ZeroHedge News
Open Reign Of Tariffs Begins: Futures Crash, Dollar CratersReign Of Tariffs Begins: Futures Crash, Dollar Craters
Well, Trump's "liberation day" is here... and it has liberated countless traders of their net worth and risk assets: the market's reaction to Trump's newly-instituted "much worse than expected" reign of tariffs is nothing short of a bloodbath, with a global selloff hitting stock markets everywhere but especially in the US where conventional wisdom, at least early on, is that the recession will be worst. As of 8:00am ET, S&P futures are down 3.5%, while Nasdaq futures tumble 4%, but should really be down more: Pre-market, AAPL (-7.5%), AMZN (-5.6%) and TSLA (-4.6%) are among the worst performing stocks within Mag 7, which is red across the board. As Trump unveiled yesterday (after the close), all US imports will have a minimum 10% tariff, with additional duties for big trading partners. China faces a tariff of well above 50% on many goods; the EU is subjected to a 20% levy. Bond yields crash in anticipation of a looming recession, down 4-10bp lower across the board, the Bloomberg US Dollar index is down -1.6%, set for its biggest drop . Commodities are all also sharply lower: WTI -3.9%, silver -3.4%, even gold is back under $3000. On today's calendar we get initial and con continuing jobless claims as well as the latest ISM Services data.
Roughly $1.7 trillion is set to be erased from the S&P 500 Index when trading opens Thursday amid worries that the sweeping tariffs could plunge the economy into a recession. The damage was heaviest in companies whose supply chains are most dependent on overseas manufacturing. Apple, which makes the majority of its US-sold devices in China, is on track to open down 7.7%. Lululemon Athletica and Nike among companies with manufacturing ties to Vietnam, are down at least 9%. Walmart Inc. and Dollar Tree Inc., retailers whose stores are filled with products sourced outside of the US, are trading at least 4% lower.
In premarket trading, Apple is the biggest laggard among the Mag7 as the iPhone maker is one of the firms most exposed to tariff risk given China is a key manufacturing hub (Apple -7.2%, Amazon -6.3%, Nvidia -5.5%, Tesla -5.9%, Meta -4.7%, Alphabet -3.0%, Microsoft -2.7%). In general, stocks linked to global trade and the health of the economy are sliding after President Donald Trump announced a minimum 10% tariff on all exporters to the US and additional duties on about 60 nations with large trade imbalances with the US.
Tech: Broadcom (AVGO) -6.2%, Micron (MU) -6.6%, Dell (DELL) -8.4%, HP Inc. (HPQ) -7.0%
Automakers: General Motors (GM) -2.4%, Ford (F) -2.3%, Rivian (RIVN) -5.3%, Lucid (LCID) -5.4%
Financials: JPMorgan (JPM) -3.8%, Bank of America (BAC) -3.9%, Wells Fargo (WFC) -4.5%, Morgan Stanley (MS) -4.8%, Goldman Sachs (GS) -4.6%, Citigroup (C) -4.5%; crypto stocks also slide
Consumer: Walmart (WMT) -4.7%, Target (TGT) 5.5% , Nike (NKE) -9.9%, Skechers (SKX) -12%, Deckers Outdoor (DECK) -12%, On Holding (ONON) -15%, JetBlue (JBLU) -4.8%, Carnival (CCL) -6.3%, DraftKings (DKNG) -5.9%
US-listed Chinese stocks: Alibaba (BABA) -3.1%, Baidu (BIDU) -2.9%, PDD (PDD) -5.3%, JD.com (JD) -4.6%
Here are some other notable premarket movers:
Lyft Inc. (LYFT) falls 11% after Bank of America downgraded the ride-sharing company by two notches to underperform, citing reasons that include Waymo’s rapid expansion in San Francisco and Los Angeles.
RH (RH) tumbles 28% after the luxury home furnishing company’s annual revenue growth forecast trailed Wall Street expectations. Analysts note that new round of tariffs add “significantly more uncertainty.”
Here are the key sectors in focus this morning:
Tech and Chips
Apple, which counts China as a key manufacturing hub, led the Mag 7 group lower. Among other Mag 7 movers: Amazon -5.1%, Meta -3.2%
Chipmakers were broadly lower; Nvidia is down 3.2% while Broadcom and Micron also slip.
