Corporate world guesses whether tariff front-running transforms into tariff front-waiting

EU Mid-Market Update: Corporate world guesses whether tariff front-running transforms into tariff front-waiting; US set to open sharply lower, firms with Asian suppliers hit hard.

Notes/observations

- Aftermath of Trump's reciprocal tariff announcement sees a complete recalibration of global market pricing. Trump for the most part, used a rule of 'half the rate applied on us' and gave a blanket minimum 10% to those with favorable trade balances. Baseline tariffs will go into effect April 5th, while higher tariffs will take effect on April 9th, leaving some room for quick deals. US dollar is weaker (on track for worst day since Nov 2022) and US futures heavily lower from close yesterday. Few analysts see the tariff strategy as positive for domestic economy.

- Key tariffs include 20% reciprocal tariff on European Union. Switzerland at 31%. Norway at 15%. UK at 10%. For Asia, China at 34% (which is in addition to current tariffs, taking total to 54%), Taiwan at 32%, Japan at 24%, India at 26%, Vietnam at 46%.

- The new tariffs significantly impact key Asian and African suppliers of critical components and materials used across U.S. industries, from semiconductors and medical devices to pharmaceuticals and food production, affecting everything from power ICs and printed circuit boards to specialty chemicals and technical fabrics.

- Trump's exclusion of certain sectors (like semiconductors) and option for tariffs to be resolved/mitigated suggests he is open for negotiation but foreign leaders reluctant to bow down to Trump, will mean a prolonged trade war is likely. A game of chicken that will see significant headwinds to corporate earnings, inflation and economic growth until resolved.

- Trump also issued an executive order to end duty exemptions for low value shipments from China under the “de minimis” rule starting on May 2. It was first implemented in February but was paused due to logistical issues.

- Meanwhile, Fed, ECB and BOE futures all pricing more rate cuts this year, but Morgan Stanley scrapped its call for a June Fed rate cut and now sees Fed on pause until March 2026 citing "tariff-induced inflation".

- GBP sterling strength as reciprocal tariff seen as ‘gentle’ and avoiding worst case scenario. Euro stronger amid US dollar broad weakness. Swiss Franc favoring from safe haven flows.

- Bank and Technology sectors worst hit in morning trade, Banks down >3% in Europe while Tech >2.5% lower.

- Asia closed lower with Nikkei225 underperforming -2.7%. EU indices -1.2% to -1.7%. US futures -2.4% to -3.2%. Gold -0.2%, DXY -1.4%; Commodity: Brent -3.4%, WTI -3.6%; Crypto: BTC -1.5%, ETH -3.2%.

Asia

- China Mar Caixin PMI Services: 51.9 v 51.5e (26th month of expansion).

- Japan Mar Final PMI Services: 50.0 v 49.5 prelim (confirms 5th month of expansion).

- Australia Mar Final PMI Services: 51.6 v 51.2 prelim (confirms 14th month of expansion).

- Australia Central Bank (RBA) Financial Stability Review stated that banks were well capitalized but tariff response may have chilling impact on activity.

- Australia Feb Trade Balance (A$): 3.0B v 4.5Be; Exports M/M: -3.6% v +0.8; Imports M/M: +1.6% v -0.4% prior.

Europe

- ECB Chief Lagarde stated that was facing new era of closure, fragmentation and uncertainty. Europe must change to act as a single entity.

- ECB’s Villeroy (France) stated that Trump tariffs should not impact EU disinflation; slower inflation could allow another rate cut soon.

Americas

- Trump announced reciprocal tariff with a 10% baseline amount on all countries, effective April 5th; Other nations would be hit with discounted reciprocal tariff. with 24% on Japan and 20% on the EU, in lieu of the universal 10% tariff, effective April 9th; A new 34% tariff on China would add to previous duties; Canada and Mexico were excluded from the reciprocal tariff regime.

- Fed's Kugler (voter) stated that inflation expectations had risen; Should hold rates as long as inflation upside risks continued; Data suggest progress toward 2% inflation might have stalled; Government policy changes posed upside risk to inflation.

- Treasury Sec Bessent noted that US borrowing capacity would run out in June or July. The debt ceiling will be done through reconciliation process. Expected Congress to get something done by Saturday (Apr 5th); There was a lot of room to cut spending.

- US Senate and House budget versions had $1T gap between them; Senate allowed for $5T increase, House allows $4T increase.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -1.31% at 529.90, FTSE -1.22% at 8,503.63, DAX -1.33% at 22,075.61, CAC-40 -1.78% at 7,718.67, IBEX-35 -0.47% at 13,272.69, FTSE MIB -1.42% at 37,908.00, SMI -1.68% at 12,354.80, S&P 500 Futures -2.91%].

Market Focal Points/Key Themes: European indices opened lower across the board, though moderated some of the initial losses through the early part of the session; drop in markets attributed to trade tariffs announcements; better performing sectors include real estate and utilities; among sectors leading the way lower are financials and consumer discretionary; focus on US trade balance data coming out later in the day; Assura receives takeover offer from PHP; Siemens confirms to acquire Dotmatics; earnings expected in the upcoming Americas session include ConAgra and Guess.

