CANADA: CIBC On USDCAD In Tariff Scenarios

Jan-22 12:36
  • Working off a BoC study from Jul 2019, which shows a 25% sweeping tariff could be worth around 6% of Canadian real GDP, CIBC estimate that the BoC’s overnight rate could fall as low as 0.8% with 2Y yields at 1.65% and USDCAD at 1.5340.
  • This is a hypothetical scenario. “Implementation hurdles, negotiation, and the high risk of retaliation in this scenario makes it little feasible that a trade war will get that far”.
  • They estimate that USDCAD currently has 2.3% of Trump premium.
  • Considering alternate scenarios, complete elimination of tariff risk would see USDCAD “move strictly off our Bank and our Fed call (CIBC Economics BoC: 4x 25bps cuts every meeting until June; Fed: H1 hold, 3x 25bps cuts in H2). In this case, USD/CAD hovers between 1.43-1.44 in H1 on continued headline uncertainty, before falling to 1.3750 in the back half of the year due to more aggressive Fed cuts in H2.”
  • Alternatively, they run scenarios with 10% tariffs and 20% tariffs with both energy & auto carve-outs as well as just energy carve-outs. Against these scenarios, they see USDCAD peaking at 1.461 and 1.468 in the 10% case or 1.478 and 1.496 in the 20% case.
  • “The market implied probability of spot moving above 1.4610 by Q2 is just over 20%; above 1.4960 is just over 10%. This implies that while high-stake tariffs are not expected to be the base case, the market has assigned a larger-than-zero chance that they can happen.”

Historical bullets

US TSYS: Extending Lows

Dec-23 12:32

Treasury futures just extended overnight lows, no obvious headline driver or block trade so far as Mar'25 10Y futures slip to 108-26 (-5), still above initial technical support at 108-16.5 (Low Dec 19). Curves inch steeper with 2s10s marking 21.963 high (+1.191).

US: Trump Taps Miran As Top Economic Advisor

Dec-23 12:29

US President-elect Trump has announced another round of executive nominations, including Stephen Miran to chair the Council of Economic Advisers – a three-member panel that advises the president on economic policy.

  • Trump wrote on Truth Social: "Steve will work with the rest of my Economic Team to deliver a Great Economic Boom that lifts up all Americans".
  • Bloomberg notes: “Miran, a fellow at the New York-based Manhattan Institute, co-authored a paper with economist Nouriel Roubini in July that alleged the Treasury Department had manipulated the issuance of US securities in a way that lowers real borrowing costs across the economy,” an allegation rejected by Treasury Secretary Janet Yellen.
  • Axios notes, “Miran has been critical of Fed chairman Jerome Powell as well, saying he was "wrong politically and economically" to recommend a major stimulus package in late 2020.”
  • Semafor notes, “Miran has endorsed Trump’s early tariff threats as a negotiating tactic and pushed back on predictions they would cause inflation.”
  • Miran said in a statement on X he looks forward “to working to help implement the President’s policy agenda to create a booming, noninflationary economy that brings prosperity to all Americans.”
  • Miran's appointment will require confirmation from the Senate. 

OUTLOOK: Price Signal Summary - Bear Cycle In Bunds Remains Intact

Dec-23 12:20
  • In the FI space, the current trend cycle in Bund futures is unchanged, it remains bearish and the contract is trading at its recent lows. 133.98, 61.8% of the Nov 6 - Dec 2 bull cycle, has been pierced. A clear break of this price point would signal scope for a move towards 133.22, the 76.4% retracement level. First key resistance to watch is 135.02, the 20-day EMA. A move above this level would signal a possible reversal.
  • A strong bearish theme in Gilt futures remains in play and last week’s extension reinforces current conditions. The move down has resulted in a breach of key short-term support at 93.40, the Nov 18 low. The break of this level highlights a stronger reversal. Sights are on 91.73, a 4.236 projection of the Dec 3 - 4 - 5 minor price swing. Initial firm resistance is at 93.64, the Dec 17 high. Short-term gains are considered corrective.