US TSYS: Tsys Yields Decline As Tariffs Are Delayed & Soft Jobs Data
- Tsys seesawed in the first half of the US session on Tuesday before seeing gains across the curve. The belly of the curve outperformed with the 2s7s30s fly falling 1.5bps to -13bps. Tsys futures all closed higher with TU closing 02⅞ at 102-27⅛, while TY closed 08 at 109-06+
- Cash tsys curves flattened slightly, with the 2yr -3.5bps at 4.214%, while the 10yr closed -4.4bps at 4.511%. The 2s10s dropped 1bps to 29.50bps, still off the lows made on Monday of 25bps.
- Treasury support surged after JOLTS data, job openings were lower than expected in Dec at 7.6m (cons 8.00m) after an upward revised 8.156m (initial 8.098m) in Nov.
- The JPM Investment Sentiment All Clients Short Index saw it's biggest 1-day jump in outright positions since 2019
- Traders unwound futures and cash Treasury positions, turning more neutral as tariff uncertainties clouded the economic and Fed outlook. Short-dated Treasury yields surged before reversing after a tariff pause, leading to hedging ahead of the March Fed meeting, with options activity showing mixed rate expectations. Swaps imply a low chance of a March rate cut, but elevated April SOFR options suggest traders anticipate potential shifts in the outlook.
- Fed-dated swaps saw little movement on the day, pricing in around 3bp of easing into the March meeting and a combined 43bp of cuts priced for this year
- Focus turns to Wednesday morning's ADP private employment data ahead of Friday's headline NFP data for January, not to mention US Tsy quarterly refunding announcement, S&P Global US Services PMI and ISM Services data.
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OIL: Crude Exceeds Further Resistance Levels, Strong Start To 2025
Oil prices rose around a percent on Friday to continue the uptrend seen during the week. Better risk appetite, continued US crude drawdowns and technicals seem to have outweighed pessimism over China’s economy. The USD index fell 0.1% driven by stronger US equities, which also supported dollar-denominated crude.
- WTI rose 1.3% to $74.07/bbl to be up almost 5% last week, above resistance at $73.73 opening up $73.96. The bull trigger is at $76.41. It reached a peak of $74.35, the highest since early October.
- Brent finished last week up almost 4% after a 1.0% rise on Friday to $76.69/bbl, breaching initial resistance at $76.55 opening $79.50, key resistance. It made an intraday high of $76.73.
- Goldman Sachs estimates that “oil prices are a few dollars undervalued” currently.
- The election of Trump as the next US President has increased expectations that US oil production will rise. However, before the end of his term President Biden is likely to ban new offshore oil and gas projects covering around 625mn acres of coast, according to Bloomberg. The area includes the Atlantic, Pacific and eastern Gulf of Mexico. The decision is likely to be announced today.
AUSSIE 3-YEAR TECHS: (H5) S/T Neutral
- RES 3: 96.380 - High Mar 21 2023
- RES 2: 97.190 - High May 5 2023
- RES 1: 96.730/932 - High Sep 17 / 76.4% of Mar-Nov ‘23 bear leg
- PRICE: 96.160 @ 14:55 GMT Jan 03
- SUP 1: 96.000 - Low 19 Dec ‘24
- SUP 2: 95.750 - Low 27 Nov ‘23
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
Aussie 3-yr futures have started the year broadly flat, keeping the near-term trend neutral. Any further stabilisation and move higher would reinstate a bullish condition and signal scope for an extension. The key resistance here is at 96.730, the Sep 17 high. For bears, a stronger reversal lower would refocus attention on 95.760 where a break would instead highlight a stronger bearish set-up.
AUSSIE BONDS: Cheaper To Start The Week, CPI Monthly On Wednesday
ACGBs (YM -4.0 & XM -4.0) are cheaper after US tsys finished last week weaker following the December manufacturing ISM survey, which beat expectations. The headline reading of 49.3 improved from 48.4 prior and a 9-month high, besting the survey expectation of 48.4.
- This week, US economic data and Treasury supply are being brought forward to accommodate Thursday's "day of mourning" to honour President Carter.
- Cash ACGBs are 4-9bps cheaper, with the 5-year underperforming. The AU-US 10-year yield differential is at -18bps.
- Australia's S&P Global Dec. PMIs showed: Services PMI 50.8 vs 50.5 in Nov. and Composite Unchanged at 50.2.
- Swap rates are 3bps higher.
- The bills strip is showing -2 to -3 across contracts.
- RBA-dated OIS pricing is flat to 3bps firmer across meetings. A 25bp rate cut is more than fully priced by April (118%), with a February cut at a 58% chance.
- The local calendar heats up this week with the release of November CPI data on Wednesday. The calendar also sees Building Approvals and Private Sector Finance tomorrow and Retail Sales and Trade Balance on Thursday.
- AOFM Bond issuance is expected to resume in the week beginning 13 January 2025.