Equities

- Consumer discretionary: Currys [CURY.UK] +10.5% (raises FY24/25 guidance), LVMH [MC.FR] -3.5%, Adidas [ADS.DE] -10.5% (US tariff announcement), Deutsche Post [DPW.DE] -4.5% (CMD; affirmed outlook).

- Financials: Deutsche Bank [DPW.DE] -4.0%, HSBC [HSBA.UK] -5.0% (rising rate cut bets), Assura [AGR.UK] +0.5%, Primary Health [PHP.UK] +2.0% (PHP proposes to acquire Assura for 0.3848 new PHP shares and 9.08p in cash per Assura share, valuing Assura at £1.5B).

- Industrials: Volkswagen [VOW3.DE] -1.0% (plans to add an 'import fee' to the stickers on its cars that are impacted by the 25% US vehicle tariff), Travis Perkins [TPK.UK] +1.5% (Peel Hunt raised to buy), Stellantis [STLA.NL] -0.5%, Siemens [SIE.DE] -4.0% (US tariff announcement).

- Technology: ASML [ASML.NL] -3.5% (US tariff announcement), Wise [WISE.UK] +2.5% (CMD).

Speakers

- ECB’s De Guindos (Spain) noted that the disinflation process was well on track but must be extremely prudent in determining stance. Trade frictions raise inflation uncertainty.

- ECB's Stournaras (Greece) stated that US tariffs did not affect Apr rate cut but would impact growth but not inflation path.

- Swiss National Bank (SNB) stated that it had taken note of Trump announcement and in process of analyzing facts in detail. Would continue the established dialogue with the new US administration.

- SNB Board Member Tschudin noted that US tariffs on Switzerland higher than expected
Bank of England (BOE) Decision Maker Panel (DMP) Mar Survey raised the 1-year ahead CPI from 3.1% to 3.4% (3.2%e) while maintaining the 3-year ahead CPI forecast at 2.8%.

- Spain Econ Min Cuerpo stated that it considered US decision to impose tariffs as unfair and unjustified. Wanted to reach a negotiated solution with US on tariffs.

- Russia Central Bank (CBR) Gov Nabiullina reiterated stance that rate hike was still on the table. Inflation would continue to decline in next few months and return to normal by end of the year.

- China Foreign Ministry Daily Briefing urged US to correct its wrongdoing. Tariffs severely violated WTO rules, harmed rules-based international trading regime.

- China Commerce Ministry (MOFCOM) stated that it firmly opposed US tariff on auto imports. Hoped to resolve various issues through consultations as equals.

Currencies/fixed income

- USD was on soft footing and near 6-month lows in the aftermath of the Trump reciprocal tariff announcement. Volatility in markets likely to continue but any signs of moderation then markets could calm. Dealers noted various world officials would do whatever they could to avoid a trade war with the US. Initial comments highlighted the hoped to resolve various issues through consultations.

- EUR/USD probing towards the 1.10 neighborhood. Dealers noted Trump's announcement was seen as USD negative because the US real economy was already under pressure and tariffs could add to this.

- USD/JPY at 147.30 as lower US bond yields and safe-haven plays favored the yen currency.

- 10-year German Bund yield at 2.66% and 10-year Gilt yield at 4.57%. 10-year Treasury yield at 4.08%.

Economic data

- (RU) Russia Mar Services PMI: 50.1 v 50.5 prior; Composite PMI: 49.1 v 50.4 prior.

- (CH) Swiss Mar CPI M/M: 0.0% v 0.1%e; Y/Y: 0.3% v CPI Core Y/Y:% v 0.9%e.

- (CH) Swiss Mar CPI EU Harmonized M/M: -0.1% v +0.1% prior; Y/Y: 0.1% v 0.1% prior.

- (SE) Sweden Mar PMI Services: 49.4 v 50.6e (1st contraction in 6 months); PMI Composite: 50.6 v 51.3 prior.

- (TR) Turkey Mar CPI M/M: 2.5% v 2.9%e; Y/Y: 38.1% v 38.7%e; CPI Core Y/Y: 37.0% v 38.6%e.

- (TR) Turkey Mar PPI M/M: 1.9% v 2.1% prior; Y/Y: 23.5% v 25.2% prior.

- (ZA) South Africa Mar PMI (whole economy): 48.3 v 49.0 prior.

- (ES) Spain Mar Services PMI: 54.7 v 55.5e (19th month of expansion); Composite PMI: 54.0 v 54.3e.

- (IT) Italy Mar Services PMI: 52.0 v 52.5e (4th month of expansion); Composite PMI: 50.5 v 51.5e.

- (FR) France Mar Final Services PMI: 47.9 v 46.6 prelim (confirmed 8th month of contraction); Composite PMI: 48.0 v 47.0 prelim.

- (DE) Germany Mar Final Services PMI: 50.9 v 50.2 prelim (confirmed 4th month of expansion); Composite PMI: 51.3 v 50.9 prelim.

- (EU) Euro Zone Mar Final Services PMI: 51.0 v 50.4 prelim; Composite PMI: 50.9 v 50.4 prelim.

