OIL: Supply & Demand Uncertainty Is Reducing Market Volatility
Oil prices are moderately lower today following industry-based data showing another crude stock build in the US. It had been rising this week on reports that OPEC was considering another delay to its output normalisation. WTI is down 0.4% to $71.82/bbl, close to the intraday low, and Brent is 0.3% lower at $75.80/bbl. The USD index is down 0.2%.
- The numerous US policy changes and statements are increasing uncertainty and resulting in oil prices range trading as the market waits for developments to give it clearer direction. The uncertainty over the path for tariffs, sanctions and US oil production has clouded the global demand and supply outlook. As a result, market volatility is its lowest since July, according to Bloomberg.
- Today US President Trump said that a trade deal with China is still possible after 10% tariffs were imposed on all imports from China this month and China retaliated with taxes on US oil and gas.
- Bloomberg reported that US inventories rose a further 3.34 mn barrels last week, according to people familiar with the API data, higher than expected. There was a gasoline build of 2.8mn but a distillate drawdown of 2.7mn. Stocks have been rising due to increased flows from Canada to beat tariff deadlines and planned US refinery maintenance. The official EIA data is out later today.
- Later the Fed’s Goolsbee, Musalem, Barr and Kugler speak and US jobless claims, January leading index and February Philly Fed business outlook and euro area preliminary February consumer confidence print.
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CANADA SAYS ABSOLUTELY READY TO RESPOND TO ANY TRUMP TARIFFS
- CANADA SAYS ABSOLUTELY READY TO RESPOND TO ANY TRUMP TARIFFS
- CANADA SAYS TARIFFS WOULD BE MISTAKE, COSTING JOBS, INFLATION
AUD: A$ Underperforms Following Trump’s Tariff Comments
AUDUSD fell sharply to 0.6209 following US President Trump’s statement that he thinks a 25% tariff on imports from Canada and Mexico will be enacted from February 1. The pair has recovered somewhat to 0.6248 to be down 0.4% today and still lower than the intraday high of 0.6289. Following Monday’s rally though, it is still up 1% on Friday. The USD jumped on the tariff announcement and is currently up 0.3%.
- The risk-averse yen has outperformed today leaving AUDJPY down 0.8% at 96.91 after a low of 96.83. Aussie is moderately lower against other majors with AUDNZD down 0.1% to 1.1047, AUDEUR -0.1% to 0.6016 and AUDGBP -0.2% to 0.5082.
- USDCAD fell sharply following the tariff news and is down 0.8% to 1.4419 leaving AUDCAD 0.4% higher at 0.9013.
- Equities are generally higher with the ASX up 0.7%, Hang Seng +1.0% and S&P e-mini +0.2%. Oil prices are lower with WTI down 0.7% to $76.83/bbl. Copper is down 1.5% and iron ore up to around $105/t (February contract).
- Later US January Philly Fed non-manufacturing, UK labour market, euro area/German ZEW and Canada’s December CPI data are released. The euro area ECOFIN meeting takes place.
JGBS AUCTION: 40Y Auction Delivers A Strong Result
The issuance of 40-year bonds today was met with strong demand, with the actual high yield coming in notably below dealer expectations. According to a Bloomberg poll, the anticipated yield was 2.60%, compared to the realized yield of 2.57%.
- The auction’s cover ratio also improved, rising to 2.7518x from 2.2364x in the previous outing.
- As highlighted in the auction preview, today’s yield was approximately 15-20bps higher than November’s yet remained 10bps below the cyclical high of 2.815% reached earlier this month. Additionally, the 20/40-year yield curve had steepened by 5-10bps since the last auction, reaching its steepest level since at least 2008.
- The 40-year bond is 2-3bps richer from pre-auction levels in early afternoon trading.
- In early afternoon trading, the 40-year bond is trading 2-3bps richer than pre-auction levels.
