FOREX: USD Looks Through Yields as Japan Trade Deal Details Still a Concern

New orders for manufactured goods ("factory orders") were a little stronger than expected in February, with the headline reading of 0.6% M/M (0.5% expected, 1.8% prior upwardly revised from 1.7%). The 3M/3M annualized rate of orders growth picked up to 1.6%, implying improved momentum after 2 consecutive negative monthly readings.

• Durable goods were minimally revised in the final reading: headline orders were upped 0.1pp to 1.0% M/M, but orders ex-transport (0.7%), and core capital goods orders (-0.2%) and shipments (0.8%) were all unrevised.
• As we noted following the durable goods report - in which orders greatly exceeded expectations - manufacturing data for February was suggestive of strong "hard" data for manufacturing in Q1. The factory orders data further supports this narrative.
• Incoming data since then - including a very weak ISM Manufacturing report for March - further supports the other part of the narrative however, which is that recent manufacturing strength reflects front-running the impact of tariffs, implying a dropoff in demand later in the year that may already be reflected by slowing core capital goods orders in February.

• 6,000 SFRM5 96.12/96.50 call spds, 3.5 ref 95.915 at 1011:37ET, adds to earlier Block at 3.75

SOFR option trade remains mixed, underlying futures retreating (Whites -0.020-0.030) while projected rate cuts through mid-2025 continue to cool vs. late Tuesday levels (*) as follows: May'25 at -4.7bp (-5.3bp), Jun'25 at -20.1bp (-22.1bp), Jul'25 at -36.4bp (-39.1bp), Sep'25 -53.4bp (-56.6bp).

• +10,000 2QK5 96.00/96.25/96.50 1x3x2 put flys, 2.0 ref 96.62
• +6,000 SFRZ5/0QZ5 97.00/98.00 call spd spd, 8.0 net conditional flattener