CAD: Vols Point to More CAD Sensitivity on Tariff Headlines
Feb-27 14:50
USD/CAD spot not the only element of the FX market that's gaining on the back of the Trump affirmation for March 4th tariffs: CAD implied vols have lurched higher.
- One-week implied has rallied near 1.5 points and will likely remain supported the longer CAD holds toward recent lows.
- Vols are still below yesterday's highs (which faded sharply as the Administration hinted a one-month extension) but could comfortably top 10 points again if there are no signs of concession from Canada.
- As has been the case this year, the significantly calmer MXN market shows it's Canada that markets see as the risk here - with Sheinbaum's transparency and frequent public commentary clearly soothing any tensions and showing through in currency risk premia. As such, markets clearly isolating CAD as the most sensitive to tariff risk here.
- 1.4472 now marks a key level - the 50% retracement of the downleg posted off the Feb 14th high - again, a tariff triggered move.
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STIR FUTURES: BLOCK: December'25 SOFR Sale
Jan-28 14:44
- -5,000 SFRZ5 96.11, post time bid at 0941:40ET, the Dec contract trades 96.115 last (-0.020).
EGBS: OAT Outperformance Vs. Iberians Stalls
Jan-28 14:37
Looking a little more broadly than the spread to Bunds, the mid-January richening for French paper on the 10-Year SPGB/OAT/PGB butterfly has seemingly stalled.
- This suggests that the latest leg of tightening seen in OAT/Bunds (since the middle of last week) has been more of a broad EGB spread tightening move, as opposed to an OAT-driven move.
- The structure last trades at -45.2bp vs. a January closing high of -44bp, with the December closing high at -41.6bp remaining intact.
- Relative Spanish & Portuguese credit rating trajectories and fiscal situations (outside of short-term Spanish spending on flood relief) will likely prevent meaningful OAT outperformance on the structure as long as French fiscal and political risks remain evident.
Fig. 1: 10-Year SPGB/OAT/PGB Butterfly (bp)
Source: MNI - Market News/Bloomberg
EQUITIES: US Cash opening calls
Jan-28 14:23
US Equity futures have ran out of steam in the last few hour, the NQH5 has managed to bounce 3.18%, and the Emini 2.1% from Yesterday's low to their printed high today.
Looking at Cash Indices, SPX should see a small upside gap, but the NDX should be quite short of Yesterday's best level.
- Calls: SPX: 6,029.0 (+0.3%); DJIA: 44,750 (+0.1%/+36pts); NDX: 21,174.6 (+0.2%).
