All reciprocal tariffs now in effect, Tariff uncertainty dominates theme as bond market becomes irratic

Notes/observations

- Volatility stays at historically high levels as Trump’s increased reciprocal tariff on China at 104% comes into effect. All other tariffs announced on April 2nd (Liberation Day) also come into effect. Next chapter in Trump’s playbook looks to be on pharmaceutical sector with ‘major’ tariff coming ‘soon’. Healthcare stocks underperforming globally in anticipation.

- Risk off flows resumed during NY session yesterday as Trump confirmed China would get the additional 50% tariff. Markets continued bearish sentiment across Asia and Europe until China released a White Paper on US-China trade relations this morning, which spurred a touch of risk on into US equities due to lack of real immediate action, calming fears. Worth noting the rhetoric in the paper is unchanged and China still plans to ‘fight to very end’.

- Bond market is extremely turbulent. Specifically, the swings in US treasuries are alarming. Some analysts note the move can only be attributed to major player influence, such as China selling US bonds (potentially part of strategy against Trump). US 10-year yield, which was below 4% at beginning of week, touched 4.5%, currently 4.34%. Yields across world experiencing similar volatility, with Japan 40-year at highest since bond was launched in 2007.

- Economic data is well on the back burner, with only notable release being US Mar CPI tomorrow.

- Asia closed mostly lower with Nikkei225 underperforming -3.8%. EU indices -2.2% to -4.2%. US futures -0.1% to +0.7%. Gold +2.0%, DXY -0.6%; Commodity: Brent -2.9%, WTI -3.0%; Crypto: BTC -1.9%, ETH -5.5%.

Asia

- New Zealand Central Bank (RBNZ) cut the Official Cash Rate (OCR) by 25bps to 3.50% (as expected).

- India Central Bank (RBI) cut the Repurchase Rate by 25bps to 6.00% (as expected) for its 2nd straight under the current easing cycle. Change the stance from neutral to accommodative.

- BOJ Gov Ueda reiterated BOJ policy aimed to achieve price target. Would conduct policy appropriately in line with outlook and tariffs.

- Japan Fin Min Kato stated that Japan would not sell US Treasury holdings, just from standpoint of US-Japan relations.

Europe

- BOE’s Lombardelli noted tariffs likely to depress activity in the UK; CPI impact of tariffs would depend on other countries' action.

Americas

**Note: US tariffs officially took effect from midnight US time, China with a 104% levy.

- President Trump stated that had a lot of countries wanting to make a deal; US 'making a fortune' with tariffs, $2.0B per day; affirmed China is paying a 104% tariff. China was manipulating their currency to offset tariffs; going to announce major tariff on pharma soon; believed China would make a deal at some point

Energy:- Weekly API Crude Oil Inventories: -1.1M v +6.0M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -2.6% at 474, FTSE -2.3% at 7731, DAX -2.4% at 19782, CAC-40 -2.1% at 6939, IBEX-35 -1.9% at 11835, FTSE MIB -2.1% at 3226, SMI -4.0% at 10923, S&P 500 Futures +0.1%].

Market Focal Points/Key Themes: European indices opened lower across the board and remained under pressure through the early part of the session; risk aversion returns as tariffs go into effect; all sectors in the red, with less negatives including communication services and materials; among sector leading to the downside are health care and energy; oil & gas subsector under pressure after Brent approached $60/bbl; Assura rejects offer from PHP and accepts offer from KKR-backed bid; focus on FOMC minutes coming out later in the day; earnings expected in the upcoming US session include Delta Airlines and Constellation Brands.

Equities

- Consumer discretionary: Volkswagen [VOW3.DE] -1.5% (delivery figures), Hermes [RMS.FR] -1.5% (analyst upgrade).

- Industrials: Thyssenkrupp [TKA.DE] -4.0%, Salzgitter [SZG.DE] -3.5% (reportedly EU Commission proposes counter-tariffs on range of US imports at 25% in response to US steel duties, said will take effect May 16th).

- Technology: Castellum [CAST.SE] -3.0% (CEO steps down).

- Real Estate: Assura [AGR.UK] +5.5% (Agrees to recommended cash acquisition by Sana Bidco at 49.4p/shr, valuing firm at £1.61B; Rejects revised offer from PHP at 0.3848 new PHP shares an 9.08p in cash).

Speakers

- ECB said to believe that growth in the region to take a bigger hit from Trump tariffs than the initially 50bps estimated.

- ECB's Rehn (Finland) noted downside risks had materialized since Mar meeting; Retained full room for maneuvering on rate cuts.

- ECB's Villeroy (France) stated that must go fast as warranted with rate cuts. ECB was fully mobilized to ensure financing of economy and financial stability.

- ECB's Knot (Netherlands) noted that rates were at upper end of neutral range; Reiterated view that disinflation was well on track.

- ECB's Escriva (Spain) noted that US tariffs to have impact on economic activity; Would not talk about recession at this time but BOS to revise Spain GDP growth projections lower.

- Germany Fin Min Kukies stated that trade conflict increased chance of domestic recession.

- Poland Central Bank (NBP) Kotecki stated that US tariffs provided another argument for cutting rates in Poland.

- RBI Gov Malhotra post rate decision press conference noted that policy rate trend was downward; concerned about tariff impact on growth.

- China top leaders said to hold meeting as soon as Wed (Apr 9th) to discuss measures to boost economy following US tariffs.

- China released white paper on US-China trade relations that reiterated stance about 'fighting to end' on tariffs. China had 'abundant' means for countermeasures against US.

- China PBoC said to ask State lenders to cut USD purchases.

- BOJ Gov Ueda reiterated stance that would raise rates if economic outlook was realized; Needed to watch uncertainties from trade policies.

