US TSYS: Tsys Futures Edge Higher, Trump Speaks, 10yr At 4.517%

Oil prices have continued to decline today after falling over 1% on Monday. Prices jumped 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 US receives 4mbd from Canada, so tariffs could result in higher US fuel prices. He also declared that the SPR would be refilled, the EV mandate ended and US output increased. 

• WTI is down 0.8% to $76.75/bbl. It fell to $76.09, below initial support at $76.16, before Trump’s statements and then reached $77.18. Brent is only down 0.1% to $80.10/bbl after falling to $79.64 in early trading, holding just above support, and then rising to $80.46.
• Trump declared a “national energy emergency” to be able to increase domestic oil and gas production and reverse Biden’s climate change policies, according to Bloomberg. Uncertainty remains elevated though with no details yet or if he will even be able to use it. Energy permit regulations were also eased, while he said that crude imports from Venezuela would likely be stopped.
• With Trump planning to boost energy production, he said that if the EU wants to avoid tariffs it needs to buy more US oil & gas. EU President von der Leyen has already discussed increased LNG shipments with him.
• He also overturned Biden’s ban on offshore oil & gas drilling but it will require Congressional approval and may face legal challenges.
• The US has tightened sanctions against Russia and Iran by targeting tankers and this may be intensified. Data showed China’s crude imports from Russia in 2024 rose 1% to a record and from Malaysia, which Iranian and Venezuelan crude transits through, rose 28%, while Saudi shipments fell 9%. But that may change with some Chinese ports already preventing vessels carrying Iranian crude from docking.
• Later US January Philly Fed non-manufacturing, UK labour market, euro area/German ZEW and Canada’s December CPI data are released.

ACGBs (YM +5.0 & XM +6.5) are stronger and near Sydney session highs. 

• Today’s move was all about US tsys. Cash US tsys are 6-9bps richer in today’s Asia-Pacific session, with a flattening bias, following yesterday’s holiday. The session has been marked by volatility, driven by reports that Trump suggested tariffs on Canada and Mexico might take effect on February 1. While gains were briefly pared, US tsys have since rebounded, trading near session bests.
• Cash ACGBs are 6bps richer with the AU-US 10-year yield differential at -13bps.
• Swap rates are 5bps lower.
• The bills strip has bull-flattened, with pricing flat to 54.
• RBA-dated OIS pricing is flat to 5bps softer across meetings today. A 25bp rate cut is more than fully priced for April (110%), with the probability of a February cut at 68% (based on an effective cash rate of 4.34%).
• The local calendar is light this week after key December labour market data last Thursday. The highlights are the Westpac Leading Index tomorrow and S&P Global PMIs (P) on Friday. The focus is now on Q4 CPI data released on Wednesday, January 29.
• The AOFM plans to sell A$800mn of the 2.75% 21 June 2035 bond tomorrow and A$700mn of the 1.50% 21 June 2031 bond on Friday. 

USD/JPY got to fresh lows of 154.78 in earlier dealings, but once again found support sub the 155.00 level. We were last 155.10/15, still around 0.35% stronger in yen terms, the only G10 currency tracking up against the USD. Yen is comfortably up over 1% against CAD, and around 1.4% firmer against MXN.  

• Yen has benefited from the weakness in US yields, which have largely ignored earlier Trump tariff threats (25% hike on imports from Canada and Mexico, implemented on Feb 1). US-JP yield differentials have maintained their downtrend.
• Today's move has seen a test sub the 50-day EMA, but so far we haven't been able to sustain it.
• We have also had comments from Japan's top FX diplomat Mimura. Mimura stated that a threat to real wages (and therefore consumption) is a from a spike in imported inflation. Given close links between import prices and USD/JPY changes this should be supportive of the yen backdrop all else equal.
• Mimura reiterated the central bank decision will be made independently this week.