Weekly Investment View: Bearish Oil, Bullish US and Canada STIR, Long 10Y CGBs and Short 30Y USTs

This Week

• US Rates – Antonio says the recent US employment report details were weaker than the headline numbers, and he remains long SFRZ5, while staying short 30Y USTs. Tariffs remain an issue, with the 1 August deadline now the new focus.
• China – Liang retains his long position in 10-year CGBs, with the PBoC citing ongoing deflationary pressures and using other dovish language as highlighted in its Q2 MPC minutes.
• Canada – Viresh is closely watching Canada’s CPI and this Friday’s jobs data, remaining long CORZ5 ahead of the BoC rate decision on 30 July.
• Commodities – Viresh maintains his bearish disposition in oil, despite the recent rally. We look to short CLZ5Z6, which trades near $1.

Appendix: Trade Table

Antonio Del Favero – US Rates

Despite US Treasury Secretary Bessent stressing ‘tariffs to return to April level with no deal by August 1’, 1 August was always the implementation day. Overall, markets will retain a bullish bias because, given events in April and May, markets will assume President Trump will eventually concede.

Yesterday revealed the following tariff updates: South Africa 30% (same as ‘Liberation Day’ (LD)), Malaysia 25% (24% LD), Kazakhstan 25% (27% LD), Laos 40% (48% LD), Myanmar 40% (44% LD), South Korea 25% (same as LD) and Japan 25% (24% LD). But negotiations and the 1 August deadline remain open.

Our event monitor signals the ‘Event Weights’ for tomorrow’s tariff announcements are higher for EUR/GBP and USD/CNH because these countries’ tariff deals are especially important. BoE and ECB events as well as German CPI on Thursday (Chart 1A) could influence EUR/GBP.

Tariffs could end up higher than markets expect. Trump still has an incentive to lower tariff rates (versus LD) to minimise the impact on inflation, which could delay Fed cuts. However, the S&P 500’s all-time high gives Trump more freedom to negotiate for concessions. However, Trump and Bessent will also watch long-end yields, with 30Y UST approaching 5% and USD swap spreads increasingly negative again. Here, we could be nearer their pain threshold.

Last Friday’s NFP and UR were stronger than markets expected. As a result, we have almost zero chance of a July Fed cut and September looks like a 25bp cut at most, if the economy does not weaken materially more. The jobs report was less strong than it appears and cyclical sectors’ growth was and remains weak (23k in June). But they are not breaking to the downside despite continued weakening. To get a 50bp cut in September and a meaningful STIR rally, cyclical sectors must go negative, -50k+ and UR higher by a few tenths. So far this is not the case. Lastly, aggregate weekly payrolls growth of private industries still suggests lower nominal GDP, but again no crash (Chart 1B).

We remain long SOFR Dec25 but are considering switching to SOFR in 2026. We also remain short 30Y UST and will watch tomorrow’s 10Y UST auction and Thursday’s 30Y auction.

Liang Ding – China

The PBoC’s daily fixing behaviour and official statement indicate it prefers managing USDCNY tightly rather than accepting a passive appreciation of RMB against USD due to USD’s weakness. The latest PBoC forward guidance for RMB removed strong language about forceful interventions. However, the phrase indicating a market-determined RMB, enhancing exchange rate flexibility’, which was in the guidance from Q1 2021 to Q1 2023 and Q3 2024, remains missing.

Since 2008, export recovery has helped the economy exit deflation, except for the current episode (Chart 3). Deflation returned in Q3 2023 (the same quarter the PBoC started de facto pegging RMB to USD). The peg was intended to prevent a 2015-16-style capital flight. However, currency pegging has slowed monetary easing, especially in real terms.

Q2 2025 data will show the economy has been in deflation for a ninth consecutive quarter. Even if historically, lower RMB exchange rates have not corresponded with higher inflation and stronger export growth, the lower exchange rate will improve corporate profits and support the job market. We remain neutral on USDCNY.

Not having resumed bond purchase is a setback for CGB market sentiment. Near term, we also expect volatility due to the intended reduction of production in sectors like EVs, solar panels and batteries, aiming to ease the deflationary pressure in downstream sectors. However, without a boost in demand, the impact of the supply reduction on final prices should be limited. Given the PBoC has highlighted ongoing deflationary pressures and maintained the phrase ‘lowering the overall financing cost’ in Q2’s Monetary Policy Committee minutes, we keep our long position in 10-year CGB unchanged.

Chart 2: GDP Deflator vs. Export Growth

Viresh Kanabar – Canada

Canada’s CPI and this Friday’s employment report are a must watch ahead of the 30 July BoC meeting.

In June, the BoC implicitly priortised CPI over employment due to their admission of a possible July cut in the event of two well-behaved inflation reports. This allowed the CAD rates market to mostly trade on US data in recent weeks.

However, Canada’s unemployment rate has increased by 40bp to 7% over the past three months. Outside of the pandemic, this is the highest since 2016. Moreover, the recent population update suggested almost no growth occurred in Q1 versus an LFS estimate of a 150k increase in the labour force.

How do we square the circle? In short, this likely means the LFS survey has overstated job gains in Q1 and Q2. So, employment levels have fallen this year rather than increased!

Another weak employment outturn (not our base case) will make it harder for the BoC to ignore the employment weakness as a byproduct of tariff uncertainty. Supporting a more hawkish BoC is the rebound in consumption due to the dissaving effect. In short, workers are spending from their savings buffer meaning spending is outpacing incomes.

For rates, we remain long CORZ5, though accept the market has gone against us. While a neutral outturn is unlikely to move markets much, we will see it as confirming the previous rise in the unemployment rate. In other words, no downward revisions to the unemployment rate confirm our view. This will set the rates market up well for a July cut in the event of an ‘in line’ CPI print later this month. Elsewhere, we still think dips in the belly should be bought as the 2s5s curve steepens near 50bp. This would take it nearer the 20-year average.

Viresh Kanabar – Commodities

Despite OPEC+ proceeding with a faster-than-expected 550k b/d increase in August, the oil price has since rallied towards $70/bbl.

This is unsurprising for three reasons.

1. The new barrels are not set to hit the market until August, meaning the impact on prompt is limited. Meanwhile, the prompt remains tight with the prompt Brent spread trading at $1.1.
2. The actual additional OPEC+ barrels have lagged the increase in the quota, leading to speculation that the impact of the OPEC+ increase will be limited.
3. Oil stocks remain low within the OECD and remain below the five-year average after a large decline in June.

However, caveats to consider:

First, while OECD stocks may be low, Chinese stocks have risen sharply. When adding the additional Chinese barrels to OECD stocks, global stocks are up on the year!

Second, while Chinese barrels are not considered ‘commercial’, the medium-term impact remains bearish. That is because elevated Chinese stocks today should lead to lower imports/crude loadings in coming weeks.

Third, with each successive month, the outlook for balances deteriorates. By August, the seasonal demand bump will be ending, and global stocks will begin rising sharply versus the historical average.

Surprisingly, the recent rally has not seen a washout in speculative positioning. Most metrics still show signs of ‘residual longs’, as CTAs shed at a slow pace, and ETF outflows remain measured.

Therefore, we maintain our bearish disposition despite the recent rally. We are look to short CLZ5Z6, which is trading near $1.

If balances loosen as we expect, we expect this spread to trade well into contango by October. The question is about timing.

Appendix: Trade Table

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs. You are not permitted to publish, transmit, or otherwise reproduce this information, in whole or in part, in any format to any third party without the express written consent of Macro Hive. This includes providing or reproducing this information, in whole or in part, as a prompt.)