Automakers, Industrials, Transport
Tariffs threaten to add thousands to car prices, and steep tariffs on the sector are already set to go into effect Thursday morning. EV-makers moving lower: Tesla -3.7%, Rivian -3%
Industrial behemoths slip in postmarket trading as tariff risks may hurt companies with global supply chains. Watch: Caterpillar, Dover, General Electric, Lockheed Martin, Boeing, RTX and Eaton.
Financials
Big banks trade lower and the SPDR S&P Regional Banking ETF falls 4.4%
Consumer
Watch apparel stocks as tariffs on countries like Vietnam and Indonesia are poised to rattle the global shoe and clothing supply chain.
Travel and leisure stocks are down on fears tariffs will raise prices for consumers and curb discretionary spending.
Retailers — many of which source goods from China — are also falling, including Walmart -5.8% and Target -5.2%
Homebuilding
From lumber to steel to building supplies, home construction is highly exposed to tariffs; Watch the ETF (XHB US) that tracks homebuilder and home improvement stocks and its members: Williams-Sonoma, Dream Finders Homes, Builders FirstSource.
Chinese Companies
US-listed shares of Chinese companies decline, including Alibaba -2.7%
Fears about growth and inflation are front of mind, while investors are also dealing with a new level of risk related to volatility and positioning. UBS economists said that real GDP could be hit by 1.5-2 percentage points in 2025, while inflation could rise to close to 5% if tariffs are not reversed soon. RBC strategist Lori Calvasina, meanwhile, cautioned that a “growth scare drawdown” is likely if the S&P falls meaningfully below its mid-March low. In other US assets, Treasury yields slumped while the dollar also fell. Apple and Nike — which rely on global supply chains — are both down more than 6% premarket.
While the jury is still out on the final outcome of Trump's "reign of tariffs", which came in far more sever than expected, one thing is emerging: for now, Trump's shake-up of the global trading system is hurting US assets more than those in many of the big economies he has just slapped with additional tariffs. As noted above, US index futures tumbled as much as 4% after and the dollar cratered, while the impact elsewhere was less extreme. The Stoxx Europe 600 was down 1.9% and a broad gauge of Asian stocks fell as much as 1.7%; while the euro was up 2.2% against the dollar, hitting its highest level since October in what was its biggest one-day jump in a decade. The yen likewise soared.
The tariff announcement has put more pressure on a US stock market that had already floundered this year, as investors braced for Trump’s policies to stir up inflation and raise the odds of a recession in the world’s largest economy. The S&P 500 was down 3.6% this year before the tariff announcement, while the Nasdaq 100 had shed about 7%. The Magnificent Seven tech stocks have also tumbled. By contrast, Germany’s DAX is up 10% in 2025.
“We aren’t buying the dip in the US,” said Aneeka Gupta, head of macroeconomic research at Wisdom Tree UK Ltd. “Investors are turning toward income as a source of refuge in these times of uncertainty as they wait and watch how countries essentially come back with their countermeasures.”
The widespread selloff in global markets makes clear that investors don’t expect any winners from the latest - and by the far the largest - salvo in a growing trade war. But they also suggest the US itself might be one of the biggest victims of Trump’s protectionist policies.
“Global asset allocators will be looking at the US in a very different way,” Neil Birrell, chief investment officer at Premier Miton Investors, said by phone. “Would international investors sell the US as a result of this and start moving money? Yes, they probably will.”
Meanwhile, the dollar headed for its worst day in over two years...
... as traders prepared for the economic impact. The Japanese yen gained 1.9% against the greenback, and Treasury 10-year yields hit their lowest level since October, further weighing on the greenback. The Euro meanwhile enjoyed its best 1 day against the dollar in the last decade: only the 3.1% surge in Dec 2015 was bigger.
“The aggravation of US growth concerns on the tariff news and related further falls in US stocks has meant that the dollar isn’t enjoying its traditional safe-haven, reserve currency status support,” said Ray Attrill, head of foreign-exchange strategy at National Australia Bank Ltd.
