MNI ASIA MARKETS ANALYSIS: Auto Tariff Delay Tempers Data Bid
Mar-05 20:39By: Bill Sokolis
APAC+ 3
HIGHLIGHTS
Treasuries rallied after lower than expected February ADP job gain - reversed course, declined after higher than expected ISM Services data.
Modest risk-off consolidation extended at midday, optimism gained slightly after headlines reported Pres Trump and PM Trudeau were discussing tariffs & US weighing pause on Canada Mexico auto tariffs.
Despite the reversal in rates, trade was more muted as participants kept focus on Friday's employment data for February.
Treasuries look to finish near late session lows after a fairly rocky midweek session initially tied to US data followed by trade related headlines in the second half.
Treasuries rallied (Jun'25 10Y futures (TYM5) tapped 111-15 high) after lower than expected February ADP job gain - reversed course, declined after higher than expected ISM Services data.
Risk-off consolidation extended at midday, optimism gained slightly after headlines reported Pres Trump and PM Trudeau were discussing tariffs & US weighing pause on Canada Mexico auto tariffs.
After the bell, TYM5 futures trade -15 at 110-25 (-24 low), nearly breaching technical support at 110-23/110-00 (Low Feb 28 / High Feb 7). Curves were steeper but well off early highs, 2s10s +2.449 at 27.407 vs. 31.067 high.
Projected rate cuts through mid-2025 recede from morning levels (*) as follows: Mar'25 at -2.2bp, May'25 at -10.6bp (-12.2bp), Jun'25 at -27bp (-29.2bp), Jul'25 at -36.2bp (-39.8bp).
Cross asset update: Stocks gained as the early week risk-off tone cooled (SPX eminis +66.00 at 5855.50), Crude weaker but off lows (WTI -1.86 at 66.40), Bbg US$ index near late session lows (BBDXY -12.72 at 1271.86).
After Thursday's weekly claims trade balance and regional Fed data, focus turns to Friday's headline employment data for February.
Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $288B
FED Reverse Repo Operation
RRP usage inches up to $139.493B this afternoon from $135.257B Tuesday. Compares to $58.770B (lowest level since mid-April 2021) on February 14. The number of counterparties falls to 32 from 50 prior.
US SOFR/TREASURY OPTION SUMMARY
Option desks reported better SOFR & Treasury call volume on net Wednesday, with some chunky put structure selling and consistent vol selling on the day. Underlying futures weaker, near late lows as risk-off tone consolidates slightly on US auto tariff on Canada & Mexico delayed, trade talks ongoing. Projected rate cuts through mid-2025 recede from morning levels (*) as follows: Mar'25 at -2.2bp, May'25 at -10.6bp (-12.2bp), Jun'25 at -27bp (-29.2bp), Jul'25 at -36.2bp (-39.8bp).
Treasury Options: -5,000 TYJ5 110.75/111.25 strangles, 106 Block, 12,500 TYK5 113.5 calls, 19 vs. 111-02.5/0.22% total volume over 105,000 85,000 TYK5 113.5 calls blocked at 21 vs. 111-03.5/0.22% at 0750:00ET followed by just over 97,000 TYK5 113.5 calls on the screen ref 111-02 to -03 as market makers likely unwind the initial cross. 2,000 FVM5 109/110 call spds ref 107-28.75 5,000 USK5 112/125 strangles ref 117-29 over 5,500 USJ5 119 calls, 50 last over 5,100 USJ5 120 calls, 31 last 2,000 USJ5 114.5/115.5 put spds ref 117-23 appr +20,000 TYJ5 109.75/112.5 combos on 1:1 ratio, +c 0.0-1 in pieces followed Block Block, -10,000 TYJ5 109.75/112.5 3x2 combo, 11 net/put sold over vs. 110-31.5/0.57%
Both sides of the EURUSD trade continue to work in a bullish direction, with greenback weakness extending throughout Wednesday’s session and the latest German fiscal developments providing a significant boost to the Euro.
EURUSD has risen 1.5% and sits at session highs as we approach the APAC crossover. Dips for the single currency over the past 24 hours have remained extremely shallow, threatening an even stronger rally as we approach both the ECB meeting and NFP later in the week.
Euro strength remains broad based, with the EURCHF surge continuing to standout. Following the break of 0.9518, the cross has extended gains to 1.62% on Wednesday, rising above 0.9600 for the first time since July last year. Most recent headlines on a one-month delay for Canada on Autos has done little to move the needle, however, EURCAD continues to rise aggressively. EURCAD is up 1.4% on Wednesday and has risen to a fresh four-year high above 1.55. Resistance remains scant here, signalling scope for a more protracted move to the pandemic induced highs just shy of 1.60.
Separately, EURGBP has also extended its short-term reversal, rising 0.9%. This cross will be worth monitoring as we approach strong downtrend resistance, intersecting around 0.8430.
EURAUD appreciation is also gathering significant pace, and today’s 0.6% advance looks set to extend its winning streak to 9 consecutive sessions, and total gains of around 3.85%. The last time we had a longer winning streak was back in December 2012, where EURAUD advanced for 11 sessions in a row and rose 3.36%.
Uk construction PMI crosses Thursday, before the ECB decision/press conference and US jobless claims data.
Stocks managed to bounce off midday lows, extend past early overnight highs in late Wednesday trade, largely driven by nascent optimism over US delaying auto tariffs on Mexico and Canada as well as renewed talks with Ukraine ahead expectations that a minerals deal will go forward.
Currently, the DJIA trades up 559.28 points (1.32%) at 43078.24, S&P E-Minis up 71 points (1.23%) at 5859.75, Nasdaq up 285.4 points (1.6%) at 18569.59.
Materials and Industrials sectors lead gainers in late trade, chemical makers and mining shares buoyed the Materials sector: Celanese Corp +10.87%, Freeport-McMoRan +8.60%, FMC +6.89%, Dow +5.77% and Eastman Chemical +4.74%.
Defense stocks and airlines buoyed the the Industrials sector: Huntington Ingalls Industries+12.33%, General Dynamics Corpd+5.08%, Carrier Global+4.93%, United Airlines +4.44%, Delta Air Lines +3.29% while Northrop Grumman gained+3.18%.
Energy and Utility sectors continued to underperform, partially tied to the continued decline in crude prices (WTI -2.10 at 66.16): Marathon Petroleum -4.71%, Valero Energy -4.09%, Phillips 66-2.31% and Occidental Petroleum -2.24%. Meanwhile, NRG Energy -1.90%, FirstEnergy -1.76% and Consolidated Edison -1.62% weighed on the Utility sector.
Earnings expected after today's close and through Thursday include: Zscaler Inc, Victoria's Secret, Marvell Technology, Kroger, Macy's, Burlington Stores, Costco Wholesale, Broadcom Inc, Hewlett Packard, Samsara, Lexicon Pharmaceuticals and The Gap.
SUP 3: 5698.25 50.0% retracement of the Aug 5 - Dec 6 ‘24 bull leg
SUP 4: 5658.00 Low Sep 12 ‘24
A sharp sell-off in the S&P E-Minis contract this week, reinforces a short-term bear threat. The contract traded to a fresh short-term cycle low Tuesday - price has breached support at 5809.00, the Jan 13 low. This highlights a stronger reversal and a double top pattern on the daily scale. A resumption of weakness would open 5698.25, a Fibonacci retracement. Initial firm resistance to watch is 6019.64, the 50-day EMA.
Copper has rallied by an impressive 5.5% today, driven by President Trump’s threat to impose a 25% tariff on copper imports in his speech to Congress yesterday.
The move is the largest one-day dollar and percentage gain in copper since November 2022, bringing the red metal up to $481/lb, the highest level since Feb 14.
Copper futures remain in a bull cycle, with next resistance seen at $488.50, the Feb 14 high, followed by $500 round number resistance.
Meanwhile, spot gold remains broadly unchanged at $2,920/oz, less than $40 below last week’s record high, amid hope of a tariff deal between the US, Mexico and Canada.
Reuters has reported that the US will give a one-month exemption on any autos coming through USMCA.
Gold remains 2% higher on the week, and a stronger rally would refocus attention on the next objective at $2,962.2, a Fibonacci projection. This would also open the $3,000.0 handle.
In contrast, WTI has fallen further today amid oversupply concerns from OPEC’s returning barrels, rising US crude stocks, and fears of weaker global demand due to increased trade protectionism.
WTI Apr 25 is down by 3.0% at $66.2/bbl.
US crude inventories rose by 3.6m bbl, driven by a decline in refinery runs and despite a small drop in imports, while exports held above 4mb/d.
Recent weakness in WTI futures has confirmed a resumption of the downtrend that started Jan 15, paving the way for an extension towards $65.68 next, the Oct 29 ‘24 low.
THURSDAY DATA CALENDAR
Date
GMT/Local
Impact
Country
Event
06/03/2025
0645/0745
**
CH
Unemployment
06/03/2025
0700/0800
SE
Flash CPI
06/03/2025
0830/0930
**
EU
S&P Global Final Eurozone Construction PMI
06/03/2025
0930/0930
GB
Decision Maker Panel data
06/03/2025
0930/0930
**
GB
S&P Global/CIPS Construction PMI
06/03/2025
1000/1100
**
EU
Retail Sales
06/03/2025
1100/0600
***
TR
Turkey Benchmark Rate
06/03/2025
1315/1415
***
EU
ECB Deposit Rate
06/03/2025
1315/1415
***
EU
ECB Main Refi Rate
06/03/2025
1315/1415
***
EU
ECB Marginal Lending Rate
06/03/2025
1330/0830
***
US
Jobless Claims
06/03/2025
1330/0830
**
US
WASDE Weekly Import/Export
06/03/2025
1330/0830
**
CA
International Merchandise Trade (Trade Balance)
06/03/2025
1330/0830
**
CA
International Merchandise Trade (Trade Balance)
06/03/2025
1330/0830
**
US
Trade Balance
06/03/2025
1330/0830
**
US
Non-Farm Productivity (f)
06/03/2025
1345/1445
EU
ECB Press conference post Governing council meeting
06/03/2025
1345/0845
US
Philly Fed's Pat Harker
06/03/2025
1445/1545
EU
Publication of ECB Staff macroeconomic projections