Overview: The postponement of US reciprocal tariffs, the "clarification" that popular consumer products, including those from China, are not subject to the reciprocal tariffs until the levy on semiconductor chips are decided, and a hint from President Trump himself that he is considering a delay in the auto tariffs that were to be effective on May 3 has steadied investor nerves. The dollar is mostly consolidating within the pre-weekend range and equities have stabilized. In the currency market, sterling and the Australian dollar have shown some independent strength and have extended their gains. The Canadian dollar is threatening the same. Emerging market currencies are mixed, and no clean regional breakdown is evident.
Most Asia Pacific equity markets are extending yesterday's gain. Europe's Stoxx 600 is up a little more than 1% after advancing 2.70% yesterday. If sustained, it would be the first back-to-back gains since March 18-19. US index futures are firmer. European benchmark 10-year yields are mostly 2-3 basis points firmer. The 10-year Gilt yield is off slightly more than a single basis points and is the best performer among back bond markets today. The 10-year US Treasury yield is practically flat near 4.38%. Gold is consolidating with a firm bias inside yesterday's range, which was inside Friday's range, when the record was set near $3246. May WTI is quiet, mostly between $61.25 and $62.00 today.
USD: The Dollar Index consolidated yesterday, within the pre-weekend range but it still settled lower for the fifth consecutive session. It is trading quietly in a narrow range (~99.50-100.00) inside yesterday's range. The price action looks like nesting before another leg lower. The US threatens that sectoral tariff on semiconductors and pharmaceuticals (and possibly lumber and diary) will still be forthcoming. Yesterday, President Trump said he was considering a delaying the 25% tariffs on autos and parts that were to go into effect on May 3. That and the postponement of the reciprocal tariffs is understood by many as revealing the administration's pain threshold in terms of the dramatic pressure on US stocks and bonds. We suspect that the main check that will arise on US trade policy will not come from the markets or the judiciary, but from Congress, which has the constitutional power to "regulate commerce." It may take a while longer, but the wheels appear to be in motion. Today's April NY Fed manufacturing survey and import/export prices are not typically market-movers. The source of US inflation is not coming from imports. The year-over-year pace may have slowed to 1.4% from 2.0% in March, which would unwind the recent gains. The median forecast in Bloomberg's survey is for unchanged imports on the month.
EURO: The euro stalled yesterday after rising by 3.7% in the previous two session. it is trading inside yesterday's range, which was inside last Friday's. Provided it holds above the $1.1250 area it looks constructive. A break would initially target the $1.1180 area. Industrial production rose by 1.1% in February % after rising by 0.6% in January (revised from 0.8%). It was well above expectations for a 0.3% rise and matches the largest increase since February 2023. Meanwhile, the slide in the DAX and the US tariffs may have weighed on investor sentiment. April's ZEW survey saw not only the first decline in expectations in three months, but the setback unwound the earlier gains. It fell to -14.0 from 51.6, its lowest since July 2023. The current assessment improved for the fourth consecutive month ant at -81.2 is the best since last August.
CNY: The dollar rose against the offshore yuan for the first time in four sessions yesterday and simply recouped its pre-weekend loss. It is a bit firmer today, but it remains below last Friday's high (~CNH7.3365). It may continue to consolidate. The PBOC set the dollar's reference rare at CNY7.2096 (CNY7.2110 yesterday) n onshore yuan is practically flat against the dollar this year. That means that is has depreciated against the most of its trading partners. It does not need to offset the US tariff hike with more currency depreciation. How can it? Imagine you are in Beijing. You are watching the US hike tariffs. While the wider change in US foreign policy being implemented by Washington is more disruptive of its alliance, but on trade, China is a key target. Beijing has de-risked from the US. In 2017, the US accounted for about 20% of China's exports. Now around 15%, but that was still $400 bln in 2024. After seemingly announcing prohibitively high tariffs Chinese-goods on April 2, the US indicated that almost 1/4 of its imports from China (consumer electronics) would not face such a tariff after all, and indeed levies collected will returned. This will give producers and importers more time to build inventory before the semiconductor sectoral tariffs are implemented. Beijing's mantra has shifted from "reform and opening up" to "self-reliance and hard work." China orders a halt in Boeing deliveries today. Estimates suggest Chinese airlines were to take delivery of 10 Boeing 737 Max aircraft. There may be some exceptions granted on a case-by-case basis, depending on what "paperwork and payments" may have been completed before the PRC tariffs were implemented on April 12. Tomorrow, China reports its first estimate of Q1 25 GDP and March details. Beijing says the economy will grow around 5% this year. So, it will.
