition for US AI developers weighed heavily on chip stocks, the tech heavy Nasdaq falling over 3.65% in late trade, spurred heavy outright buying and short covering across the board in Treasuries.
- After the close, the Mar'25 10Y contract trades +22 at 109-05 vs. 109-12 high, just under initial technical resistance at 109-12.5 (50-day EMA), heavy volumes (TYH5 over 2.5M).
- Despite the rally, curves were mixed by the close, 2s10s -2.053 at 32.906, 5s30s +1.680 at 43.432. Nevertheless, projected rate cuts through mid-2025 regain traction vs. late Friday (*) levels as follows: Jan'25 at -0.7bp (-0.1bp), Mar'25 at -8.3bp (-6.9bp), May'25 at -15.9bp (-13.6bp), Jun'25 at -27.9bp (-24.7bp), Jul'25 at -33.7bp (-28.6bp).
- Focus remains on Wednesday's FOMC policy annc, no move expected, as well as a heavy slate of corporate earnings Tuesday: PACCAR, Sysco Corp, Synchrony Financial, Lockheed Martin Corp, Veradigm, Royal Caribbean, Polaris Inc., Boeing, NextEra Energy, JetBlue Airways, General Motors, Kimberly-Clark Corp, Invesco, Starbucks, Qorvo and Stryker Corp.
CANADA: BofA Expect BoC Guidance To Signal Pause Ahead
Jan-27 20:22
- BofA expect the BoC to cut the overnight rate target 25bps to 3.00% although the risk for the meeting is that it keeps rates unchanged.
- “With inflation mostly under control, we believe the BoC will choose to cut the rate to boost the economy and to use the CAD as a shock-absorber in the case tariffs are imposed.”
- “We expect the forward guidance to signal a pause as the BoC waits to see how both domestic activity and US trade policy play out.”
- “With inflation mostly under control and under our expectation that activity will keep improving we see 3.00% as the terminal rate. In addition, our US economists have the US Fed on hold throughout the year.”
- “Our economist's base case is for no tariffs against Canada. However, if tariffs were imposed, the BoC would likely cut rates in response, which risks further widening of the US-CA terminal rate differential.” Specifically, “the BoC may respond by cutting below neutral to use the CAD as a buffer.”
- Rates: “We have revised our CA rate forecast in response to our revised expectations for one more cut in 2025. We now forecast a 10y rate of 3.4%, which is roughly in line with forwards. […] BoC QT is now expected to end in Aug '25 with settlement balances around CAD$50-$70bn.”
- FX: "We see 1.42 as first-order target level for USDCAD. But USDCAD would break the 1.45 resistance level if tariffs are confirmed, reaching 1.50-1.55 if BoC turns dovish.”
