Highlights:
- Trump tariff hammer unnerves CAD, MXN, sending the currencies to new lows
- Uncertain timetable, but Trump calls with Mexican, Canadian leaders the near-term focus
- Fed's Musalem, Bostic eyed for FOMC interpretation of tariffs
US TSYS: Significant Twist Flattening On Long-Threatened Tariff Unveiling
- Treasuries continue to demonstrate significant twist flattening following President Trump actually imposing long-threatened tariffs over the weekend (to be effective Feb 4).
- Trump has unveiled 25% tariffs on all Canadian goods except for a partial carve-out with 10% on energy (including oil & electricity), along with 25% tariffs on Mexico and 10% on China plus threats of upcoming tariffs on the EU. The measures take effect at 0001ET on Tuesday leaving only a small window for last-minute negotiations.
- Cash yields are 7.5bp higher (2s) to 2.2bp lower (30s) with the pivot after 10s.
- 2s10s at 27bps (-7.5bps) is at lows since late December.
- TYH5 is within session ranges at 108-29+ (+ 02+) on heavy cumulative volumes nearing 770k (~1.6x recent averages).
- A bullish corrective cycle is intact as 109-10+ (50-day EMA) remains exposed. It has been pierced but a clear break would strengthen a bullish theme and open 109-31 (Dec 18 high). The medium-term trend condition is bearish. It hit 108-21+ shortly after the open probe 108-23+ (20-day EMA) with initial firm support seen at 108-06 (Jan 23 low).
- Data: S&P Global US PMIs Jan final (0945ET), ISM mfg Jan (1000ET), Construction spending Dec (1000ET)
- Fedspeak: Bostic talks on economic outlook (1230ET), Musalem welcoming remarks (1830ET) – see STIR bullet.
- Bill issuance: US Tsy $84B 13W & $72B 26W bill auctions (1130ET)
STIR: US Rates Clearly Show Near-Term Inflationary Impact From Trump Tariffs
- Fed Funds implied rates clearly show the initially inflationary aspects of President Trump actually imposing long-threatened tariffs over the weekend (to be effective Feb 4).
- The near-term inflationary/longer-term growth negative angle can be seen in SOFR futures, with the Sep’25 yield 6bps higher, Dec’26 unchanged and declines further out in the greens and beyond.
- Cumulative cuts from 4.33% effective: 4bp Mar, 9.5bp May, 18.5bp Jun, 23.5bp Jul, 30bp Sep, 39bp Dec.
- The March rate is 1.5bp higher, June 5.5bp higher and Dec 8.5bp higher from Friday’s close. It sees a next 25bp Fed cut now priced for September whilst the 39bp of cuts for 2025 has more than reversed last Monday’s slide on DeepSeek driven risk-off.
- The latter sits between recent extremes of 24bp seen in the aftermath of a strong payrolls report and 54bp on last week’s US tech-led slide.
- Today’s scheduled Fedspeak comes from Bostic (non-voter) on the economic outlook at 1230ET (Q&A only) before Musalem (’25 voter) at 1830ET limited to welcoming remarks.
- Bostic’s last public comments were recorded on Dec 9 (pre the Dec 17-18 FOMC meeting) but only released on Jan 7. He pushed the need for caution: “Given that kind of bumpiness in the measures, I think that will call for our policy approach to be more cautious […] And if we’ve got to err, I would err on the upside. I would want to make sure—for sure—that inflation gets to 2 percent, which means we may have to keep our policy rate higher longer than people might expect, or we may have to be more deliberate in the pacing of reducing our policy.”
US TSY FUTURES: Long Cover In TY Futures Dominated On Friday
OI data points to a mix of net short setting (FV, UXY, US & WN futures) and net long cover (TU & TY futures) ahead of the weekend, with late Friday trade being dominated by tariff headlines that weighed on Tsy futures.
- The size of the DV01 equivalent swing in TY futures (~$5.6mln) mean that net long cover dominated in curve-wide terms.
| 31-Jan-25 | 30-Jan-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,185,319 | 4,201,993 | -16,674 | -621,291 |
FV | 6,380,403 | 6,358,074 | +22,329 | +924,327 |
TY | 4,882,499 | 4,969,360 | -86,861 | -5,557,174 |
UXY | 2,319,904 | 2,294,916 | +24,988 | +2,184,165 |
US | 1,959,119 | 1,954,714 | +4,405 | +552,724 |
WN | 1,792,085 | 1,788,424 | +3,661 | +693,717 |
|
| Total | -48,152 | -1,823,534 |
STIR: Mix Of Net Short Setting & Long Cover In SOFR Futures On Friday
OI data points to a mix of net short setting and long cover in SOFR futures on Friday, with the only outright net positioning swing of any note coming via net short setting in SFRM5 (~15K, which accounted for less than 1.5% of outstanding OI).
