The TACO Trade Stages a Revival With a "Framework of a Future Deal"

Did we just witness another version of the April 2nd Liberation Day reversal?

Key Takeaways

• Relief Rally Extends as “Iceland” Fears Melt: President Trump has called off European tariffs on Greenland, citing a “framework of a future deal” that will involve mineral rights and missile defense, which triggered a sharp bounce-back in world equity markets that has extended into the overnight trade.

• Yields Lower and JGBs Steady: Bond markets have a bid as well, with 10-year yields slipping by around -3 basis points in Europe and by -4 basis points in Japan as calm returns to the JGB market, while steadying in the U.S., at 4.24%. The next key tests for the Japanese bond market will be the BoJ meeting this Friday and next week’s 40-year JGB auction.

• Australian Dollar Surges After Employment Data: The big winner in the FX sweepstakes today has been the Australian dollar, which has ripped by +0.7% to a 16-month high of 68.10 cents (U.S.) on the back of renewed positive employment data (jobless rate down to 4.1% in December from 4.3%) that doubled market expectations for an RBA rate hike next month to nearly 60% from what was a sub-30% probability before the data release.