JPY: Yesterday, the dollar spent the session inside last Friday's range (~JPY142.05-JPY144.65). It is inside yesterday's range today and trading between about JPY142.70 and JPY143.60. The US 10-year yield fell around 11 bp and settled below the pre-weekend low (4.38%). If the nearly 75 bp (from low to high) last week rise in US 10-year yield was exaggerated and extends its pullback, the dollar looks vulnerable. A break of JPY142 could open the door toward JPY140.00-JPY140.50. After a sharp 3.5% drop in core machine orders, a snapback is expected to be the first thing tomorrow. However, the key take-away is that the Japanese economy is slowing considerably this quarter. At an annualized rate, the world's third-largest economy grew an average almost 1.2% in 2024 and that is with a 2.1% contraction in Q1 24. The median forecast in Bloomberg's survey puts Q1 25 GDP at 0.3% (annualized) and 0.5% for the next couple of quarters. The swaps market almost 15 bp of tightening discounted, down from 30 bp at the end of March.
GBP: Sterling rose a cent yesterday and tested the $1.32-area, holding slightly below the April 3 high (~$1.3205). It has reached a new high near $1.3240 today, leaving intraday momentum indicators stretched ahead of the North American open. Some attributed it to some short covering against the euro ahead of today's jobs report. Sterling settled above its upper Bollinger Band, which comes in near $1.3200 today. Neither the employment report, nor tomorrow's inflation data, will likely alter views that most likely (90%+ in the swaps market) that the Bank of England will cut rates at its May 8 meeting. All else, being equal the rise of sterling and the decline in oil prices give it scope to reduce rates and support the economy which practically stagnated in H2 24. Average earnings growth remains more elevated that MPC members prefer even though they softened slightly, and that underscores the gradual pace of the easing cycle. Unemployment remains at 4.4% where it has been now for four months, which is the highest since Q3 21.
CAD: The greenback's session low yesterday was recorded in early European turnover near CAD1.3830. It hardly traded below CAD1.3850 in the local session and rose to session highs around CAD1.3910 after European markets closed and has been capped there today. The US dollar is threatening to extend its slump for a fifth session today. It has not taken out yesterday's low yet, but it looks poised to in the North American session. Canada reports March housing starts and existing home sales, but the focus is on the CPI. A firm reading is expected. The headline rate is expected to rise by around 0.7% which, given the base effect, may mean that the year-over-year rate only ticks up to 2.7% from 2.6%. The underlying core measures are also expected to rise slightly (3.0% from 2.9%). A 0.7% increase in March would put the Q1 annualized pace at 5.7% but this is partly a payback from the flat reading in Q4. That means that the six-month annualized rate would be around 3.8%, still elevated. The Bank of Canada meets tomorrow, but with next week's election and the firmer core inflation may encourage the standpat stance. It frontloaded cuts last year, and the swaps market has 47 bp of cuts discounted for the remainder of the year, down from about 55 bp at the end of March.
AUD: In the past four sessions, the Australian dollar has rallied nearly 7.25%. It has recovered from a five-year low (~$0.5915) to about $0.6345 yesterday. It is extending its recovery today and approached $0.6380. With one exception, it has not settled above $0.6400 since last December. Momentum indicators are favorable, and Australia made it to US Treasury Secretary Bessent's trade-negotiations short-list, which is also constructive. The futures market has a roughly 30% chance of a half-point cut next month. It was around 65% in the middle of last week. We suspect that the market may still be exaggerating the risk. The minutes from this month's central bank meeting seem to signal a rate cut next month after the election, encouraged by expectations that Q1 CPI (due April 30) will show a moderation in prices but there did not appear to be a hint that a larger "catch-up" move was being considered.
MXN: After stalling last Thursday and Friday, the dollar took another leg down against the peso yesterday, falling to almost MXN20.02. Recall that last week, the greenback set a two-month high near MXN21.08. It is trapped near yesterday's lows in consolidative turnover (~MXN20.05-MXN20 .11). A break of the MXN20.00 area could spur a re-test of the five-month low recorded on April 3 slightly below MXN19.84. It also held then above the 200-day moving average, which was around MXN19.81. Now it is closer to MXN19.89.
Reviewed by Marc Chandler
on
April 15, 2025
Rating:
