MNI ASIA MARKETS ANALYSIS: US Delays Mexico Tariff

HIGHLIGHTS

• Treasury curves twisted flatter Monday, off early session lows as Pres Trump tariff headlines continued to buffet global markets to varying degrees.
• Markets reacted positively on midmorning headlines that Trump would delay 25% tariff on Mexico for one month after they agreed to implement 10,000 soldiers to supplement US border security.
• Tariff negotiations with Canada and China ongoing, while data focus turns to this week's CPI, PPI and January employment report this Friday.

MNI US TSYS: Mexico Scores Tariff Delay, Canada & China Negotiations Ongoing

• Treasuries look to finish mostly higher Monday, curves twisting flatter with short end rates under pressure as projected rate hike pricing through mid-year cools. Markets reacted positively midmorning to headlines that Pres Trump agreed to delay 25% tariff on Mexico, negotiations on Canada & China ongoing but expected to begin tomorrow.
• Well off early overnight low of 108-21.5, the March'25 10Y contract trades 109-00 (+5) after the bell vs. 109-15.5 high - briefly through initial technical resistance of 109-10.5 (50D EMA) with focus on 109-31 (High Dec 18); the 2Y contract -1.25 at 102-24.75; 2s10s -5.988 at 27.761.
• Stocks pared losses on the news, the DJIA trading in the green briefly (44,594.54) before receding ahead anoth heavy earnings announcement docket this week.
• FX markets have been extremely volatile Monday, with the initial likely implementation of tariffs prompting a broad strengthening of the greenback, and particular pressure on the Mexican peso and the Canadian dollar. Despite the headlines being Mexico centric, similar price action saw USDCAD almost reverse the entire gap to last Friday’s close, hitting a pullback low of 1.4546 from session highs of 1.4793.
• Tariff negotiations with Canada and China ongoing, while data focus turns to this week's CPI, PPI and January employment report this Friday.

SOFR FIXES AND PRIOR SESSION REFERENCE RATES
​​​​​​​
SOFR Benchmark Settlements:

• 1M -0.00040 to 4.31268 (-0.00233 total last wk)
• 3M +0.00088 to 4.30313 (+0.00241 total last wk)
• 6M +0.00276 to 4.25107 (-0.01075 total last wk)
• 12M +0.00744 to 4.16774 (-0.03860 total last wk)

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.38% (+0.02), volume: $2.533T
• Broad General Collateral Rate (BGCR): 4.34% (+0.00), volume: $918B
• Tri-Party General Collateral Rate (TCR): 4.34% (+0.00), volume: $892B
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $83B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $227B

FED Reverse Repo Operation

RRP usage falls back below $100B again -- to  $97.781B this afternoon from $187.913B Friday. Compares to Monday, January 27 usage of $92.863B - the lowest level since mid-April 2021. The number of counterparties falls to 39 from 57 prior.

US SOFR/TREASURY OPTION SUMMARY

Option desks reported decent SOFR & Treasury upside call flow on decent volumes Monday. Underlying futures stronger, off midmorning highs after Pres Trump agreed to delay 25% tariff on Mexico, negotiations on Canada & China ongoing but expected to begin tomorrow. Heavy volumes (TYH5 near 2.5M at the moment), curves twist flatter as short end lags Bonds (2s10s -6.008 at 27.741). Projected rate cuts through mid-2025 have cooled slightly vs this morning's levels (*) as follows: Mar'25 at -3.5bp (-3.7bp), May'25 at -9.8bp (-10.3bp), Jun'25 at -19.2bp (-19.7), Jul'25 at -24.4bp (-24.9bp).