| 31-Jan-25 | 30-Jan-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,089,556 | 1,085,831 | +3,725 | Whites | +19,349 |
SFRH5 | 1,213,684 | 1,217,522 | -3,838 | Reds | -10,004 |
SFRM5 | 1,073,919 | 1,058,543 | +15,376 | Greens | +4,355 |
SFRU5 | 774,414 | 770,328 | +4,086 | Blues | -6,741 |
SFRZ5 | 958,695 | 955,673 | +3,022 |
|
|
SFRH6 | 682,080 | 690,312 | -8,232 |
|
|
SFRM6 | 636,078 | 637,997 | -1,919 |
|
|
SFRU6 | 594,408 | 597,283 | -2,875 |
|
|
SFRZ6 | 692,856 | 701,591 | -8,735 |
|
|
SFRH7 | 485,031 | 481,031 | +4,000 |
|
|
SFRM7 | 412,863 | 406,599 | +6,264 |
|
|
SFRU7 | 290,400 | 287,574 | +2,826 |
|
|
SFRZ7 | 275,864 | 278,791 | -2,927 |
|
|
SFRH8 | 218,970 | 219,929 | -959 |
|
|
SFRM8 | 180,985 | 183,297 | -2,312 |
|
|
SFRU8 | 120,100 | 120,643 | -543 |
|
|
US TSY FUTURES: CFTC CoT Shows A Managers Adding To Longs, Fund Shorts Growing
The latest CFTC CoT showed asset managers and leveraged funds adding to their overall net exposures in the week ending January 28.
- Asset managers added to net longs in TU, FV, TY & WN futures, while they trimmed net longs in UXY and US futures. The net long setting instances were larger from a DV01 equivalent perspective, with the cohort remaining net long across all contracts.
- Leveraged funds added to net shorts in all contracts outside of UXY futures, where they trimmed net short exposure. The net short setting seen in TY futures was sizeable (~$13mln DV01). The cohort remains net short across all contacts.
- Broader non-commercial net positioning swings were mixed, with some net shorts being added to (TU, TY & WN) and trimmed (FV & UXY), while the only net long position the cohort holds (UXY) was added to.
Source: MNI Markets/CFTC
CANADA: Latest Tariff State Of Play
- Trump imposed 25% tariffs on all Canadian goods except for a partial carve-out with 10% on energy (including oil & electricity), along with 25% tariffs on Mexico and 10% on China plus threats of upcoming tariffs on the EU.
- The measures take effect at 0001ET on Tuesday leaving only a small window for last-minute negotiations. Trump and Trudeau are set to speak Monday morning (currently nothing more specific on timing) but Trump has said “I don’t expect anything very dramatic […] We put tariffs on. They owe us a lot of money, and I’m sure they’re going to pay”. Such a quick roll back could be humiliating.
- The tariffs will also aim to close the “de minimis” loophole that saw exemption for packages worth less than $800.
- The Canadian response has been swift. It will retaliate with 25% tariffs on C$155bn of US goods, C$30bn taking effective also on Tue before the remaining C$125bn in three weeks to allow businesses time to prepare.
- The first wave of Canadian retaliation focused on previously touted areas such as alcohol, coffee, clothing and shoes, furniture, household appliances plus products from Republican-leaning states. A second wave is more industrial focused and includes cars and trucks, agricultural products, steel and aluminum and aerospace products.
- USDCAD hit 1.4793 in Asia hours to punch through 2016 and Covid highs for levels last seen in 2003. It’s since pulled back to 1.4670-1.4680. We earlier noted some $3bn of option expiry set to roll off between C$1.4740-1.4800 on Friday after dual US and Canadian jobs reports.
- CORRA futures implied yields are ~10bp lower from Friday’s close in thin early trading. Downside growth impacts dominate but the immediate Canadian retaliation keeps an inflation angle at play.
- BoC analysis published Wednesday showed US 25% tariffs on all imported goods and all trading partners with full retaliation would see Canadian GDP growth 2.4pps lower in year 1 before 1.5pps lower in year 2. CPI inflation would be just 0.1pp higher in year before a more significant 0.5pp in year 2 and 1.0pp in year 3. Note here.
FOREX: CAD Sinks to Multi-Decade Lows on Tariff Hammer
- Intraday vol and headline risk picked up over the weekend, as Trump set in place to invoke an emergency in order to install 25% tariffs on Canadian and Mexican imports - effective from 0001ET on Tuesday. This leaves calls with the Canadian and Mexican leaders today (a call with Trudeau already set for Monday "morning") as a final opportunity at which to delay or lessen the impact of trade levies.
- USD/CAD gapped notably higher at the open, tipping the rate to touch a high of 1.4793 and the highest level since 2003. The sharper moves for USD/CAD bring >$800mln of option expiries at C$1.4895 on Wednesday into play but, more notably, it's the ~$3bln set to roll off between C$1.4740-1.4800 that should draw attention. A sizeable proportion of that expiry slate is made up of calls, and could keep prices supported across the week and through the dual US/Canadian jobs reports set for Friday.
