GOLD: Spot Sees Little Benefit from Risk-Off, as Tariff Avoidance Hits Price

• Cut-off spread at +25.5 vs the 2.50% Feb-35 Bund (ISIN: DE000BU2Z049).
• (Initial spread guidance was +25.0 to +28.0bps then revised to +25.0 to +26.5bps then to final guidance of +25.5 to +26.0bps).
• Books: E29.455314bln
• Size: E5.999507bln (top of the E4-6bln range as we expected).
• ISIN: NL0015002F72
• Total share allocated to real money:83.73%
• Total share allocated to other: 16.27%
• Allocation at the cut-off spread:
  • Share allocated to real money: 55%
  • Share allocated to other: 54% (reported as 5.4% but assuming that is a typo by DSTA)
• Timing: Books closed at 10:10GMT / 11:10CET

• The EU's rush to rearm accelerated this morning, as European Commission President Von der Leyen outlined funding plans and instruments worth upwards of €800bln to help the EU rearm in the face of US withdrawal from Ukraine aid. The size of the plans came in above expectations, helping drive an early EUR rally and push EUR/USD back above $1.0500 and cleanly through the 100-dma at $1.0508.
• The stagflationary bias to sell USD has only picked up on the confirmation of tariffs against Canadian, Mexican and Chinese imports this morning. The news looked well-priced in as equities are somewhat stable this morning, however hold almost the entirety of yesterday's downdraft - particularly for the e-mini S&P. Haven currencies are outperforming, with both JPY and CHF firmer against all others.
• Weaker brent crude and natural gas prices have weighed on the NOK this morning, with EURNOK 0.5% higher on the session. The rally in EURNOK sees trendline resistance drawn from the August 5th 2024 high (11.7754 today) pierced, with the Jan 21 high at 11.8260 the next topside target. NOKSEK has seen a more modest 0.15% sell-off, with the SEK also under pressure amid today's pullback in European equities. However, yesterday's close below key multi-year support at 0.9500 was an important bearish development, with rallies short of the 20-day EMA at 0.9606 considered corrective.
• The data schedule for Tuesday trade is quiet, with no tier one releases set - this keeps focus on developments from the White House and in particular Trump's State of the Union address in front of a joint session of Congress for direction. Trump is expected to touch on all the major themes of his second term, from geopolitics to tariffs to tax policy and the debt limit. 

Major EGB futures have recovered a good portion of yesterday’s selloff, as markets assess the implementation of US tariffs on Mexico, Canada and China overnight (including retaliation from the latter two). However, upside has been limited by supply from Belgium, the Netherlands, Austria and Germany and fresh signals around increased EU defence spending from EC President von der Leyen. 

• Bund futures are +45 ticks at 132.46. However, yesterday’s sell-off undermined a recent bullish theme, with key resistance points now defined at 133.46 (Feb 28 high) and 133.71 (Feb 5 high).            
• A pullback in crude oil futures following reports that OPEC will go ahead with its output normalisation from April will have also provided support to bonds.
• The tariff announcements heighten expectations for trade barriers to be implemented on the EU, which is expected to have a negative impact on growth and necessitate further ECB rate cuts. ECB-dated OIS price 85bps of easing through year-end (vs 80bps at yesterday’s close), driving a bull steepening in EGB curves.
• 10-year EGB spreads to Bunds are biased slightly wider, with European equity futures over 2% lower intraday.
• The Eurozone unemployment rate (SA) for January printed a tenth below consensus at 6.2% (vs 6.3% consensus) matching the record low.
• The remainder of today’s data calendar is light, keeping focus on any tariff-related headline flow.