Dollar on the back foot again
The semblance of relative calm that descended on equity markets yesterday has evaporated after the US announced tariffs of 104% on imports from China. US stocks sold off into the New York close, more than reversing earlier gains, and Asian equities are lower overnight. Surprisingly, and worryingly perhaps, US long bonds are selling off (i.e. yields rising) despite the falls in equity markets, while the dollar is lower across the board. The euro has rebounded to $1.1050 against the US currency, and sterling is back above $1.28, leaving EURGBP trading at around £0.8630 this morning (having dipped to a low of about £0.8530 during the course of yesterday’s session).
In Asian equity markets overnight, the Nikkei index in Japan is down around 4% while Taiwanese stocks are off around 6%, though ironically, the main Chinese indices are in positive territory. European equities have opened lower this morning, down around 2%, partially reversing yesterday’s gains. In bond markets, US 10-year yields are up around 8bps to just under 4.40%, bringing the cumulative increase since last Friday’s close to around 40bps, while 2-year yields are up around 5bps. German and UK 10-year yields are also higher this morning, though 2-year yields are a good bit lower as rate cut expectations harden, with the market fully pricing in a 25bps reduction at the next ECB (April 17th) and Bank of England (May 8th) monetary policy meetings.
In addition to imposing tariffs of 104% on China, which along with “reciprocal” tariffs on other countries are effective from today, Donald Trump also said he will soon announce a “major” tariff on US pharmaceutical imports, reiterating his view that this would prompt companies to move their operations back to the US. Meanwhile, the latest small business optimism index in the US fell for a third month in a row in March according to the latest survey, largely related to concerns about tariffs.
It is very quiet today in terms of economic data, with little or nothing of note due, while the Fed publishes the minutes of its March monetary policy meeting.