SOFR Options
+20,000 SFRJ5 96.12/96.37 call spds, 1.75 ref 95.87
-6,000 SFRU5 95.43 puts, 3.0 vs 96.02/0.10%
+10,000 SFRJ5 96.12/96.37 call spds, 1.75 ref 95.87
+10,000 SFRJ5 95.62/95.68/95.75 put flys 1.0 ref 95.885
+9,000 SFRZ5 95.50/95.62/95.87 2x3x1 put flys, 5.5 ref 96.07
Block, 5,000 SFRM5 95.56/95.68/95.81 put flys, 4.75 ref 95.89
+30,000 SFRJ5 96.12/96.37/96.50/96.75 call condors, 1.25
+3,000 2QU5 96.62/97.00 call spds +6.75/3K (9607
+5,000 0QZ5 96.25/96.75/97.25/97.75 call condors, 11.5 ref 96.08
+5,000 SFRM5 95.62 puts, 1.25 vs. 95.885 to -.89/0.10%
1,300 SFRH5 95.81/85.93 call spds vs. SFRH5 95.68 puts
11,000 0QK5 97.00 calls ref 96.09
Block, 1,500 SFRU5 96.62/97.12 2x3 call spds, 2.5 ref 95.975
3,500 SFRH5 95.68/95.75/95.81 call flys ref 95.74
+6,000 SFRJ5 95.68/95.75/95.81/95.87 put condors, 2.75 ref 95.85
1,500 0QH5 96.25/96.50/96.75 call flys
-19,850 SFRH5 95.00/95.62/96.00 broken call flys, 51.5 ref 95.735/0.85%
4,000 SFRZ5 96.00/96.37/96.75 call flys, 5 ref 96.01
2,000 SFRM5 95.75/96.00/96.12 broken call flys ref 95.85
2,250 0QJ5 95.81/95.93 put spds vs. SFRJ5 95.68 puts
Block, 2,500 SFRU5 95.87/96.00 put spds, 7.0 ref 95.96
5,000 SFRZ5 96.50/97.00/97.50 call spds ref 96.04
Blocks, +9,000 0QG5 96.31 calls, 2.0 to 2.5 ref 96.04 to -.075
2,000 SFRM5 96.00/96.25/96.37/96.62 call flys ref 95.875

Treasury Options:
+45,600 wk2 TY 112.75 calls, 1 ref 109-01 (expire Friday)
3,000 TYH5 111.5/112.5 1x3 call spds, 2 net, 3 legs over
5,000 TYH5 109.75/110.5/111 broken call trees, 1 net 
-15,000 USH5/USJ5 108 puts, 14
-3,000 TYH5 109.25 straddles, 121
+5,000 TYH5 110/111 call spds, 10-11
5,000 TYH5 107 puts, 7 ref 109-02.5
-7,000 TYH5 108.5/109.75 call spds, 35 ref 108-30 to -30.5
4,000 FVH5 108/108.5 call spds ref 106-08.75 to -09
+20,000 Monday weekly FV 106 puts, 0.5-1.5

MNI BONDS: EGBs-GILTS CASH CLOSE: Bunds Outperform Amid US Tariff-Driven Volatility

European yields fell sharply Monday in a bull steepening move inspired by US tariff policy uncertainty.

• Safe-haven instruments were bid early after the weekend's news that US President Trump announced he would follow through with tariffs on Mexico, Canada and China starting Feb 4, with equities falling and the dollar soaring.
• Yields were hitting fresh lows when headlines emerged that US tariffs on Mexico would be postponed for one month. Uncertainty over US tariffs lingers after the cash close, with levies set to be imposed on Canada and China overnight.
• Earlier firmer-than-expected Eurozone January flash inflation data helps contain the downside in Bund yields.
• Bunds outperformed Gilts (in part due to perception that the UK would be less tariff-targeted by the US than the EU), with bull steepening in both curves though a touch of belly outperformance in the UK.
• While periphery EGB spreads widened, French OATs impressed in the semi-core space: the French socialist party decided not to support the censure motion against PM Bayrou.
• Apart from tariff developments, Tuesday's European calendar includes Spanish labor market and French budget data, with an appearance by ECB's Villeroy.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 8.5bps at 2.034%, 5-Yr is down 8bps at 2.155%, 10-Yr is down 7.5bps at 2.385%, and 30-Yr is down 7.4bps at 2.639%.
• UK: The 2-Yr yield is down 5.4bps at 4.165%, 5-Yr is down 6.3bps at 4.161%, 10-Yr is down 5.1bps at 4.487%, and 30-Yr is down 3.6bps at 5.09%.
• Italian BTP spread up 2.4bps at 111.7bps / French OAT down 1.2bps at 72.2bps  