The Stoxx 600 falls 1.6% to the lowest since the end of January after Trump announced the steepest American tariffs in a century, including a 20% rate for the European Union, which said it will retaliate. Most sectors are sliding, with real estate and utilities among the rare gainers. Consumer products, banks and technology are the worst hit sectors. Here are the biggest movers Thursday:
Most European sectors are under pressure following Trump’s tariff announcement. Banks, tech, industrials and commodity-linked sectors are the worst performers, while those that offer defensive charecteristics, such as utilities and real estate, are outperforming
European medical technology and healthcare services stocks drop after Trump said he will apply at least a 10% tariff on all exporters to the US, with even higher duties on some 60 nations
European luxury stocks slide after Trump unveiled a 20% tariff on EU imports and a 31% rate on Switzerland. Companies that make goods in the US and EU, like LVMH, could see less of an earnings hit, according to analysts
Logitech shares sink as much as 12%, the most in over a year, hit by escalating trade tensions from the US. The computer peripherals firm is seen more sensitive to higher tariffs as it generates bulk of sales from the US and owns production facilities in China
Diageo shares rise as much as 3.1%, leading gains for European distillers, as analysts say the US tariffs announcement avoided the worst-case scenario for the sector
South Africa’s key stock index drops as much as 2.6%, the most since August, as new US tarrifs weigh on global markets. A deepening dispute in the nation’s ruling coalition over proposed tax increases also hit the sentiment
Roche shares drop as much as 2.9%, lagging behind European pharma peers, after the company said a high-dose version of its best-selling multiple sclerosis drug Ocrevus failed to outperform the original in a large study
LPP drops as much as 7.7% after Poland’s biggest fashion retailer reported 4Q earnings missing estimates and confirmed an ambitious store opening plan that is seen by analysts as a profitability risk.
Earlier in the session, Asian stocks also tumbled:
Japan's Nikkei 225 suffered heavy losses with the index firmly beneath the 35,000 level after the US announced 24% tariffs for Japan, while notable losses were seen in the financial sector and automakers were also hit by the 25% auto tariffs.
Hang Seng and Shanghai Comp were pressured after US President Trump imposed a 34% tariff on China, on top of the existing 20% tariffs, for a total 54% tariff rate which saw the Hong Kong benchmark conform to the broad selling in the Asia-Pac region although the mainland initially showed some resilience with downside somewhat cushioned after stronger-than-expected Chinese Caixin Services PMI data.
Australia's ASX 200 declined with the index dragged lower by underperformance in tech and energy, while there were comments from Australian PM Albanese who said they will not impose reciprocal tariffs and will continue to make the case for these unjustified tariffs to be removed from exporters.
In FX, the Bloomberg Dollar Spot Index drops 1.7%, on course for its largest intraday fall since November 2022. The Swedish krona is leading gains against the greenback, rising 2.4%. The Japanese yen and Swiss franc are not far behind.
In rates, treasuries rally, pushing US 10-year yields down 7 bps to 4.06%. European bonds also gain, led by the short-end as traders boost bets on interest rate cuts by both the European Central Bank and Bank of England.
In commodities, WTI drops 3.9% to below $69 a barrel. Spot gold declines 50 to around $3,091/oz. Bitcoin falls 3% to below $83,000
Looking to the day ahead now, focus within a busy economic release schedule will likely center on March ISM Services at 10am ET, seen easing to 52.9, from 53.5. Other releases include Challenger job cuts report for March at 7.30am ET, Trade balance for Feb. at 8.30am ET and US weekly jobless claims at 8.30am ET. Central bank speakers include Fed’s Jefferson and Cook's speech and the ECB’s account of the March meeting. NATO’s foreign ministers are also set to meet today until April 4.
Market Snapshot
S&P 500 mini -3.2%
Nasdaq 100 mini -3.8%
Russell 2000 mini -4.4%
Stoxx Europe 600 -1.5%
DAX -1.7%
CAC 40 -2.1%
10-year Treasury yield -5 basis points at 4.08%
VIX +3.9 points at 25.45
Bloomberg Dollar Index -1.3% at 1254.51
euro +1.5% at $1.1018
WTI crude -3.3% at $69.35/barrel
Top Overnight News
Apple shares slumped premarket on the tariffs announcement despite efforts to insulate its supply chains. Other major tech stocks including Nvidia, Meta, Tesla and Alphabet also declined. Nike, Adidas and Puma plunged given their reliance on Vietnamese manufacturing. BBG
Here’s what the White House and its crack team of trade investigators seems to have done: Take the US’s goods trade deficit with any particular country, and divide it by the total amount of goods imported from that country. Cut that percentage in half, and there’s the US’s “reciprocal” tariff rate. FT
US President Trump reiterated that tax cuts will be passed in one big beautiful bill in Congress, while he added they need to get permanent tax cuts.
