AUSSIE 3-YEAR TECHS: (H5) Monitoring Resistance

ACGBs (YM -6.0 & XM -5.5) are cheaper after US tsys bear-flattened, with US yields finishing flat to 5bps higher. 

• The week began with the fallout from President Trump’s announcement on tariffs on the three largest trading partners of the US. As markets opened, the USD soared, equity futures plunged, and the US tsy curve flattened. However, these moves showed some reversal after Trump agreed to delay the tariffs on Mexico (and now Canada) by a month. Tariff negotiations with China are ongoing.
• Cash ACGBs are 5-6bps cheaper with the AU-US 10-year yield differential at -12bps.
• Swap rates are 4-5bps higher.
• The bills strip has bear-steepened with pricing -2 to -7.
• RBA-dated OIS pricing is flat to 4bps firmer across meetings today. A 25bp rate cut is more than fully priced for April (138%), with the probability of a February cut at 91% (based on an effective cash rate of 4.34%).
• Today, the local calendar will see Household Spending and S&P Global Composite & Services PMIs.
• The AOFM announced the issue by syndication of a new 4.25% 21 March 2036 Treasury Bond. The issue will be of a benchmark size. Initial price guidance is a spread of 2 to 5bps to XMH5. The issue is expected to be priced tomorrow.

• Gold’s ‘safe-haven’ status was evident overnight as investors focused on ongoing tensions emanating from potential US tariffs.
• Yesterday’s weaker than expected day due to USD strength was pushed aside as gold rallied throughout the day to reach new all time highs.
• Opening at US$2,815.41 gold’s fortunes continued to fall, reaching a low of $2,772.23; before a dramatic turnaround to touch $2,830.74.
• Gold gave back some of the gains to close it’s US trading day at $2,814.65.
• There was some unexpected beneficiaries from the threatened tariffs on Canada with Canadian gold stocks rallying aggressively in Monday’s trading session.
• If the tariffs are fully implemented, there is a chance it is good for gold’s fortunes as a trade war could create inflation or could be dollar negative.   
• Despite several materially down days, gold is already up over 6% year to date, following last years +27% rally. 

Oil prices gave up most of their earlier gains to finish Monday slightly lower. They rose on the prospect of US tariffs but eased when Mexico’s were delayed a month boosting hopes that a trade war will be avoided. They have also been postponed 30 days for Canada. While tariffs are inflationary and the prospect boosted oil prices, the market is also concerned about their impact on demand. The USD index rose 0.1%. 

• WTI fell 0.3% to $72.33/bbl, taking another leg down following news of the delay in implementing US tariffs on Canada. It fell to a low of $72.05 following the news on Mexico, below support at $72.26, 50-day EMA, which suggests scope for a deeper retracement. The next support level is $68.05.
• Brent is 0.4% lower at $75.40/bbl following a low of $75.04, below support at $75.47, 50-day EMA, and $75.36 opening up $71.25, December 20 low. The correction has allowed an overbought position to unwind. The bull trigger is at $81.20.
• OPEC+ left its output targets unchanged at its review on Monday, despite US President Trump urging it to increase production and thus reduce prices.
• 10% tariffs on Canadian oil imports are estimated to add 8% to heating expenses in the Northeast US (National Energy Assistance Directors Association) and 15c/gallon to fuel prices (Lipow Oil Associates) but it will vary by region. The West Coast could see gasoline prices rise 20c/gallon and if Canada exports to other countries then they could rise over 30c/gallon. Flows to the US have soared to beat the tariff deadline.
• Some Canadian refineries have already begun to increase prices. March US gasoline futures rose 1.9% on Monday but spiked 6.2% on the open.