Today’s eco calendar obviously loses relevance in anticipation of the White House’s tariff announcement

Markets

Markets remained hesitant throughout European dealings yesterday even as stock markets staged a(n initially) modest comeback. Core bonds continued to excel with April EMU CPI figures strengthening the case for a final 25 bps ECB rate cut (to 2.25%) on April 17 before installing a long pause. Headline and core inflation rose by 0.6% M/M and 1% M/M respectively to 2.2% Y/Y (from 2.3%) and 2.4% (from 2.6%). Numbers were in line or even slightly below consensus. The German yield curve bull flattened with daily changes ranging between ‐2.6 bps (2‐yr) and ‐6.1 bps (30‐yr). The German 10‐yr yield tested 2.65% technical support for a second consecutive session. Early US data releases triggered an attempt to add to the risk‐off climate, but that move was blocked. The US manufacturing ISM returned to contractionary levels in place since October 2022 after a brief spell of two months above the 50‐ threshold (49 from 50.3 vs 49.5 expected). Details have the stagflation mark all over them with the contraction in new orders (45.2 from 48.6) and jobs shedding (44.7 from 47.6) accelerating and price pressures mounting (prices paid: 69.4 from 62.4). Not the best start for turning the US back into a global manufacturing powerhouse. US JOLTS job openings fell slightly more than expected (7.57mn from 7.76mn), but hold relatively steady between 7mn and 8mn for already a year now. The US yield curve bull flattened as well with yields ending the day 0.2 bps (2‐yr) to 4.7 bps (30‐yr) lower. European and US equity markets rebounded slightly over (EU) or slightly under (US) 1%. EUR/USD remains stuck around the 1.08‐handle.

Today’s (thin) eco calendar (US ADP employment change) obviously loses relevance in anticipation of the White House’s tariff announcement (event planned between 9‐10 pm CET with tariffs said to go into effect immediately). A wait‐and‐see approach is expected. When it comes to the effective announcement, we think that the worse outcome (highest levels, broad application) might be the best from a market/risk point of view in the mid‐to longterm. It reduces the likelihood of a new waiting game (uncertainty) in a step‐up tariff approach and an high (tariff) bar can switch the market narrative into (hope) on an easing of protectionist measures in case of successful negotiations (on whatever subject) between nations involved. The immediate market response could still be an adverse one of course with (long‐term) bonds at risk of selling off because of the highest impact on short‐term inflation. Despite the correction of the past two weeks, we stick to our long term (bearish) curve steepeners. On FX markets, a (US) stagflation narrative so far tended to work in the USD’s disadvantage.

News and views

South‐Korean inflation unexpectedly reaccelerated in March. Headline inflation rose by 0.2% M/M and 2.1% Y/Y while a slowdown to 1.9% was expected. Core inflation (ex‐food and energy also rose slightly to 1.9% from 1.8%. Food prices (0.6% M/M and 2.4% Y/Y) were an important driver behind the acceleration. In a monthly perspective prices of education rose by 1.1%. Restaurants/hotels and miscellaneous good and services added 0.4% M/M. Transportation costs declined (0.4% M/M). Service prices rose 2.3% Y/Y. Goods prices added 1.7%. The Bank of Korea further reduced its policy rate by 25 bps to 2.75% in February. Next meetings are scheduled for April 17 and May 29. The weak won is at least partially responsible for the easing of inflation to slow down. Today’s data reinforce the case for the Bank of Korea to take a wait‐and‐see modus at the April meeting. Later, the BoK can reassess whether there is room/need to further support the economy.

The Mexican government downwardly revised its growth forecast for this year to a range of 1.5%‐2.3% down from a prior forecast of 2%‐3%. The government indicates that the decline is due to economic uncertainty, weaker residential investment and supply shocks that have hit the economy. Business caution driven by uncertainty over US trade policy is also a contributing factor. The assessment of the government is still far more optimistic than private sector estimates and projections from the central bank. The latter sees 2025 growth at 0.6%. The government sees inflation at 3.5% at the end of the year before returning to the central bank target of 3.0% (+/‐ 1.0%) next year. The Mexican peso in April last year touched the strongest level against the dollar since 2015 (near USD/MXN 16.26), but currently trades near MXN/USD 20.35.

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