COMMODITIES: Pullback In Gold Extends Further, WTI Crude Declines

Bloomberg has published a useful tracker identifying every tariff imposed or threatened by US President Donald Trump and its economic effect. 

• Bloomberg reports: “While the unpredictability and risk of weaker economic growth have roiled financial markets, Trump has signaled plans to press ahead with more aggressive [tariff] moves..."
• Trump and White House officials have suggested that Trump’s April 2 ‘Liberation Day’ tariffs could be more targetted than previously signalled although with a week until the April 1st bilateral trade review is due, it is unlikely that any final decision has yet been taken.
• Trump said in White House remarks on Friday that, despite press reports, he hasn’t changed his mind on tariffs: “I don't change. But the word flexibility is an important word. Sometimes there's flexibility. So, there'll be flexibility.”
• The Wall Street Journal reports that tariffs on “industrial sectors like cars and microchips are no longer expected to be announced on that date [April 2], though major trading partners will still be hit with so-called reciprocal tariffs… The administration is now focusing on applying tariffs to about 15% of nations with persistent trade imbalances with the US..."

Figure 1: Tariffs Imposed, Threatened, or Suspended, (Affected Trade) 

Source: Bloomberg

• Much of today’s shift higher in Treasury yields (5Y +9bp, 10Y +8.3bp) has been driven by real yields (+6.5, +6bp), with inflation breakevens ‘only’ increasing ~2.5bps.
• It’s seen significant underperformance of Tsys to EGBs, where Bunds have led today’s weakness but still only closed with 10Y yields +0.6bp.  
• For a more straightforward cross-country comparison, 5Y inflation swaps are 2bp higher for both the US and EU today, aided by both Brent and WTI +1.0% on Trump’s threat of 25% tariffs for those who import Venezuela oil.   
• 5Y5Y inflation swaps meanwhile are little changed, with the US +1.4bps and EU +0.7bps.
• We wrote closer to the time how the surge in European defence spending expectations has seen a significant narrowing in US-EU 5Y5Y inflation swaps before a modest lift away from recent lows since then (the small uplift in EU 5Y5Y today comes after -6bps across last week).
• At 28bps, the spread has lifted from 16bp on Mar 5 having been as high as 52bp in mid-February and with months in the 40-50bp range.
• Natixis last week recommended targeting 39bp for this spread with a stop at 15bp, as "the market may be overestimating the impact of the German plan on inflation" in the near-term. US recession fears have dampened sentiment but they expect a rise in inflation in the next few months that could "bolster U.S. inflation swaps".

• RES 4: 1.3175 High Oct 4 2024  
• RES 3: 1.3119 76.4% retracement of the Sep 26 ‘24 - Jan 13 bear leg
• RES 2: 1.3048 High Nov 6 ‘24
• RES 1: 1.3015 High MAr 20 and the bull trigger  
• PRICE: 1.2904 @ 16:51 GMT Mar 24 
• SUP 1: 1.2886 Low Mar 21     
• SUP 2: 1.2855 20-day EMA
• SUP 3: 1.2714 50-day EMA and a short-term pivot support  
• SUP 4: 1.2556 Low Feb 28      

The GBPUSD trend condition remains bullish and the latest shallow pullback is considered corrective. Moving average studies are in a bull-mode position, highlighting a clear dominant uptrend. The pair has recently breached a Fibonacci retracement at 1.2924, 61.8% of the Sep 26 ‘24 - Jan 13 bear leg. The clear break of this price point opens 1.3048, the Nov 6 2024 high. Initial firm support to watch is 1.2855, the 20-day EMA.