Highlights:
- Markets absorb tariffs well, with USD the main pain point
- EUR/USD through to new YTD highs as re-armament plans drive currency strength
- Trump's joint Congress address expected to touch on all major themes of his second adminstration
US TSYS: Twist Steeper On Heavy Volumes With Tariffs In Place
- Treasuries trade twist steeper, with the longer end having more firmly pared gains seen after the open following President Trump yesterday pushing ahead with previously one-month delayed tariffs on Canada and Mexico plus an additional 10% tariffs on China. They have been met by retaliation from Canada and China.
- The long end could also be seeing some intraday spillover from larger than expected potential EU defense spending (touted by EC’s Von Der Leyen as potentially a EUR 800bn increase) plus a weak JGB 10Y auction.
- Cash yields are 2bp lower (2s) to 2.8bp higher (30s) with the pivot after 5s.
- 2Y yields at 3.93% have reinforced Friday’s brief push to a 3 handle, back at mid-October levels.
- TYM5 trades at 111-17 (+04) having pulled back off latest recent highs of 111-28+, and has seen huge cumulative volumes of 940k (roughly double recent averages).
- The earlier climb pierced resistance at 111-12+ (Dec 3, 2024 high) and paves the way for an extension to 112-02 and 112-13 (Fribo projection points). To the downside, support is seen at 110-00 (Feb 28 low).
- Politics: Pres Trump addresses joint session of Congress (2100ET)
- Data: No notable releases
- Fedspeak: NY Fed’s Williams (1420ET) – see STIR bullet
- Bill issuance: US Tsy $70B 6W, $40B 12D CMB bill auctions (1130ET)
STIR: Three Fed Cuts Seen In 2025 As Growth Aspects Of Tariffs In Focus
- The pushing ahead of previously delayed tariffs on Canada and Mexico plus an additional 10% tariffs on China has seen markets lean on the growth negative aspects of tariffs rather than the local inflationary aspect after announcements earlier in the Trump administration.
- Whilst off overnight lows, Fed Funds futures show up to an additional 3.5bp of cuts by year-end, with the 76bp priced for 2025 some 40bp higher than prior to last month’s CPI report.
- Cumulative cuts from 4.33% effective: 2.5bp Mar, 11.5bp May, 30bp Jun, 40bp Jul and 76bp Dec.
- Today sees a particularly quiet docket, with any further US policy announcements likely in the driving seat.
- Later on, NY Fed’s Williams (permanent voter) is interviewed at the Bloomberg Invest Forum (Q&A only). He last spoke Feb 11 – post NFP but before CPI – when he saw mon pol was being well positioned. “The modestly restrictive stance of policy should support the return to 2% inflation while sustaining solid economic growth and labor market conditions. But it’s important to note that the economic outlook remains highly uncertain, particularly around potential fiscal, trade, immigration, and regulatory policies." He also saw QT as proceeding “smoothly”, of note considering the minutes went on to hint that some could support an earlier end point.
MNI: INVITE: Livestreamed MNI Connect With BOE's Breeden On Apr 10
You are invited to listen to a Livestreamed MNI Connect Video Conference with BOE's Sarah Breeden.
Details below:
- TOPIC OF DISCUSSION: UK Economic and Financial Stability Prospects
- DATE: Thursday, 10 Apr 2025
- TIME: 14:00 - 15:30 BST
- This event will be run as a Zoom Webinar and is a public, on-the-record event.
To register please go to: MNI Webcast Registration
EUROPE ISSUANCE UPDATE:
Belgium syndication: Final Terms
- E5bln (MNI had expected E4-6bln) of the new June-42 OLO.
- Spread at 0.40% Jun-40 OLO +8bp (guidance was +10bp area), books above E37bln.
Dutch Direct Auction: Priced
- E6bln (top of the E4-6bln range as we expected) of the new 2.50% Jul-35 DSL. Cut-off spread at +25.5 vs the 2.50% Feb-35 Bund (initial spread guidance was +25.0 to +28.0bps then revised to +25.0 to +26.5bps then to final guidance of +25.5 to +26.0bps), books E29.455bln.
Germany syndication: Mandate
"Germany has mandated Barclays, BofA Securities, Commerzbank, Deutsche Bank, Morgan Stanley and NatWest as joint lead managers for an upcoming syndicated new 30yr benchmark, due 15 August 2056. The transaction will be launched and priced in the near future, subject to market conditions." From market source
- This has been on the cards for some time, but we had little conviction over the timing. We expect a similar size transaction to last year (E6bln with E1bln retained).
EU H1 Funding Target Confirmation
- The EU has released a statement in which it "confirms its funding target for H1/2025, following the announcement of the intention to propose a new EU policy instrument providing up to EUR 150 billion of loans to EU Member States for defence investment."