US President Trump posted on Truth Social that "Speaker of the House Mike Johnson and Senate Majority Leader John Thune have been working tirelessly on taking the next step to pass the plan for our ONE, BIG, BEAUTIFUL BILL, as it is known, as well as getting us closer to the Debt Extension necessary to continue our great work. The Senate Budget plan gives us the tools that we need to get our shared priorities done, including certain PERMANENT Tax Cuts, Spending Cuts, Energy, Historic Investments in Defense, Border, and much more. We are going to cut Spending, and right-size the Budget back to where it should be. The Senate Plan has my Complete and Total Support. Likewise, the House is working along the same lines. Every Republican, House and Senate, must UNIFY. We need to pass it IMMEDIATELY!"
In the immediate aftermath of Trump’s tariff announcement, confusion reigned even among some White House officials about what rate the approximately $440 billion in Chinese imports would face. Policy experts were perplexed, too. Barron’s
Fed Governor Kugler said the latest data indicates progress towards the 2% inflation target may have stalled and she supports keeping the current policy rate in place as long as upside risks to inflation continue, given stable activity and employment. Furthermore, she stated that inflation expectations have risen and upcoming policy changes hold upside risk, as well as noted that there may be reasons why tariffs have more prolonged effects.
Goldman's bottom line on Tariff Announcements: The “reciprocal” tariff policy President Trump announced would impose a weighted average tariff rate of 18.3%, around 3pp higher than we expected. However, roughly 1/3 of total imports would be exempt, which reduces the impact to a 12.6pp increase in the effective tariff rate. We estimate this and other tariffs announced year-to-date would raise the US effective tariff rate by 18.8pp. While we assume that negotiations with trading partners will lead to somewhat lower “reciprocal” rates than announced today, the prospect for escalation following retaliatory tariffs and a high probability of further sectoral tariffs suggests a risk that the US effective tariff rate rises more than the 15pp increase we assume in our economic forecast. GIR
China’s Ministry of Commerce held a briefing at 3pm today, just hours after US President Donald Trump declared a trade war with the world. The action includes a further 34 per cent tariffs on imports from China, raising American tariffs on China to 54 per cent. In a statement on Thursday morning, the ministry accused the US of “typical unilateral bullying” and vowed to take resolute countermeasures. It also said Beijing would urge Washington to remove the tariffs and solve disputes through dialogue. SMCI
China’s Caixin services PMI came in ahead of expectations at 51.9, up from 51.4 in Feb and above the consensus forecast of 51.5. WSJ
The BOJ’s policy normalization course has been thrown into doubt because of the risk of a domestic recession spurred by US tariffs, economists said. “This was beyond our worst case scenario.” BBG
The EU has given itself a 4 week window to convince Trump to drop his 20% on the block, with retaliation ruled out before late April. FT
Senate votes 51-48 to reject Trump’s Canadian tariffs as four Republicans (Collins, McConnell, Murkowski, and Paul) joined with the Dems (this vote is symbolic and won’t have any actual impact on policy, but it does send a small message of displeasure to the White House). Politico
A more detailed look at global markets courtesy of Newsquawk
APAC stocks mostly tumbled in the aftermath of the 'Liberation Day' tariff announcements in which US President Trump unveiled reciprocal tariffs which were mostly set at around half of the rate that individual countries were charging the US with the actual baseline at 10%, while he also announced 25% auto tariffs. ASX 200 declined with the index dragged lower by underperformance in tech and energy, while there were comments from Australian PM Albanese who said they will not impose reciprocal tariffs and will continue to make the case for these unjustified tariffs to be removed from exporters. Nikkei 225 suffered heavy losses with the index firmly beneath the 35,000 level after the US announced 24% tariffs for Japan, while notable losses were seen in the financial sector and automakers were also hit by the 25% auto tariffs. Hang Seng and Shanghai Comp were pressured after US President Trump imposed a 34% tariff on China, on top of the existing 20% tariffs, for a total 54% tariff rate which saw the Hong Kong benchmark conform to the broad selling in the Asia-Pac region although the mainland initially showed some resilience with downside somewhat cushioned after stronger-than-expected Chinese Caixin Services PMI data.