MNI EGB OPTIONS: More Mixed Trade In Rates Vs Last Week's Upside

Monday's Europe rates/bond options flow included: 

• ERK5 97.875/98.00/98.125 call fly paper paid 3 on 7.5K.
• ERJ5/ERM5 98.00/98.25 call spread paper paid 1.25 for the M5 on 5K vs 97.87.
• ERM5 97.9375/98.1875 call spread 4K given at 7.25.
• ERU5 98.25/98.4375 call spread paper paid 4.25 on 7K vs 98.035, 13% delta.
• ERU5 98.12/98.00/97.75 broken put ladder paper paid 0.5 on 5.5K.
• ERU5 98.125/98.25 call spread vs. 97.875/97.75 put spread paper paid 1 for  the call spread on 4K.
• RXH5 133/134 call spread 9K given at 39.
• RXH5 134.50/135.50/136 call ladder paper paid 7 on 6k 

MNI FOREX: MXN Surges Back as Trump/Sheinbaum Strike Accords

• FX markets have been extremely volatile Monday, with the initial likely implementation of tariffs prompting a broad strengthening of the greenback, and particular pressure on the Mexican peso and the Canadian dollar. However, positive discussions between US and Mexican officials, and an associated tariff pause on Mexico, have seen currency markets reverse significantly.
• The Mexican peso came surging back as President Sheinbaum appears to have made good on her promises that Mexico had a plan in the event of tariff implementation. While only pushed back by a month, the multiple accords have provided a much more optimistic backdrop and should foster hopes of a broader trade agreement.
• USDMXN traded as low as 20.4164 after rising to 21.2932 overnight. Short-term positioning likely leaves the downside vulnerable at this juncture, and the 50-day EMA is the closest point of reference for some added momentum south. This average intersects today at 20.4111, closely matching session lows. Below here, key support has been defined at 20.1343, the Jan 24 low.
• Despite the headlines being Mexico centric, similar price action saw USDCAD almost reverse the entire gap to last Friday’s close, hitting a pullback low of 1.4546 from session highs of 1.4793.
• Overall, the USD index does remain over half a percent in the green, largely reflective of the general weakness for major equity indices, highlighted by 0.75% declines for the likes of AUD, NZD and EUR. EURUSD specifically was unable to bridge its opening gap, rising only to a recovery high of 1.0335 before fading back below 1.03. The earlier extension to fresh cycle lows today highlights a resumption of the technical downtrend. Attention is on 1.0138, the 1.764 projection of the Sep 25 - Oct 23 - Nov 5 price swing.
• US JOLTS data highlights the Tuesday docket, before the more meaningful calendar points of US refunding, the BOE decision and Friday’s NFP.

MNI FX OPTIONS: Expiries for Feb04 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0250(E873mln), $1.0280(E910mln), $1.0300(E1.2bln), $1.0320(E1.0bln), $1.0375(E1.0bln), $1.0395-05(E1.4bln), $1.0425-35(E2.4bln)
• USD/JPY: Y152.00($500mln), Y154.00($663mln)
• AUD/USD: $0.6275(A$1.6bln), $0.6335-50(A$896mln), $0.6420(A$1.1bln), $0.6595-00(A$2.5bln)