- This confirms the target at E90bln, of which E31.2bln has ready been sold with the next syndication scheduled for next week and the next auction scheduled for 24 March.
- Any additional EU-bond issuance would only therefore start in H2 at the earliest (which is probably not really a surprise).
UK auction results
- Strong 30-year gilt auction
- A decent 30-year gilt auction for the 4.375% Jul-54 gilt with the LAP (lowest accepted price) of 88.919 above the pre-window closing price (but note the concession that was priced in a minute or so before the biding cut off).
- The price of the 4.375% Jul-54 gilt moved higher after the results were published while gilt futures also moved around 13 ticks higher in the 3 minutes post results being published.
- GBP2.25bln of the 4.375% Jul-54 Gilt. Avg yield 5.104% (bid-to-cover 2.85x, tail 0.2bp).
Austria auction results
- E1.035bln (E900mln allotted) of the 2.95% Feb-35 RAGB. Avg yield 2.845% (bid-to-cover 2.57x; bid-to-issue 2.23x).
- E978mln (E850mln allotted) of the 3.15% Oct-53 RAGB. Avg yield 3.275% (bid-to-cover 2.55x; bid-to-issue 2.22x).
Germany auction results
- E4.5bln (E3.505bln allotted) of the 2.40% Apr-30 Bobl. Avg yield 2.15% (bid-to-offer 1.32x; bid-to-cover 1.69x).
US-CHINA: SCIO Publishes Fentanyl White Paper As US Tariffs Hit
(MNI) London - China's state-run Xinhua reports that the State Council Information Office has released a white paper entitled "China's Control of Fentanyl-Like Substances". Allegations against China of fentanyl production/the production of chemicals used to make the drug have been cited as one of the factors behind the imposition of trade tariffs by the Trump administration. The white paper says that China "fully and deeply participates in important decision-making in the field of international drug control".
- In response to US pressure, the white paper says China "opposes mutual accusations and shirking of responsibilities"
- The latest imposition of 20% tariffs on China has seen a notable reaction. Reuters reports "The U.S.-China Business Council (USCBC) on Tuesday applauded Trump's goal of addressing the illegal trade of fentanyl, but said raising tariffs on Chinese products "is not the way to achieve that goal...Across-the-board tariffs will hurt U.S. businesses, consumers, and farmers and undermine our global competitiveness," USCBC President Sean Stein said in a statement."
- The white paper can be seen as one side of China's response to US President Donald Trump's tactics. The paper seeks to outline what China is doing to combat the fentanyl trade and show the US that Beijing is 'doing something' to address concerns. On the other side are the swift countermeasures against US products, including a 15% tariff on chicken, wheat, corn and cotton and an extra 10% on soybeans, sorghum, pork, beef, fish, fruit and veg and dairy from 10 March.
US-RUSSIA: Sanctions Must Be Lifted To Normalise US-Russia Relations - Kremlin
Reuters carrying comments from Kremlin spokesperson Dmitri Peskov, speaking on major developments in the war in Ukraine, including possible sanctions relief and US President Donald Trump's decision to pause military aid to Ukraine.
- Peskov said it’s “too early to comment” on reportsthat the Trump administration is looking at possible sanctions relief for Russia but notes that sanctions are “illegal” and need to be lifted in order to normalise relations.
- Reuters reported overnight that the White House, “has asked the State and Treasury departments to draft a list of sanctions that could be eased for U.S. officials to discuss with Russian representatives in the coming days as part of the administration's broad talks with Moscow on improving diplomatic and economic relations.”
- The report adds: “The sanctions offices are now drawing up a proposal for lifting sanctions on select entities and individuals, including some Russian oligarchs…” The report also notes that sanctions on Russia’s oil sector could be eased to allow more punitive measures against Iran’s oil exports.
- Peksov: “Seems as if European countries will try to compensate Ukraine for the apparent loss of US military aid… We need to see how the situation develops on the ground… It is obvious that the US was the main supplier of this war.”
- Peskov: “If the United States stops these supplies, it will be the best contribution to the cause of peace… If the reports are true then this could encourage the Kyiv regime to seek peace.”
STIR: Net Short Cover Most Prominent In SOFR Futures On Monday
OI data points to a mix of net short setting, long setting and short cover in the SOFR whites on Monday, although that summed to leave overall OI little changed in the pack.