Top Asian News
Japanese RENGO trade union third-round data: average wage increase 5.42% for fiscal 2025 vs. 5.40% in the second-round.
European bourses (STOXX 600 -1.2%) are entirely and markedly in the red in the fallout of US President Trump’s “Liberation Day”, where the reciprocal tariff announcement was viewed as worse than feared. Wedbush writes that the levies are a “worst case scenario” for Wall Street. European sectors are mostly lower and holds a clear negative bias, in-fitting with the risk tone. Healthcare is modestly in the green owing to the defensive risk tone and as the pharmaceutical industry avoided reciprocal tariffs (for now). Consumer Products is underperforming today, given the losses in the Luxury sector as trader’s brace themselves for the hefty tariffs set on China.
Top European News
BoE Decision Maker Panel survey: firms 1-year ahead own price inflation expected at 3.9% (prev. 4.0%) in the three-month period to March.
Fixed Income
USTs are bid given the US tariff announcement where the initial relief on reporting around a 10% baseline gave way to marked risk-off as the reciprocal levels were announced. In brief the average US effective tariff rate is (once the measures are implemented) around 23% from around 10%. Further insight into Trump’s tariffs and how the administration feels about the initial comments/responses to the measures from various nations may be provided VP Vance and Commerce Secretary Lutnick who are due to speak from around 13:00BST. US Challenger Layoffs, Jobless Claims and ISM Services are scheduled.
Hit a 112-24+ peak in the hour after Trump’s speech, at best the benchmark posted gains of around 40 ticks and the 10yr yield hit a 4.04% low, a base which takes us back to November 2024 when the yield was below the 4.0% handle.
Bunds peaked at 129.94 after Trump’s tariff announcement. A high that takes Bunds around half of the way back to the pre-fiscal change levels. With, as a function of the move lower on fiscal reform, the next chronological resistance point someway off at 132.04. While Bunds peaked at 129.94 and are in the green, they have been pulling back gradually throughout the morning. A pullback which is likely a function of European bourses picking up off worst levels in the morning, though still well into the red, and potentially as the knee-jerk move on growth concerns/general risk is tempered by inflationary concerns.
Gilts are firmer albeit to a lesser degree vs peers. UK benefits as a function of leaving the EU, with the nation subject to just the 10% baseline tariff, for now at least. Nonetheless, the benchmark gapped higher by 58 ticks and then extended by another 41 to a 93.14 peak. Stopping just shy of a cluster between 93.33-79 from early-March.
Spain sells EUR 6.24bln vs exp. EUR 5.5-6.5bln 2.40% 2028, 3.10% 2031 & 3.90% 2039 Bono and EUR 0.6bln vs exp. EUR 0.25-0.75bln 1.00% 2030 I/L.
France sells EUR 12bln vs exp. EUR 10-12bln 3.50% 2033, 3.20% 2035, 3.75% 2056 OAT.
UK sells GBP 3.25bln 4.375% 2040 Gilt: b/c 2.58x (prev. 2.89x), tail 0.9bps (prev. 0.6bps), average yield 4.917% (prev. 4.836%).
Commodities
Crude is significantly lower, with Brent Jun'25 down by around USD 2.50/bbl, as the complex is swept away by the negative risk-tone following US President Trump's tariff announcement. Pressure since the European morning has continued and the benchmarks currently reside near lows.
Spot gold climbed to a fresh record high of USD 3,167.74/oz in reaction to the tariff turmoil owning to its haven status. The European morning thus far has seen a slight unwind of that upside, and is now off by around USD 10.50/oz in a USD 3,116.55-3,167.74/oz range. As a reminder, US President Trump's tariff order exempts gold, according to Reuters citing a White House fact sheet.
Base metals are entirely in the red, in-fitting with the risk tone. On the trade front, Trump excluded steel, aluminium, and gold from reciprocal tariffs, providing some relief to domestic buyers who are already paying 25% duties on these key metals used in industries like automobiles and appliances.
Kazakhstan supplied 150k/T of oil to Germany via the Druzhba pipeline in March (100k/T in February), via Ifx.