MNI US STOCKS: Late Equities Roundup: Near Full Recovery, Mexico Tariff Delay

• US Stocks have been climbing off this morning's lows ever since Mexican President Sheinbaum said tariffs are paused for a month from now, having said Mexico had a "good" call with Trump, which led to some "accords".
• The Trump administrations quixotic trade policies remain uncertain for Canada, China and the EU for that matter amid mixed negotiation headlines Monday after Trump signed orders for 25% tariffs over the weekend on Mexico & Canada, 10% on China.
• Currently, the DJIA trades down 0.94 points (0%) at 44545.04, S&P E-Minis down 25.75 points (-0.42%) at 6041, Nasdaq down 154.9 points (-0.8%) at 19473.01.
• Health Care and Consumer Staples sectors continued to lead gainers in late trade, IDEXX surged +11.2% after beating earnings and providing positive 2025 guidance, Molina Healthcare +3.86%, AbbVie +3.46%. The Consumer Staples sector was buoyed by Kroger +2.7%, Costco +2.69%, Tyson Foods +1.98%.
• Conversely, Information Technology and Consumer Discretionary sectors continued to underperform: tech laggers included Super Micro Computer -4.14%, Apple -3.22% while Dell declined 3.13%. Weighing on the Consumer Discretionary sector: Tesla -5.01%, Wynn Resort -3.59%, NVR -3.31%.
• Reminder, another heavy earnings docket this week includes the following on Monday-Tuesday: PepsiCo Inc, Archer-Daniels-Midland Co, Snap Inc, Alphabet, Match Group, Amgen Inc, Advanced Micro Devices, Lumen Technologies, Chipotle Mexican Grill, Juniper Networks Inc.

MNI EQUITY TECHS: E-MINI S&P: (H5) Bearish Threat

• RES 4: 6162.28 High Jan 24 and a key resistance   
• RES 3: 6057.75 Low Jan 31 and a gap high on the daily chart
• RES 2: 6021.01 50-day EMA
• RES 1: 5988.75 Intraday high             
• PRICE: 5984.50 @ 14:39 GMT Feb 3
• SUP 1: 5935.50 Intraday low         
• SUP 2: 5892.37 76.4% retracement of the Aug 5 - Dec 6 bull leg
• SUP 3: 5842.50 Low Jan 14
• SUP 4: 5809.00 Low Jan 13 and a key resistance 

The S&P E-Minis contract has started the week on a bearish note. The gap lower today and a breach of support at 5948.00, the Jan 27 low, strengthens a bearish threat and cancels - for now - a recent bullish theme. An extension down would open 5892.37, a Fibonacci retracement point. Initial resistance is at 6057.75, the Jan 31 low and a gap high on the daily chart. Clearance of this level would reinstate a bullish theme.

TUESDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
04/02/2025	0745/0845		FR	France Budget Balance
04/02/2025	1000/1000	**	GB	Gilt Outright Auction Result
04/02/2025	1000/1000	**	GB	Gilt Outright Auction Result
04/02/2025	1355/0855	**	US	Redbook Retail Sales Index
04/02/2025	1500/1000	**	US	Factory New Orders
04/02/2025	1500/1000	***	US	JOLTS jobs opening level
04/02/2025	1500/1000	***	US	JOLTS quits Rate
04/02/2025	1600/1100		US	Atlanta Fed's Raphael Bostic
04/02/2025	1630/1130	*	US	US Treasury Auction Result for Cash Management Bill
04/02/2025	1900/1400		US	San Francisco Fed's Mary Daly
05/02/2025	2200/0900	*	AU	S&P Global Final Australia Services PMI
05/02/2025	2200/0900	**	AU	S&P Global Final Australia Composite PMI
05/02/2025	2330/0830	**	JP	average wages (p)
05/02/2025	0030/0930	**	JP	S&P Global Final Japan Services PMI
05/02/2025	0030/0930	**	JP	S&P Global Final Japan Composite PMI
04/02/2025	0030/1930		US	Fed Vice Chair Philip Jefferson
05/02/2025	0145/0945	**	CN	S&P Global Final China Services PMI
05/02/2025	0145/0945	**	CN	S&P Global Final China Composite PMI