- Net short cover then became more prominent further out the strip.
| 03-Mar-25 | 28-Feb-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRZ4 | 1,054,964 | 1,037,403 | +17,561 | Whites | +1,048 |
SFRH5 | 1,295,167 | 1,291,092 | +4,075 | Reds | -13,554 |
SFRM5 | 1,116,365 | 1,132,494 | -16,129 | Greens | -9,811 |
SFRU5 | 882,062 | 886,521 | -4,459 | Blues | -5,007 |
SFRZ5 | 1,023,074 | 1,021,702 | +1,372 |
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SFRH6 | 645,535 | 641,642 | +3,893 |
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SFRM6 | 581,501 | 595,770 | -14,269 |
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SFRU6 | 563,224 | 567,774 | -4,550 |
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SFRZ6 | 768,540 | 762,669 | +5,871 |
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SFRH7 | 433,451 | 439,244 | -5,793 |
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SFRM7 | 446,664 | 450,373 | -3,709 |
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SFRU7 | 311,893 | 318,073 | -6,180 |
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SFRZ7 | 359,624 | 363,605 | -3,981 |
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SFRH8 | 227,082 | 224,225 | +2,857 |
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SFRM8 | 183,299 | 182,217 | +1,082 |
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SFRU8 | 125,078 | 130,043 | -4,965 |
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FOREX: Tariff Tuesday Works Against USD, Rearmament Plans Boost EUR
- The EU's rush to rearm accelerated this morning, as European Commission President Von der Leyen outlined funding plans and instruments worth upwards of €800bln to help the EU rearm in the face of US withdrawal from Ukraine aid. The size of the plans came in above expectations, helping drive an early EUR rally and push EUR/USD back above $1.0500 and cleanly through the 100-dma at $1.0508.
- The stagflationary bias to sell USD has only picked up on the confirmation of tariffs against Canadian, Mexican and Chinese imports this morning. The news looked well-priced in as equities are somewhat stable this morning, however hold almost the entirety of yesterday's downdraft - particularly for the e-mini S&P. Haven currencies are outperforming, with both JPY and CHF firmer against all others.
- Weaker brent crude and natural gas prices have weighed on the NOK this morning, with EURNOK 0.5% higher on the session. The rally in EURNOK sees trendline resistance drawn from the August 5th 2024 high (11.7754 today) pierced, with the Jan 21 high at 11.8260 the next topside target. NOKSEK has seen a more modest 0.15% sell-off, with the SEK also under pressure amid today's pullback in European equities. However, yesterday's close below key multi-year support at 0.9500 was an important bearish development, with rallies short of the 20-day EMA at 0.9606 considered corrective.
- The data schedule for Tuesday trade is quiet, with no tier one releases set - this keeps focus on developments from the White House and in particular Trump's State of the Union address in front of a joint session of Congress for direction. Trump is expected to touch on all the major themes of his second term, from geopolitics to tariffs to tax policy and the debt limit.
FOREX: AUDJPY Extends Three-Week Slide to 5%
- The latest weakness for stock indices amid stagflationary concerns in the US and the associated adjustment higher for the VIX have provided a significant headwind for the higher beta AUD. The chart standing out here is AUDJPY, which has now fallen 5% from the February highs in just three weeks.
- Goldman Sachs recently pointed out that any downside surprises for key US data points, such as the ISM survey on Monday, should provide further downside in USD/JPY, but they think being short AUD/JPY would be the better trade as it typically sees the greatest returns in a backdrop of lower equities and lower yields.
- Furthermore, JP Morgan have stated that JPY continues to stand out as the most obvious beneficiary from softening US data and potential new tariffs. They have expanded JPY exposure by initiating longs vs basket of USD & NZD in cash. They highlight that JPY has outperformed throughout this cycle during periods of softening growth & falling yields, suggesting that JPY longs are the cleanest expression to capitalise on the current market environment.
- For AUDJPY, the 50-day EMA has provided excellent resistance, with moving average indicators highlighting the bearish theme. Downside momentum picked up on a break of trendline support (drawn from the Aug 06 low) last week. Price action continues to signal scope for a move towards a key support level around 90.20, a further 2.6% from current spot levels.
OPTIONS: Expiries for Mar04 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0300(E1.0bln), $1.0375-85(E1.3bln), $1.0400(E691mln), $1.0450-55(E873mln), $1.0480(734mln), $1.0520-30(E1.9bln), $1.0545-50(E884mln)
- USD/JPY: Y148.30($686mln), Y148.90-00($555mln)
- AUD/USD: $0.6335(A$1.2bln)
- USD/CAD: C$1.4315-25($1.2bln), C$1.4395-10($2.0bln), C$1.4425($529mln)
- USD/CNY: Cny7.2610($574mln)
COMMODITIES: Fresh Cycle Lows in WTI Futures Strengthens Bearish Conditions
- The current bearish trend condition in WTI futures remains intact and this week’s fresh short-term cycle low reinforces current conditions. Recent weakness has resulted in a clear breach of support at $70.20, the Feb 6 low. This confirms a resumption of the downtrend that started Jan 15 and paves the way for an extension towards $67.75, the Dec 20 ‘24 low, and $66.41, the Dec 6 ‘24 low. Key short-term resistance is at $73.33, the Feb 11 high.