- (UK) Mar Final Services PMI: 52.5 v 53.2 prelim; Composite PMI: 51.5 v 52.0 prelim.

- (UK) Mar Official Reserves Changes: $4.4B v $0.6B prior.

Fixed income issuance

- (ES) Spain Debt Agency (Tesoro) sold total €6.24B vs. €5.5-6.5B indicated range in 2028, 2031 and 2039 SPGB bonds.

- Sold €3.10B in 2.4% May 2028 SPGB bonds; Avg Yield: 2.292% v 2.487% prior; bid-to-cover: 1.32x v 1.99x prior.

- Sold €1.66B in 3.10% July 2031 SPGB bonds; Avg Yield: 2.809% v 3.067% prior; bid-to-cover: 2.02x v 1.74x prior.

- Sold €1.48B in 3.9% July 2039 SPGB bonds; Avg Yield: 3.655% v 3.611% prior; bid-to-cover: 2.38x v 2.00x prior.

- (ES) Spain Debt Agency (Tesoro) sold €600M vs. €250-750M indicated range in 1.0% Nov 2030 inflation-linked bonds (SPGBei) Real Yield: 0.700% v 0.908% prior; Bid-to-cover: 2.98x v 2.25x prior.

- (FR) France Debt Agency (AFT) sold total €11.996B vs. €10.0-12.0B indicated range in 2033, 2035 and 2056 bonds.

- Sold €2.620B in 3.50% Nov 2033 Oat; Avg Yield: 3.19% v 3.01% prior; Bid-to-cover: 3.04x v 2.35x prior.

- Sold €5.930B in 3.20% May 2035 Oat; Avg Yield: 3.37% v 3.54% prior; Bid-to-cover: 4.14x v 2.87x prior.

- Sold €3.446B in 3.75% May 2056 Oat; Avg Yield: 4.04%; Bid-to-cover: 2.82x (syndicated on Feb 12th 2025).

- (UK) DMO sold £3.25B in 4.375% Jan 2040 Gilts; Avg Yield: 4.917% v 4.836% prior; Bid-to-cover: 2.59x v 2.69x prior; Tail: 0.9bps v 0.6bps prior.

Looking ahead

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-year, 5-year and 10-year bonds.

- 05:40 (UK) BOE7-day short-term repo operation (STR).

- 05:45 (SE) Sweden Central Bank (Riksbank) Gov Thedeen.

- 06:00 (DE) ECB’s Schabel (Germany).

- 06:00 (FI) Finland to sell Ori Bonds.

- 07:00 (ZA) South Africa Feb Electricity Consumption Y/Y: No est v 0.8% prior; Electricity Production Y/Y: No est v 5.7% prior.

- 07:30 (US) Mar Challenger Job Cuts: No est v 172.0K prior; Y/Y: No est v +103.2% prior.

- 07:30 (EU) ECB Publishes Account of March 5-6 Policy Meeting (aka Minutes).

- 08:00 (MX) Mexico Jan Gross Fixed Investment M/M: -1.5%e v -2.6% prior; Y/Y: -5.7%e v -4.0% prior; Private Consumption Y/Y: -0.4%e v -0.7% prior.

- 08:00 (MX) Mexico Feb Leading Indicators M/M: No est v -0.11 prior.

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

- 08:30 (US) Initial Jobless Claims: 226Ke v 224K prior; Continuing Claims: 1.87Me v 1.856M prior.

- 08:30 (US) Feb Trade Balance: -$123.5Be v -$131.4B prior.

- 08:30 (CA) Canada Feb Int'l Merchandise Trade (CAD): 3.5Be v 4.0B prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (RU) Russia Gold and Forex Reserve w/e Mar 28th: No est v $650.4B prior.

- 09:00 (BR) Brazil Mar Services PMI: No est v 50.6 prior; Composite PMI: No est v 51.2 prior.

- 09:00 (PL) (PL) Poland Central Bank (NBP) Gov Glapinski: post rate decision press conference.

- 09:30 (CA) Canada Mar Services PMI: No est v 46.6 prior; Composite PMI: No est v 46.8 prior.

- 09:45 (US) Mar S&P Final Services PMI: 54.2e v 54.3 prelim; Composite PMI: 53.4e v 53.5 prelim.

- 10:00 (US) Mar ISM Services Index: 52.9e v 53.5 prior.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:30 (US) Fed's Jefferson.

- 14:30 (US) Fed’s Cook.

- 18:00 (CO) Colombia Central Bank Mar Minutes.

- 19:30 (JP) Japan Feb Household Spending Y/Y: -0.8%e v +0.8% prior.

- 20:30 (AU) Australia Feb Household Spending M/M: 0.3%e v 0.4% prior; Y/Y: 3.2%e v 2.9% prior.

- 21:00 (PH) Philippines Mar CPI M/M: +0.1%e v -0.2% prior; Y/Y: 2.0%e v 2.1% prior; Core CPI Y/Y: No est v 2.4% prior.

- 23:30 (JP) Japan to sell 3-Month Bills;

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