- Give the deteriorating trade backdrop and 10% tariff threat also levied against China, growth-proxies and risk sensitive currencies are faring the worst off, as AUD/USD slippage puts the pair at a new cycle low. The $0.6088 print marks a new post-COVID low and isolates $0.6099 as key at the close - that level marks the 76.4% retracement of the rally off 2020 lows.
- Headline risk remains high, with much market focus on calls between the White House and Canada & Mexico. Data releases include the ISM Manufacturing print for January - seen keeping pace with the December reading to broadly mimic the data patterns seen in the MNI Chicago Business Barometer print from Friday. Fed's Musalem and Bostic are the central bank speakers of note.
OPTIONS: Expiry Pipeline Adds to Positive USD/CAD Backdrop
Given the sharp spot swings from the re-opening of trade - a series of sizeable FX expiries set to roll-off both today as well as later in the week are now in close proximity, with markets particularly focusing on larger $1.0325 EUR/USD strikes today (E1.5bln set to roll off here) and Y155.00 strikes in USD/JPY ($650mln).
- The sharper moves for USD/CAD brings >$800mln at C$1.4895 on Wednesday but, more notably, it's the ~$3bln set to roll off between C$1.4740-1.4800 - a sizeable proportion of which is made up of calls, and could keep prices supported across the week and through the dual US/Canadian jobs reports set for Friday.
- Today's pipeline:
• EUR/USD: $1.0200(E507mln), $1.0325(E1.5bln), $1.0350(E710mln), $1.0370-75(E662mln), $1.0400(E1.8bln), $1.0420-25(E1.2bln)
• USD/JPY: Y155.00($646mln)
• USD/CAD: C$1.4400($1.6bln)
EQUITIES: Reversal Lower for Eurostoxx 50 Futures Signals End of Recent Bull Run
- A sharp reversal lower in the Eurostoxx 50 futures contract signals the end of the recent bull run - for now - and the start of a corrective cycle. Price has gapped lower and traded through the 20-day EMA, at 5152.76. A continuation lower would pave the way for a move towards the 50-day EMA, at 5050.12, the 50-day EMA. On the upside, key resistance and the bull trigger has been defined at 5327.00, the Jan 31 high.
- The S&P E-Minis contract has started the week on a bearish note. The gap lower today and a breach of support at 5948.00, the Jan 27 low, strengthens a bearish threat and cancels - for now - a recent bullish theme. An extension down would open 5892.37, a Fibonacci retracement point. Initial resistance is at 6057.75, the Jan 31 low and a gap high on the daily chart. Clearance of this level would reinstate a bullish theme.
COMMODITIES: WTI Futures Rally Back Above 20-Day EMA
- Last week’s move down in WTI futures marked an extension of the current corrective cycle. The 20-day EMA has been breached and attention is on support around the 50-day EMA, at $72.26. A clear break of the 50-day average would suggest scope for a deeper retracement. On the upside, a reversal higher would refocus attention on $79.48, the Apr 12 ‘24 high and a key resistance.
- A bull cycle in Gold remains in play. Last week’s extension higher resulted in a print above $2790.1, to record a fresh all-time high. The climb confirms a resumption of the primary uptrend and maintains the bullish price sequence of higher highs and higher lows. Attention is on $2817.6 next, a Fibonacci projection. The first key support to watch is $2687.5, the 50-day EMA. The 20-day EMA is at $2728.1.
| Date | GMT/Local | Impact | Country | Event |
| 03/02/2025 | - | *** |  US | Domestic-Made Vehicle Sales |
| 03/02/2025 | 1445/0945 | *** | US | S&P Global Manufacturing Index (final) |
| 03/02/2025 | 1500/1000 | *** | US | ISM Manufacturing Index |
| 03/02/2025 | 1500/1000 | * | US | Construction Spending |
| 03/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 03/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 03/02/2025 | 1730/1230 | US | Atlanta Fed's Raphael Bostic | |
| 03/02/2025 | 2330/1830 | US | St, Louis Fed's Alberto Musalem | |
| 04/02/2025 | 0745/0845 |  FR | France Budget Balance | |
| 04/02/2025 | 1000/1000 | ** |  GB | Gilt Outright Auction Result |
| 04/02/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 04/02/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 04/02/2025 | 1500/1000 | ** | US | Factory New Orders |
| 04/02/2025 | 1500/1000 | *** | US | JOLTS jobs opening level |
| 04/02/2025 | 1500/1000 | *** | US | JOLTS quits Rate |
| 04/02/2025 | 1600/1100 | US | Atlanta Fed's Raphael Bostic | |
| 04/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 04/02/2025 | 1900/1400 | US | San Francisco Fed's Mary Daly | |
| 05/02/2025 | 2200/0900 | * |  AU | S&P Global Final Australia Services PMI |
| 05/02/2025 | 2200/0900 | ** | AU | S&P Global Final Australia Composite PMI |
| 05/02/2025 | 2330/0830 | ** |  JP | average wages (p) |
1986 words