AUSSIE BONDS: Richer With US Tsys As FOMC Flags 'Patience'

Oil prices finished Monday over 1.5% lower but off the day’s trough, as fears grow that higher-than-expected US tariffs could cause a recession there and a major slowdown in global growth. Prices have started today higher helped by positive US equity futures on imminent tariff negotiations.

• They spiked early in the US session on an incorrect report that the implementation of US tariffs would be delayed 90 days. The move was brief as the news was soon refuted.
• Crude is now almost 15% lower this month, which could be disinflationary while the inflation outlook in a trade war remains highly uncertain.
• WTI finished down 1.7% to $60.96/bbl after reaching $63.90 and is now -14.7% this month. It fell to $58.95 during Monday’s APAC session. It has started today up 1.0% to $61.33. The benchmark is in oversold territory but there is scope for the bearish trend to continue. Initial support is at $59.39 with resistance at $64.85.
• Brent fell 1.9% to $64.36 after spiking to $67.43 following a low of $62.51 earlier. It is now down 13.9% in April, which has cancelled the bullish theme. Initial support is at $63.01 and resistance at $67.95, 5 March low.
• There have been downward revisions to oil price forecasts with Goldman Sachs revising Brent down $4 to $62/bbl by December 2025 and Morgan Stanley by $5 to $65 for Q2 with expected demand growth now 0.5mbd lower by H2 2025. There was record trading of Brent put options on Friday, according to Bloomberg, signalling that the market is preparing for a further sell off.
• China retaliated with a 34% tariff on imports from the US and US President Trump threatened to respond with another 50% on top of the current 54%, which added to market jitters.
• There are to be “direct” negotiations at a “very high level” between the US and Iran on Saturday to discuss an agreement on its nuclear programme. Trump warned that it would be “a very bad day for Iran” if they failed to agree. Developments in this space could cause more volatility in energy markets.

TYM5 is 111-29, -0-05 from closing levels in today's Asia-Pac session. 

• Markets experienced significant turbulence overnight, with extreme volatility driven by poor liquidity conditions. The situation was further exacerbated by a flurry of social media activity from President Trump, who threatened an additional 50% tariff on Chinese imports.
• Trading volumes were heavy, with over 5.3 million TYM5 contracts changing hands after Monday’s close.
• The US tsy 10-year yield, which ranged between 3.85% and 3.95% during the Asia-Pac session, moved sharply higher as European markets opened. It reached an intraday high of 4.21% before finishing at 4.18%, +19bps. The yield curve steepened, with the 2-year yield rising by 11bps.
• Economic data remains light ahead of key releases later this week. Markets are looking ahead to Wednesday’s release of the March FOMC minutes, followed by CPI data on Thursday and PPI on Friday.

USD/JPY is being whipped around with extreme volatility and dislocations being seen in the US treasury and US dollar funding markets. The market has been trying to price in more cuts but some interesting comments from Bill Dudley overnight he said “ Don’t expect the FED to rescue the US economy from the probably devastating impact of tariffs”, pushing back on the idea that the FED will be proactive and will more likely wait to see what the actual impact of the levies are before acting.

• Yesterday's range was 144.82 - 148.15, Asian opens around 147.90
• President Trump assigned two members of his cabinet to kick off bilateral trade talks with Japan after a call with Japanese Prime Minister Shigeru Ishiba.
• Details in Japan’s February labor cash earnings contained bad news for the BOJ, the pace of increase in base pay for full-time workers on a same-sample basis slowed sharply.
• The environment for the BOJ seems to be more challenging and due to their conservative approach there is now a risk that it will delay policy normalisation. 
• USD/JPY has seen a significant bounce and is now approaching a key sell zone between 148 - 150. Should risk remain under pressure this would be a good area to express a long JPY bias. A move back above 151.50/152.00 would negate the downtrend.
• Key pivotal support lies around 140.00, a break of this area would really set the cat amongst the pigeons and open a quick move back to the 1.25/1.30 area.
• Data : BoP, Trade Balance as well as Japan's Feb Leading and Coincident index 

USDJPY

Source: MNI - Market News/Bloomberg