Geopolitics
US Treasury Secretary Bessent said the Ukraine deal is coming up and a team from Ukraine may be coming over as soon as this week, while he added that they could see more Iran sanctions
US Event Calendar
7:30 am: Mar Challenger Job Cuts YoY 204.8%, prior 103.2%
8:30 am: Feb Trade Balance, est. -123.5b, prior -131.38b
8:30 am: Mar 29 Initial Jobless Claims, est. 225k, prior 224k
Mar 22 Continuing Claims, est. 1870k, prior 1856k
9:45 am: Mar F S&P Global U.S. Services PMI, est. 54.2, prior 54.3
Mar F S&P Global U.S. Composite PMI, est. 53.45, prior 53.5
10:00 am: Mar ISM Services Index, est. 52.9, prior 53.5
DB's Jim Reid concludes the overnight wrap
I'm off on holiday for a couple of weeks from this afternoon. I think trying to work through the deluge of very confusing and bespoke tariffs headlines overnight is enough alone to justify the break. You'll be in the very safe hands of Henry Allen and Peter Sidorov while I'm away and last night Peter has been a great help interpreting all these once in a lifetime headlines coming out of the US. It has been a truely remarkable last 8 hours or so.
So one last attempt to navigate all the headlines before I have a lie down. In short the tariffs put in place last night were extraordinary both in terms of scale and in how they were calculated, with President Trump announcing reciprocal tariffs under the Internation Emergency Economic Powers Act (IEEPA) as he declared a national emergency over the trade deficit.
Our US economists will need to work through the full implications but their initial read is that if implemented this could easily knock around 1 to 1.5% off US growth this year while adding a similar amount to core PCE. See their brief comments here. So although the impact will be large in many places, the US will see a significant impact too.
In terms of the details, countries will face a minimum tariff of 10%, with much higher rates for many major trading partners. Some of the tariff rates appeared broadly in line with expectations, such as the 20% on the EU and 10% on the UK, but with higher than anticipated rates on most Asian economies, ranging from 24% on Japan to 46% on Vietnam. And in China’s case, a reciprocal tariff of 34% comes on top of a 20% increase in tariffs announced earlier this year. Our US economists estimate that the average tariff rate on US imports could now rise into the 25-30% range, a level clearly on the worst end of expectations. As shown in our CoTD yesterday (link here), that would be in line with levels at the very start of the 20th century.
As this morning has evolved, it has became clear that the scaling of the reciprocal tariffs used a simple formula based on the size of a country’s relative goods trade surplus with the US, with the 10% minimum for countries that run a trade deficit with the US. Quite an extraordinary calculation after months of work behind the scenes. The 10% baseline tariff is due to take effect from Saturday, with higher individual rates effective next Wednesday (April 9). Overall, the size of the tariffs added to the sense of a push for a radical policy reordering by the new US administration, which was strongly hinted at in the recent Lutnick/Bessent podcasts which we summarised here, but didn’t add much confidence on there being an in-depth strategic implementation plan.
The reciprocal tariff plans do contain several exemptions. Trade with Canada and Mexico has been excluded for the time being, though a part of this already faces a 25% tariff over the fentanyl and migration emergency announced under IEEPA. Critical minerals and gold/bullion, pharmaceuticals, semiconductors, lumber and copper are also outside of the scope of the reciprocal tariffs, but these are under separate sectoral trade investigations, while steel & aluminium and auto imports will still face 25% tariffs as recently announced. Trump’s comments did leave the door open for potential negotiations to lower tariffs but his executive order also left room for further escalation, saying that the President may further “increase or expand in scope the duties imposed” should any trading partners retaliate. So watch out for these headlines.
In other related news last night, the Senate voted 51-48 to pass a resolution against Trump’s IEEPA tariffs against Canada, with four Republican senators joining all Democrats on the vote. With the Republican leadership having set up a procedural obstacle to a similar vote being forced in the House, this Senate vote has little practical meaning, but it’s an interesting test of the support for Trump’s economic policies, not least with fiscal negotiations expected in the coming weeks.
