OIL: US-KRG Contracts Cause Stir in Baghdad

• Nikkei Newswire cites comments to press in reporting that the US Treasury Secretary Bessent will not seek a currency target in trade talks with Japan.
• USD/JPY sees brief strength on the headline, touching 142.94, before quickly reversing to prevailing levels. Non-tariff barriers including VAT, currency manipulation and indirect taxes had been a sore point for the US and trade partners, but seemingly currency is not an issue in ongoing negotiations with Japan, which are seen as among the most advanced since the initial unveiling of tariffs a few weeks ago. 

• RES 4: 113-04   76.4% retracement of the Apr 7 - 11 bear leg 
• RES 3: 112-12   61.8% retracement of the Apr 7 - 11 bear leg
• RES 2: 111-25   50.0% retracement of the Apr 7 - 11 bear leg   
• RES 1: 111-18+ High Apr 23
• PRICE:‌‌ 110-31+ @ 16:48 BST Apr 23 
• SUP 1: 110-15/109-08 Low Apr 15 / 11 and the bear trigger 
• SUP 2: 108-26+ 76.4% retracement of the Jan 13 - Apr 7 bull cycle
• SUP 3: 108-21   Low Feb 19
• SUP 4: 108-03+ Low Dec 12 ‘24 and a key support 

Treasury futures traded higher Wednesday, rallying to touch 111-18+ before reversing hard into the London close. This reinforces recent gains as corrective and infitting with the bear cycle that started Apr 7. The next resistance to watch remains 111-25, 50.0% of the Apr 7 - 11 bear leg sell-off. Clearance of this level would undermine the bearish theme. For bears, a resumption of weakness would refocus attention on 109-08, the Apr 11 low and the bear trigger.

Within the European trade details for February, China imports saw a strong increase although natural data volatility makes it hard to say how much is China re-routing exports that would have gone to the US, a downside risk to inflation for the ECB. Tariff considerations certainly looked at play for the relatively small pharmaceutical imports category whilst other larger measures were above Feb 2024 values but not at unprecedented levels. Of course, this data pre-dates a much more significant escalation in US-China trade relations from April. 

• EU merchandise imports from China increased 5% M/M (swda) in February for the fastest monthly increase since August.
• Imports from Japan and Korea saw faster increases, 6% and 7% M/M, but are only 10-15% the size of imports from China.
• Looking at the non-seasonally adjusted details, all the major categories continued to see strong Y/Y increases although NSA amounts mostly pulled back from January levels.
• Pharmaceutical products look to show the clearest example of re-routing or perhaps just broader tariff front-running if part of an EU re-exporting chain for US tariff front-running (touched on in part 1. They are small though, at E1.1bn in Feb for a 231% Y/Y increase, having stepped to E0.6bn in Jan after averages of E0.3-0.4bn through 2024.
• Vehicle imports also continued their strong trend, rising 21% Y/Y to E2.3bn as part of continued market share gains although levels have begun to stall.
• Other larger categories are generally above respective Feb 2024 levels, the smallest increase being 5% Y/Y for machinery & transport equipment ex vehicles & aircraft, but they’re not at unprecedented levels that would suggest pre-emptive re-routing.
• This will remain an area of focus as the ECB has warned at multiple meetings now that a re-routing of exports into the euro area from countries with overcapacity would put downward pressure on inflation.” See the following from our policy team on factors being considered: MNI: Europe to Sharpen Trade Tools To Tackle Dumping (Feb 24) and MNI: EU To Keep China Option In Reserve As Seeks US Deal (Apr 11).