Good morning
President Trump has said there will be greater certainty about tariffs in 90 days, and that the first deal on tariffs is close. It will be crucial to see if the deal could help remove the 10% blanket tariff. However, Trump’s tariff relief has proved to be short-lived for equity markets, as they had resumed their decline, dropping between 3.5-4.5% throughout yesterday’s session, likely driven by worries about the negative impact of tariffs on global growth. Brent prices have also declined to $63.1/bbl on the back of global growth concerns, while gold prices have stayed resilient close to record highs above $3,200.
US inflation slowed to 2.4%y/y in March, from 2.8%y/y in February. This was lower than market expectation of 2.5%y/y. Core CPI inflation (ex-food and energy) moderated to 2.8%yoy from 3.1% in February. Lower energy and core services inflation were the main drag. On a sequential basis, US headline CPI fell 0.1%m/m, while core inflation was 0.1%m/m, easing from 0.2% in the prior month. Short-term US treasury yields fell, while there’s little change at the far-end, leading to a bull-steepening in the Treasury bond market.
Meanwhile, US initial jobless claims rose 4k to 223k, staying at a historically low level. However, the layoffs done by DOGE have been slow to appear in the data.
The US dollar eased around 0.7% in Asian trade to 100.50. Looking ahead, the dollar could remain vulnerable as concerns around the US economic outlook intensify and confidence in USD-assets continues to erode. Yesterday, the Fed’s Goolsbee and Logan were out cautioning that tariffs could have lasting inflation impact. Hence, analysts still see no signs that the Fed is about to deliver a pivot.
EUR/USD edged higher toward 1.1300 at 1.1275, now trading above levels seen just after 'Liberation Day' - despite front-end US yields having almost fully retraced the April 2nd decline following Trump's reversal on reciprocal tariffs. This divergence could suggest that markets are beginning to diversify away from US assets, as confidence in USD-denominated assets has been undermined by growing policy unpredictability - resulting in a rare combination of lower US equities, a broadly weaker dollar, and higher long-end yields.
The ECB has now entered its blackout period ahead of next week's meeting. Hence, Lagarde's speech today will not include any policy signals. Analysts expect the ECB to cut by 25bp next week and emphasize the downside risk to growth associated with tariffs.
BoE Deputy Governor Sarah Breeden said the implications for interest rates are unclear from tariffs but are likely to lower UK growth. She added there had been a significant global shift since the Monetary Policy Committee's last meeting in March - when it kept borrowing costs on hold - and the latest developments had a material impact on the economic outlook and risks. The chance of a 25bp cut at the BoE's next scheduled meeting on monetary policy in May was seen at about 84% on Thursday, according to rates futures pricing.
GBP/USD is trading 0.2% higher around $1.3000 following better than expected UK data. GDP expanded 0.5%m/m in Feb and above consensus of 0.1%m/m while both monthly industrial and manufacturing production jumped by 1.5% and 2.2% respectively also above expectations.
USD/JPY has also continued to weaken to around 143.47, with the yen benefitting from safe-haven flows and narrowing yield spreads with the US.
The Chinese yuan’s onshore USD/CNY pair rose 0.1% overnight to 7.3199 after falling sharply from an over 17-year high. USD/CNH pair steadied around 7.3238 after racing to record highs earlier in April. The PBOC unexpectedly set a stronger yuan midpoint fix on Friday after six straight sessions of weaker fixes, reflecting some discomfort in Beijing with persistent yuan weakness.
Broader Asian currencies all came under renewed selling pressure amid escalating trade war tensions, the Taiwan dollar’s USD/TWD pair rose 0.6% to 32.765, while the Indian rupee’s USD/INR pair added 0.2% to 86.058. AUD/USD was somewhat of an outlier rallying 1.5% to $0.6200 in an extended rebound from COVID-era lows hit earlier this week.