Markets have seen a strong risk-off reaction to the tariff announcement, with S&P futures down -2.65%, which would bring the index back into correction territory if it materializes in the regular session today. NASDAQ futures are -3.18%. In Europe, STOXX 50 futures are down -1.64%. For bonds, 10yr Treasury yields are -7.75bps lower to a new four-month low of 4.05%, following a -3.7bps decline yesterday. This rally comes even as at the US 1yr inflation swap is trading at new two-and-a-half-year high of 3.45% (+5.3bps overnight after +14.6bps yesterday). Brent crude is -2.13% lower overnight, while gold is +0.48% higher after a +0.67% rise to a record close of $3134/oz yesterday. And in the currency space, the dollar is -0.72% weaker after a -0.43% slide yesterday. Our FX strategists see questions over the policy credibility of the US administration as supporting their bullish EURUSD view.
Asian equity markets are slumping with the Vietnamese stock market down -6.25% given they've faced the brunt of the tariffs. Elsewhere the Nikkei (-3.18%) is hitting its lowest level in almost eight months but was more than four percent lower earlier. China risk is holding in better with the Hang Seng (-1.58%) and the Shanghai Composite (-0.51%) down but not slumping. Meanwhile, the KOSPI (-0.80%) and the S&P/ASX 200 (-0.93%) are lower. Sovereign bonds are climbing across the board with yields on the 10yr JGBs (-12.6bps) and Aussie bonds (-15.1bps) seeing extraordinary moves.
In FX, the Japanese yen has strengthened +1.13% to trade at a three-week high of 147.59 against the dollar. The Chinese onshore yuan has fallen to its weakest since February 13, trading at 7.2982 per dollar while tracking its offshore counterpart, which bottomed at a two-month low earlier in the session. Meanwhile, the PBOC set the yuan’s reference exchange rate stronger than expected at 7.1889 per dollar, 735 pips stronger than the average estimate in a Bloomberg survey thus indicating the central bank desire to maintain currency stability despite the trade tensions. Our Asian FX colleagues have just put out a note looking at the implications. Please see it here.
In the parallel universe of life before last night's blitz, US markets actually put in a solid performance yesterday, with the S&P 500 (+0.67%) posting a third consecutive advance. The S&P had been -1.09% down early on so all of these past three days have followed the same slump then recovery pattern. Both the NASDAQ (+0.87%) and the small cap Russell 2000 (+1.65%) outperformed as cyclical stocks advanced. And the Mag-7 were up +0.99%, led by a +5.33% rise for Tesla. Tesla had initially fallen by as much as -6.40% after its Q1 results showed 336,681 deliveries (vs. 390,343 estimates), its lowest car sales since Q2 2022. However, the share price moved higher after Politico reported that Trump was reportedly saying Musk will soon “leave” the White House, even if the extent of what that actually means is still unclear, with denials of this story seen later.
Yesterday’s turnaround in equities came as investors hoped that the worst case tariff scenarios would be avoided, not least given Treasury Secretary Bessent’s reported comments to lawmakers that the tariffs were a “cap” that could be negotiated downwards. Bessent repeated this sentiment publicly last night, saying “This is the high end of the number barring retaliation”. So the market was too optimistic on this yesterday.
Yesterday's optimism also got a boost from solid economic releases with ADP’s report of private payrolls coming in at +155k in March (vs. +120k expected). So that was an upside surprise ahead of tomorrow’s jobs report. In addition, factory orders were up +0.6% (vs. +0.5% expected).
In Europe, the STOXX 600 fell -0.50%, though it pared back its initial losses following a Bloomberg report that the EU was preparing a package of emergency measures to support sectors that will be hit hardest by the US tariffs. So that was considered to be positive if the retaliation ended up being via fiscal policy rather than tariffs. Nevertheless, defence and healthcare stocks were among the worst performers, including Rheinmetall (-4.21%) as the worst performer in the DAX (-0.66%).
In other geopolitical news yesterday, the Washington Post reported that White House is studying how much it would take to buy Greenland. Iran’s Foreign Minister has also said that the country is ready to begin indirect negotiations with the US over Iran’s nuclear program. This comes as US Treasury Bessent is pushing for some of the world’s biggest banks to help the Trump administration ratchet up economic pressure on Iran.
To the day ahead now, we’ll get data releases including US March ISM services, February trade balance, initial jobless claims, China March Caixin services PMI, Italy March services PMI, Eurozone February PPI, and Switzerland March CPI. Central bank speakers include Fed’s Jefferson and Cook's speech and the ECB’s account of the March meeting. NATO’s foreign ministers are also set to meet today until April 4.
Tyler Durden
Thu, 04/03/2025 - 08:21