- The latest pullback in Gold appears to be a correction. The move through the 20-day EMA does signal scope for an extension towards the next important support around the 50-day EMA, at $2808.08. However, Monday’s gains are a positive development and potentially an early reversal signal. A stronger rally would refocus attention on the next objective at $2962.2, a Fibonacci projection. This would also open the $3000.0 handle.
EQUITIES: Monday's Rally Reinforces Bullish Theme for Eurostoxx 50 Futures
- The trend in the Eurostoxx 50 futures contract remains bullish and Monday’s strong start to the week reinforces current conditions. The rally Monday resulted in a fresh all-time cycle high, with price piercing resistance at 5555.00, the Feb 18 high. This maintains the price sequence of higher highs and higher lows and opens the 5600.00 handle next. Key short-term support has been defined at 5394.00, the Feb 28 low.
- A sharp sell-off in the S&P E-Minis contract on Monday, reinforces a short-term bearish threat. The contract traded to a fresh low and the move down exposes the next key support at 5809.00, the Jan 13 low. Clearance of this level would highlight a stronger reversal and confirm a double top pattern on the daily scale. Initial firm resistance to watch is 6029.12, the 50-day EMA. A break of this average is required to signal a bull reversal.
| Date | GMT/Local | Impact | Country | Event |
| 04/03/2025 | 1355/0855 | ** |  US | Redbook Retail Sales Index |
| 04/03/2025 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 04/03/2025 | 1920/1420 | US | New York Fed's John Williams | |
| 05/03/2025 | 2200/0900 | * |  AU | S&P Global Final Australia Services PMI |
| 05/03/2025 | 2200/0900 | ** | AU | S&P Global Final Australia Composite PMI |
| 05/03/2025 | 0030/0930 | ** |  JP | S&P Global Final Japan Services PMI |
| 05/03/2025 | 0030/0930 | ** | JP | S&P Global Final Japan Composite PMI |
| 05/03/2025 | 0030/1130 | *** | AU | Quarterly GDP |
| 05/03/2025 | 0100/0900 |  CN | National People's Congress opens | |
| 05/03/2025 | 0145/0945 | ** | CN | S&P Global Final China Services PMI |
| 05/03/2025 | 0145/0945 | ** | CN | S&P Global Final China Composite PMI |
| 05/03/2025 | 0730/0830 | *** |  CH | CPI |
| 05/03/2025 | 0745/0845 | * |  FR | Industrial Production |
| 05/03/2025 | 0815/0915 | ** |  ES | S&P Global Services PMI (f) |
| 05/03/2025 | 0815/0915 | ** | ES | S&P Global Composite PMI (final) |
| 05/03/2025 | 0845/0945 | ** |  IT | S&P Global Services PMI (f) |
| 05/03/2025 | 0845/0945 | ** | IT | S&P Global Composite PMI (final) |
| 05/03/2025 | 0850/0950 | ** | FR | S&P Global Services PMI (f) |
| 05/03/2025 | 0850/0950 | ** | FR | S&P Global Composite PMI (final) |
| 05/03/2025 | 0855/0955 | ** |  DE | S&P Global Services PMI (f) |
| 05/03/2025 | 0855/0955 | ** | DE | S&P Global Composite PMI (final) |
| 05/03/2025 | 0900/1000 | *** | IT | GDP (f) |
| 05/03/2025 | 0900/1000 | ** |  EU | S&P Global Services PMI (f) |
| 05/03/2025 | 0900/1000 | ** | EU | S&P Global Composite PMI (final) |
| 05/03/2025 | 0930/0930 | ** |  GB | S&P Global Services PMI (Final) |
| 05/03/2025 | 0930/0930 | *** | GB | S&P Global/ CIPS UK Final Composite PMI |
| 05/03/2025 | 1000/1100 | ** | EU | PPI |
| 05/03/2025 | 1000/1100 | * | IT | Retail Sales |
| 05/03/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 05/03/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 05/03/2025 | 1200/0700 | ** | US | MBA Weekly Applications Index |
| 05/03/2025 | 1315/0815 | *** | US | ADP Employment Report |
| 05/03/2025 | 1430/1430 | GB | TSC: Bailey/Pill/Taylor/Greene | |
| 05/03/2025 | 1430/1430 | GB | Greene annual report | |
| 05/03/2025 | 1445/0945 | *** | US | S&P Global Services Index (final) |
| 05/03/2025 | 1445/0945 | *** | US | S&P Global US Final Composite PMI |
| 05/03/2025 | 1500/1000 | *** | US | ISM Non-Manufacturing Index |
| 05/03/2025 | 1500/1000 | ** | US | Factory New Orders |
| 05/03/2025 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 05/03/2025 | 1900/1400 | US | Fed Beige Book | |
| 05/03/2025 | 2315/1815 | US | New York Fed's Roberto Perli |
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