Equity markets head further south
The fall-out from Trump’s tariffs is continuing in markets. Asian equities are sharply lower overnight following China’s announcement of retaliatory tariffs on the US on Friday, while US bond yields are heading south again after bouncing off their lows on Friday. In FX, the Swiss franc and the Japanese yen – the so-called ‘safe-haven’ currencies – have strengthened against the dollar. The latter continues to regain ground against the euro and sterling, trading at around $1.10 and $1.29 respectively this morning (well off last Thursday’s lows of over $1.11 and north of $1.32), while EURGBP continues to edge higher, currently trading just shy of £0.8550.
Asian equity markets have seen some fairly spectacular falls overnight, with the Hang Seng down around 12% for example, while European stocks are off 6% this morning. US stocks shed another 5-6% on Friday and are set to open sharply lower later today. Bonds are rallying hard as stocks plunge and central bank rate cut expectations build, with US and German 10-year yields down 10-12bps and 2-year yields around 20bps lower.
In remarks on Friday, Fed Chair Jerome Powell said “it is now becoming clear that tariff increases will be significantly larger than expected” with the same “likely to be true of the economic effects, which will include higher inflation and slower growth”. He noted however that “the size and duration of these effects remain uncertain” and hence “it is too soon to say what will be the appropriate path for monetary policy.”
Friday’s employment report in the US showed the economy added 228k jobs in March, more than the circa 145k increase expected, though the February outturn was revised down to +117k (from +151k). The unemployment rate nudged up for a second month in a row but at 4.2% remained within the range of the past year or so, while hourly earnings growth slowed to 3.8% y-o-y last month from 4% in February.
Looking to the week ahead, the main economic data releases include CPI inflation in the US on Thursday and GDP in the UK on Friday, though all the focus will be on the fall-out from Trump tariffs.