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• Day two of the ‘US liberation era‘ was much like day one. The global risk-off continued unabatedly as investors try to the make-up their mind on the multiple consequences/further fall-out from the US profoundly recalibrating the global framework on free trade by announcing reciprocal tariffs. Almost zero visibility on how this process will continue keeps investors looking for shelter. European equities extended losses and investors assumed that mounting recession risks will force central banks to again come to the rescue, with core yields on a firm downtrend. At the least the assumption that further negative dominoes were likely to fall, was confirmed almost immediately. Around noon CET, China announced retaliation for the 34% US ‘base-line’ tariff on Chinese imports, matching it with a similar levy on US imports. In addition, the country announced export restrictions on rare earths and launched an anti-dumping probe, amongst other measures. The risk sell-off accelerated. Usually, on the first Friday of a new month, the US payrolls reports takes center stage. Today, it was no more than a footnote for trading. The US economy in March added a solid 228k jobs, admittedly with a 48k downward revision for the previous to months. The unemployment rate rose from 4.1% to 4.2%, but this was due to a higher participation rate. Average hourly earnings was close to expectations (0.3% M/M, 3.8% Y/Y). More than analyzing the payrolls, the market focus was on the cash open of US equity markets and on a first US reaction to the China retaliation. The market photo just after the open op US equity markets reads: US equities decline about 3.0 % for the major indices. The Eurostoxx 50 is also ceding about 4.0%. Treasuries and Bunds continue their assent, betting of CB help. US yield decline 9-10 bps across the curve. US money markets are discounting (more than) a full 25 bps Fed rate cut in June and a cumulative 100 bps EOY 2025. Bunds even outperform Treasuries with German yields declining from 15 bps (2-y) to 10 bps (30-y). Something to keep an eye on: After a period of extreme calm on intra-EMU government bond markets, 10-y spreads vs Bunds for the likes of Italy and Greece are widening about 6 bps. The USD sell-off is talking a breather. DXY (re)gains marginal ground (102.25). The EUR/USD rally also takes a pauze (1.103). The retaliation of China against the US also has further negative fall-out on the likes of the Aussie (AUD/USD 0.6125 from 0.6325) and kiwi dollar (NZD/USD 0.565 from 0.5795). To close this hectic week, markets still have at least one wildcard to look out for. Fed Chair Powell is scheduled to speaks on the economy around the close of European markets. Will he already give any hints on how the Fed assesses evolving risks between growth and inflation?
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• The FAO Food Price Index was nearly unchanged in March, averaging at a 127.1 points, to be 6.9% lower y/y and down 20.7% from the peak exactly three years ago. On a headline basis, declines in cereals and sugar price offset increases of meat and vegetable oils. The dairy price index remained stable. Going more into detail, dropping wheat and maize prices amid improving crop conditions pushed down the cereals price index. Rice prices fell too on weak import demand and ample exportable supplies. Sugar prices generally fell on signs of weaker global demand and easing concerns over tight supplies. Meat prices increased primarily thanks to pig meat on rising demand. Ovine meat prices also increased, supported by strong global demand ahead of the Easter holidays. Meanwhile, poultry meat prices remained largely stable. The continued increase in the oil price index was driven by higher prices of palm (supply driven), soy (international demand driven), rapeseed and sunflower (both demand and supply) oils.
• Canadian employment fell by 32.6k in March, driven exclusively by full time jobs (-62k). Part time employment still added 29.5k jobs. The decline in March followed little change in February and three consecutive months of growth in November, December and January totaling 211k. Employment declined in wholesale and retail trade (-29k), as well as information, culture and recreation (-20k). There were increases in the 'other services', such as personal and repair services (+12k) and utilities (+4.2k). The employment rate declined to 60.9% while the unemployment rate rose to 6.7%. The latter has now been above the pre-Covid average of 6% for exactly a year. Hourly wages grew by 3.5% y/y, easing from 4% in February. Overall, Canadian payrolls were sub-par and adds to the existing downward CAD pressure today. USD/CAD reverses much of yesterday’s steep decline to return north of 1.42. Money markets expect the Bank of Canada to continue cutting rates from the current 2.75% to around 2% by end this year.
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2-y swap yield revisits 2% barrier as markets bet/hope the ECB will come to rescue to counterbalance trade tariffs.
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EuroStoxx 50 tumbles in correction territry (-10% below top).
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EUR/GBP: sterling unable to match the euro, despite lower US tariff.
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AUD/USD: Aussie dollar nosedives as escalating trade war between China and the US causes regional fall-out.
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