OIL: Crude Lower On Worries US-China Talks Are Unsuccessful
After rising through the APAC session oil prices trended lower through the rest of Wednesday as global energy demand concerns resurfaced following the unlikely reduction in US tariffs on China ahead of upcoming US-China trade talks. It took another step down when the Fed left policy on hold and Chair Powell said that he thinks they “can be patient” and “despite heightened uncertainty, the economy is still in a solid position”. The US dollar rallied (USD BBDXY +0.5%), which would have also weighed on dollar-denominated crude.
- WTI reached a high of $60.26/bbl at the start of European trading and then trended lower reaching a trough of $57.81. It finished down 1.9% to $57.95 to be -0.6% this week. The benchmark is currently around $58.02. Initial support and bear trigger is at $54.67 and resistance at $61.26, 20-day EMA.
- Brent peaked at $63.25 and then sold off reaching a low of $60.83. It was 1.9% lower at $60.95 and down 0.6% this week emphasising the bearish theme. Initial support and bear trigger is at $58.00, while resistance is $64.24, 20-day EMA.
- US President Trump said that he won’t reduce tariffs on China to smooth the start of this week’s US-China trade talks, which are likely to focus on de-escalation rather than a deal.
- EIA data showed the second consecutive weekly US crude drawdown last week falling 2.03mn barrels. Distillate was down 1.11mn, while gasoline rose 0.19mn, the first increase since late February. Refining utilisation picked up for the third straight week rising 0.4pp to 89%, 0.5pp higher than the same week last year.
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US TSYS: Futures Re-Open Cheaper As Sell-Off Extends
TYM5 is 111-29, -0-05 from closing levels in today's Asia-Pac session.
- Markets experienced significant turbulence overnight, with extreme volatility driven by poor liquidity conditions. The situation was further exacerbated by a flurry of social media activity from President Trump, who threatened an additional 50% tariff on Chinese imports.
- Trading volumes were heavy, with over 5.3 million TYM5 contracts changing hands after Monday’s close.
- The US tsy 10-year yield, which ranged between 3.85% and 3.95% during the Asia-Pac session, moved sharply higher as European markets opened. It reached an intraday high of 4.21% before finishing at 4.18%, +19bps. The yield curve steepened, with the 2-year yield rising by 11bps.
- Economic data remains light ahead of key releases later this week. Markets are looking ahead to Wednesday’s release of the March FOMC minutes, followed by CPI data on Thursday and PPI on Friday.
JPY: USD/JPY: Tracking US Yields
USD/JPY is being whipped around with extreme volatility and dislocations being seen in the US treasury and US dollar funding markets. The market has been trying to price in more cuts but some interesting comments from Bill Dudley overnight he said “ Don’t expect the FED to rescue the US economy from the probably devastating impact of tariffs”, pushing back on the idea that the FED will be proactive and will more likely wait to see what the actual impact of the levies are before acting.
- Yesterday's range was 144.82 - 148.15, Asian opens around 147.90
- President Trump assigned two members of his cabinet to kick off bilateral trade talks with Japan after a call with Japanese Prime Minister Shigeru Ishiba.
- Details in Japan’s February labor cash earnings contained bad news for the BOJ, the pace of increase in base pay for full-time workers on a same-sample basis slowed sharply.
- The environment for the BOJ seems to be more challenging and due to their conservative approach there is now a risk that it will delay policy normalisation.
- USD/JPY has seen a significant bounce and is now approaching a key sell zone between 148 - 150. Should risk remain under pressure this would be a good area to express a long JPY bias. A move back above 151.50/152.00 would negate the downtrend.
- Key pivotal support lies around 140.00, a break of this area would really set the cat amongst the pigeons and open a quick move back to the 1.25/1.30 area.
- Data : BoP, Trade Balance as well as Japan's Feb Leading and Coincident index
USDJPY
Source: MNI - Market News/Bloomberg
BONDS: NZGBS: Sharply Cheaper With US Tsys Ahead Of Tomorrow’s RBNZ Decision
In local morning trade, NZGBs are sharply cheaper, with yields 15-17bps higher, after US tsys finished weaker. Markets are starting to anticipate the easing impact of last week's sweeping tariff announcement. More countries are looking to negotiate or at least respond to the Trump administration's trade policy.
- The sharp risk-off tone in yesterday’s Asia-Pacific session buoyed US tsys. The 10Y yield tapped a 3.8693% low as stocks gapped lower on the open before bouncing to 4.2122% during NY morning trade. Focus squarely on US tariffs and foreign countries' responses.
- NZ business confidence improved in the first quarter, with firms showing increased optimism about economic prospects, according to the NZIER QSBO. A net 23% of firms expect general economic conditions to improve in the coming months, compared with a net 9% in the previous quarter. This comes despite a net 21% of firms reporting a decline in their business activity during the March quarter.
- Swap rates are 12-16bps higher with the 2s10s steeper.
- RBNZ dated OIS pricing is 1-7bps firmer across meetings. 29bps of easing is priced for tomorrow’s meeting, with a cumulative 96bps by November 2025.
- On Thursday, the NZ Treasury plans to sell NZ$275mn of the 0.25% May-28 bond and NZ$225mn of the 4.25% May-34 bond.
