IRAN: Foreign Minister's Comments More Upbeat After 5th Round Of US Talks

• RES 4: 113-04   76.4% retracement of the Apr 7 - 11 bear leg 
• RES 3: 112-12   61.8% retracement of the Apr 7 - 11 bear leg
• RES 2: 111-25   50.0% retracement of the Apr 7 - 11 bear leg   
• RES 1: 111-18+ High Apr 23
• PRICE:‌‌ 110-31+ @ 16:48 BST Apr 23 
• SUP 1: 110-15/109-08 Low Apr 15 / 11 and the bear trigger 
• SUP 2: 108-26+ 76.4% retracement of the Jan 13 - Apr 7 bull cycle
• SUP 3: 108-21   Low Feb 19
• SUP 4: 108-03+ Low Dec 12 ‘24 and a key support 

Treasury futures traded higher Wednesday, rallying to touch 111-18+ before reversing hard into the London close. This reinforces recent gains as corrective and infitting with the bear cycle that started Apr 7. The next resistance to watch remains 111-25, 50.0% of the Apr 7 - 11 bear leg sell-off. Clearance of this level would undermine the bearish theme. For bears, a resumption of weakness would refocus attention on 109-08, the Apr 11 low and the bear trigger.

Within the European trade details for February, China imports saw a strong increase although natural data volatility makes it hard to say how much is China re-routing exports that would have gone to the US, a downside risk to inflation for the ECB. Tariff considerations certainly looked at play for the relatively small pharmaceutical imports category whilst other larger measures were above Feb 2024 values but not at unprecedented levels. Of course, this data pre-dates a much more significant escalation in US-China trade relations from April. 

• EU merchandise imports from China increased 5% M/M (swda) in February for the fastest monthly increase since August.
• Imports from Japan and Korea saw faster increases, 6% and 7% M/M, but are only 10-15% the size of imports from China.
• Looking at the non-seasonally adjusted details, all the major categories continued to see strong Y/Y increases although NSA amounts mostly pulled back from January levels.
• Pharmaceutical products look to show the clearest example of re-routing or perhaps just broader tariff front-running if part of an EU re-exporting chain for US tariff front-running (touched on in part 1. They are small though, at E1.1bn in Feb for a 231% Y/Y increase, having stepped to E0.6bn in Jan after averages of E0.3-0.4bn through 2024.
• Vehicle imports also continued their strong trend, rising 21% Y/Y to E2.3bn as part of continued market share gains although levels have begun to stall.
• Other larger categories are generally above respective Feb 2024 levels, the smallest increase being 5% Y/Y for machinery & transport equipment ex vehicles & aircraft, but they’re not at unprecedented levels that would suggest pre-emptive re-routing.
• This will remain an area of focus as the ECB has warned at multiple meetings now that a re-routing of exports into the euro area from countries with overcapacity would put downward pressure on inflation.” See the following from our policy team on factors being considered: MNI: Europe to Sharpen Trade Tools To Tackle Dumping (Feb 24) and MNI: EU To Keep China Option In Reserve As Seeks US Deal (Apr 11).

• The Eurozone trade surplus was notably larger than expected in February at E21.0bn (swda, cons E15bn) after E14.0bn in January.
• Export growth (4.5% M/M) outpaced imports (2.0% M/M), with the fastest monthly export growth since Jan 2022.
• Taking a step back and looking at EU trade, considering trade negotiations along those lines with the Trump administration, and there’s a similar picture with extra-EU export growth of 4.8% M/M.
• There were further signs of US tariff front-running, with EU exports to the US rising 9.6% M/M after 8.8% M/M in January.
• The combination meant that the EU trade surplus widened to 0.9% GDP on a three-month basis, up from 0.5% GDP as of December for its largest surplus since 1H24 and before that mid-2021.
• The EU-US trade surplus meanwhile climbed to fresh highs of 1.3% of GDP although if front-running has been at play then this should pull back ahead.
• Irish exports of pharmaceutical products look to be a major culprit behind the recent export strength. Total EU exports of chemicals and related products increased 17.6% M/M (swda) after 4.0% M/M in Jan. In separate NSA data, Irish exports of pharmaceutical products (a subset of the chemicals category) were 146% Y/Y higher in Feb (E15.6bn in Feb after E16.2bn in Jan vs 6.3bn in Feb 2024), of which E10.5bn was to the US after E9.4bn in Jan vs E1.9bn in Feb 2024 (459% Y//Y).
• Markets continue to wait for potential pharmaceutical-specific tariffs from the Trump administration, having last week launched a 21-day inquiry into pharma and semiconductor tariffs. On a related note, Swiss drugmaker Roche yesterday announced $50bn of investment in the US over the next five years.