President Trump said that he would add an extra 25% tariff on Canadian steel and aluminum - raising those tariffs to 50% - if Canada does not remove the 25% tariff it placed on electricity from three US states. Ontario's Premier Ford said that he agreed to suspend the 25% electricity surcharge.
Then, Trump's trade advisor, Navarro, confirmed NO 50% STEEL, ALUMINUM TARIFFS ON CANADA TOMORROW (Bloomberg headline). 25% steel, aluminum tariffs will still begin at midnight, according to the White House (Bloomberg headline).
CAD rebounded from 1.4500 to 1.4410 after Ford suspended the 25% electricity tariff, but interestingly, it did not rally further after Navaro confirmed that there will not be 50% steel, aluminum tariffs in effect on Wednesday. The market might be cautious, considering reciprocal tariffs on April 2 could still pose notable headwinds, though there might also be little conviction behind price action. NY eTraders did not see any notable CAD flow during the session but did report that USDCAD volumes were about 60% above 30d average during the NY morning/early afternoon.
Ontario's Ford is meeting with US Commerce Secretary Lutnick on Thursday. The two officials may discuss a renewed USMCA agreement ahead of the April 2 reciprocal tariff deadline, according to a Bloomberg headline.
Beforehand, Bank of Canada will meet Wednesday. Given all the tariff noise, the BoC may opt for as boring of a meeting as possible. It will likely cut 25bps, as priced by markets, and deliver cautious but open-ended guidance. Looking ahead, it will likely need to continue cutting rates - Citi expects 3 more cuts beyond March. This skews risks towards a weaker CAD and steeper front-end curves.
US data was relatively supportive:
President Trump pushed back on concerns that the US will go into a recession. *TRUMP: I DON'T SEE A RECESSION AT ALL (Bloomberg headline). Other headlines quoted Trump saying that the US economy is going to "blow it away," that we will have the greatest markets we've ever had. Trump might make similar comments during his Business Roundtable at 5:00 p.m. ET, though no Trump put may come from them.
S&P 500 closed about 0.8% lower at ~5570, though it could have been worse. SPX was trading near 5530 at one point during the session, just ahead of the psychological 5500 handle, where some analysts have said that dip buying may emerge. Our experts are a bit more skeptical: positioning isn't stretched, momentum remains neutral, and consumers, while concerned, do not have a definitive view yet. Further downside cannot be ruled out, especially as markets prepare for the April 2 reciprocal tariff deadline.
USTs bear-steepened amid a choppy nominal range, as offsetting NFIB and JOLTS data were beset by continued term- premia pressure in EGBs and trade-war brinkmanship between US-Canada. In early-US hours, sympathetic bear-steepening was seen to German curve-steepening (5s30s +5bps) and 10y BTPs >4.00%, with duration fading a softer than expected NFIB print (-5%pt decline in ‘a good time to expand’, largest decrease since April 2020). Better fast money selling (7k TY sold at 9:33am) was seen into the 10am release of JOLTS data. This made for a temporary ‘dip buy’ as the desk noted asset- manager demand in the belly shortly after the US equity open, with a familiar shift towards a defensive cross-asset posture after the US/Canada tariff risks escalated during NY morning.
The WSJ article highlighting the Fed’s Bowman as ‘the frontrunner’ for VC of Bank Supervision also left a temporary flattening/spread widener impulse after 10:15am, with a 33k SFRZ5 block sale seen at 10:32am. Focus on supply concession picked up more aggressively after a large TY seller in screens after 11:25am, with 10s retesting 4.25% by 1pm. The 3y supply event, the first with a 3-handle coupon since October 2024, proved a modest disappoint as the event tailed 0.7bps on much lighter indirect demand (62.5% allocation vs 67.5 4-auction ave). After a short-lived twist-flattening reaction, the duration selloff extended, as headlines crossed that Ukraine is ready to accept an immediate 30-day ceasefire proposal as well as a pending natural resource agreement, which stoked a flurry of short-covering dynamics across equity jurisdictions. This was further bolstered by news that Ontario would be dropping the 25% electricity surcharge to US customers pending a Lutnick- Ford meeting Thursday. After the dust settled, Mag-7 names were >+1% after hitting ‘bear market’ territory intraday, tech shares leading as bonds found support at the 4.60% figure. By Ed Acton, US Rates Desk Strategist.
DXY Index bottomed near 103.20 and firmed to 103.40 by NY close. NY eTraders did not report notable USD flow but did see flows shift towards selling of JPY (147.80 NY close) and NOK (10.65 NY close), buying of PLN (3.85 NY close) and CNH (7.2270 NY close), and leveraged segment buying of AUD (~0.6300 NY close). Equity cash trader noted that Citi's Dollar short basket of stocks (CG25USDS Index) is a great proxy to track if you think dollar downside is overdone. Remind that USD positioning is max short, according to CitiFX Quant's Flows & Positioning Weekly Report.
JPY softened to 147.80 due to higher US yields and some risk improvement after US gave Ukraine/Russia truce hopes. USDJPY risks skew tactically to the upside, considering shorts are overcrowded, but significant pops, if seen, should still be faded because JPY fundamentals are bullish. CADJPY pops, if seen during the BoC's meeting Wed, should also be faded - though respect broad risk sentiment. Options trader proposed a CNHJPY downside structure during the NY session, too.
