BONDS: OAT vs BTP block trade

Bonds with a delayed reaction to the Washington Post story pointing to Trump aides paring back some of his election promises on tariffs (greater colour provided in the recent cross-asset bullet), rallying in recent trade.

• U.S. 2s30s curve ~1bp steeper since the story crossed, with U.S. yields 0.5-3.0bp lower on the day.
• Tsys outperform Bunds and gilts across the curve.

The Washington Post reports that US President-elect Donald Trump’s aides are "exploring plans" to apply tariffs to every country “but only cover critical imports” – a step removed from Trump’s more hardline campaign proposal to impose a 10-20% universal baseline tariff on all imports.

• The report suggests that Trump’s initial tariff plan may track relatively closely with the Biden administration’s targeted tariffs, which already applies duties on Chinese imports in sectors deemed critical to national security or subject to “anticompetitive and non-market” practices.
• The Post writes: “Preliminary discussions have largely focused on several key sectors [including] the defense industrial supply chain (through tariffs on steel, iron, aluminum and copper); critical medical supplies (syringes, needles, vials and pharmaceutical materials); and energy production (batteries, rare earth minerals and even solar panels)”.
• As tariffs already cover Chinese imports on many of the above items, market focus will be on potential exceptions for allied countries that run a trade surplus with Washington, including Japan, South Korea, and Germany - and on how robustly Trump will approach closing backdoor routes to US markets via lower-tariff countries.  
• A source told WaPo: “The sector-based universal tariff is a little bit easier for everybody to stomach out the gate... why not at least start with these targeted measures? And it would still give CEOs a massive incentive to start making their products here.”
• A Trump spokesperson said in a statement: “As he did in his first term, [Trump] will implement economic and trade policies to make life affordable and more prosperous for our nation.”

• RES 4: 111-20+ High 6 and the bull trigger 
• RES 3: 110-25   High Dec 12   
• RES 2: 110-09   50-day EMA  
• RES 1: 109-10+ 20-day EMA
• PRICE:‌‌ 108-19+ @ 11:24 GMT Jan 06
• SUP 1: 108-06+  Low Dec 26
• SUP 2: 108-00   1.500 proj of the Oct 1 - 14 - 16 price swing   
• SUP 3: 107-27+ 1.0% 10-dma envelope
• SUP 4: 107-19+ 1.618 proj of the Oct 1 - 14 - 16 price swing

The trend condition in Treasury futures remains bearish. Recent weakness reinforces the current bear cycle - the contract has traded through key short-term support and the bear trigger at 109-02+, the Nov 15 low. The breach confirms a resumption of the downtrend and opens 108.00, a Fibonacci projection. Short-term gains are considered corrective below the 109-10+ 20-day EMA.