- Japan Top FX Diplomat Mimura stated that it held 3-party talks in response to Trump tariffs; discussed unstable markets with BOJ and FSA. Watching market closely with high sense of urgency and would take all measures for stability of financial markets. To closely communicate with overseas authorities.

- Japan Govt reportedly considering cash handouts of ¥40-50K to cushion the blow from Trump tariffs.

- Australia's CFR (coordinating financial regulator) noted that the financial system was seen as strong and resilient; monitoring developments.

Currencies/fixed income

- USD initially slumped as the EU session began as the trade war continued to ramp up. President Trump's sweeping duties, including a 104% tariff on Chinese goods, took effect on Wed. Focus on US bond yields as they continued to climb higher yet offer no support to the greenback. Dealers debated whether China's retaliation to Liberation Day and its apparent willingness to "fight to the end" in a trade war about what it could do with the vast amount of Treasuries it owned. China released white paper on US-China trade relations that did not provide any specific retaliation methods.

- EUR/USD began the session probing the 1.11 level but drifted lower ever since. Markets fully pricing in an ECB rate cut next week.

- USD/JPY tested the 144 neighborhood before consolidating. Japan Top FX Diplomat Mimura stated that it held 3-party talks and noted it saw large volatility in FX moves and would take all measures for stability of financial markets. Yen currency moved off its best level by mid-session.

- 10-year German Bund yield at 2.63% and 10-year Gilt yield at 4.67%. 10-year Treasury yield at 4.37%.

Economic data

- (JP) Japan Mar Preliminary Machine Tool Orders Y/Y: 11.4% v 3.5% prior.

- (NO) Norway Mar PPI (including Oil) M/M: -7.1% v +1.7% prior; Y/Y: 11.5% v 23.3% prior.

- (DK) Denmark Feb Current Account Balance (DKK): 30.6B v 35.3B prior.

- (CZ) Czech Mar International Reserves: $152.5B v $148.9B prior.

Fixed income issuance

- (DK) Denmark sold total DKK340M in 3-month and 6-month Bills.

- (UK) DMO sold £4.5B in 4.375% Mar 2030 Gilts; Avg Yield: 4.412% v 4.311% prior; bid-to-cover: 2.95x v 3.39x prior; Tail: 1.0bps v 0.3bps prior.

- (SE) Sweden sold total SEK5.0B vs. SEK5.0B indicated in 2033 and 2035 bonds.

- (NO) Norway sold total NOK3.0B in 2029 and 2032 Bonds.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.0-1.25B in 2030 and 2037 OT bonds.

- 06:00 (PT) Portugal Feb Trade Balance: No est v -€1.7B prior.

- 06:00 (CZ) Czech Republic to sell combined CZK13.0B in 2028, 2033 and.

- 07:00 (US) MBA Mortgage Applications w/e Apr 4th: No est v -1.6% prior.

- 07:30 (BR) Brazil Feb Total Outstanding Loans (BRL): No est v 6.462T prior; M/M: No est v 0.0% prior; Personal Loan Default Rate: No est v 5.5% prior.

- 08:00 (HU) Hungary Central Bank' (MNB) Mar Minutes.

- 08:00 (BR) Brazil Feb Retail Sales M/M: +0.6%e v -0.1% prior; Y/Y: 1.5%e v 3.1% prior.

- 08:00 (BR) Brazil Feb Broad Retail Sales M/M: -0.1%e v +2.3% prior; Y/Y: 2.3%e v 2.2% prior.

- 08:00 (MX) Mexico Mar CPI M/M: 0.3%e v 0.3% prior; Y/Y: 3.8%e v 3.8% prior.

- 08:00 (MX) Mexico Mar CPI Core M/M: 0.4%e v 0.5% prior; Y/Y: 3.7%e v 3.7% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (CL) Chile Central Bank Traders Survey.

- 08:30 (UR) Ukraine Mar CPI M/M: 1.2%e v 0.8% prior; Y/Y: 14.2%e v 13.4% prior.

- 08:30 (IT) ECB's Cipollone (Italy) in Amsterdam.

- 10:00 (US) Feb Final Wholesale Inventories M/M: 0.4%e v 0.3% prelim; Wholesale Trade Sales M/M: +0.8%e v -1.3% prior.

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:00 (US) Fed’s Barkin.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 12:00 (RU) Russia Q4 Preliminary GDP Y/Y: 3.6%e v 3.1% prior; Annual 2024 GDP Y/Y: No est v 4.1% prior.

- 12:00 (CA) Canada to sell 2 Year Bonds.

- 13:00 (US) Treasury to sell 10-Year Notes Reopening.

- 14:00 (US) FOMC Mar Minutes (left target range unchanged and slowed QT program from $25B to $5B per month).

- 15:00 (AR) Argentina Feb Industrial Production Y/Y: 5.3%e v 7.1% prior; Construction Activity Y/Y: No est v -1.3% prior.

- 19:01 (UK) Mar RICS House Price Balance: 8%e v 11% prior.

- 19:50 (JP) Japan Mar PPI M/M: 0.2%e v 0.0% prior; Y/Y: 3.9%e v 4.0% prior.

- 19:50 (JP) Japan Mar Bank Lending Y/Y: No est v 3.1% prior; Bank Lending (ex-trusts) Y/Y: No est v 3.4% prior.

- 21:00 (AU) Australia Apr Consumer Inflation Expectation: No est v 3.6% prior.

- 21:30 (CN) China Mar CPI Y/Y: 0.0%e v -0.7% prior; PPI Y/Y: -2.3%e v -2.2% prior- 22:00 (JP) Japan Mar Tokyo Avg Office Vacancies: No est v 3.9% prior.

- 23:35 (JP) Japan to sell 5-year JGB Bonds.