Market Briefing: US 'Liberation Day' looming
Macro worries. US 'stagflation' vibes weighed on sentiment on Friday. Equities fell, as did bond yields. AUD & NZD lost a bit of ground.
Tariff news. More bursts of volatility likely near-term with the US set to unveil more tariffs. But will the moves exceed or underwhelm expectations?
Event radar. US reciprocal tariffs to be announced (Weds). RBA meets (Tues), US jobs report is out & Fed Chair Powell also speaks (Fri night).
Global Trends
Concerns about US tariffs and how they are and will continue to impact growth and inflation rattled a few market nerves at the end of last week. The latest US personal consumption report had troublesome ‘stagflation’ vibes with it extending the run of sluggish activity data and renewed positive inflation surprises. US consumer spending was softer than expected in February and the slump in sentiment points to further weakness down the track. At the same time, the core PCE deflator accelerated by more than predicted, and this is before the impact of tariffs on goods imports started to flow through.
US equities fell with the tech-focused NASDAQ (-2.7%) underperforming the broader S&P500 (-2%). The S&P500 is now over 9% from its February peak with worries about the outlook dragging it lower in 7 of the past 9 weeks. Elsewhere, gold hit a fresh record high (now ~$3085/ounce) while bond traders lasered in on the negative US growth impulses rather than the likely ‘transitory’ inflation upturn. US bond yields tumbled ~8-11bps across the curve with the benchmark 10yr rate (now ~4.25%) falling under its 1-year average. In FX, the USD index lost ground with the backdrop supporting the interest-rate sensitive JPY. EUR also ticked a bit higher (now ~$1.0825) with media reports suggesting the EU is looking at concessions it is willing to make to the Trump Administration to secure a partial unwind of tariffs. By contrast, cyclical currencies such as the AUD (now ~$0.6289), NZD (now ~$0.5717), and Asian currencies weakened a little. USD/SGD drifted higher and is approaching its 50-day moving average (~1.3427).
This week the China business PMIs are due (12:30pm AEDT), Eurozone CPI is out (Tues), and the Reserve Bank of Australia meets (Tues). But these events will be overshadowed by US developments. The US is set to unveil “reciprocal” tariffs on its trading partners (Weds AEDT), with President Trump labelling it “Liberation Day”. On top of that, the latest US jobs data is scheduled and Fed Chair Powell is speaking on the outlook (both Fri night AEDT). There is still a lot of uncertainty around the scope and size of the reciprocal tariffs, especially when it comes to how non-tariff barriers like GST/VAT might be factored in. We think it is likely that whatever is announced will ultimately be tweaked and negotiated in coming weeks. Hence, while renewed bouts of turbulence may generate intermittent USD strength in the near-term, over the longer-run we remain of the view that the USD should trend lower as growth differentials between the US and other major nations narrow and as a loosening in the US labour market brings interest rate cuts by the US Fed back on the agenda. On this front we believe there is a risk the US jobs report underwhelms.
Global event radar: China PMI (Today), RBA Meeting (Tues), EZ CPI (Tues), US Reciprocal Tariffs (Tues/Weds), US Jobs (Fri), Fed Chair Powell (Sat), RBNZ Meeting (9th Apr), US CPI (10th Apr), BoC Meeting (16th Apr), ECB Meeting (17th Apr)
Trans-Tasman Zone
Worries about the US macro-outlook and resultant weakness in equities (see above) exerted some downward pressure on cyclical currencies like the AUD (now ~$0.6289) and NZD (now ~$0.5717) on Friday. However, taking a step back from the intra-day swings shows that on net the AUD inched higher last week and is still hovering closer to its March average. The backdrop also saw the AUD underperform most of the other major currencies at the end of last week with falls of ~0.2-0.5% recorded against CNH, CAD, GBP, and EUR. AUD/JPY was the largest mover on Friday with the broad-based JPY strength on the back of the shaky sentiment and lower bond yields dragging it ~1.1% lower (now ~94.20).
As discussed, the event calendar heats up this week. Today, the China PMIs are due (12:30pm AEDT), Eurozone inflation is also out (Tues), as is the US jobs report (Fri). Added to that the RBA meets (Tues), US Fed Chair Powell speaks (Fri night AEDT), and the US is set to announce ‘reciprocal’ tariffs (Weds AEDT). With respect to the RBA, given the easing cycle has started, the chance of another rate cut this week shouldn’t be viewed as zero. That said, we do feel it is a low probability (markets are assigning a ~9% chance, and only 1 of the 30 analysts surveyed is forecasting it). In our opinion, the 20 May RBA meeting is the next most likely time for another rate cut as this would allow policymakers time to digest this week’s US tariff news, incorporate the quarterly Australian CPI (released 30 April) into its forecasts, gauge the state of the local jobs market (next report is due 15 May), and avoid the politics of the Australia Federal Election (takes place on 3 May).
As outlined over the past few weeks, more short-term bursts of AUD volatility should be anticipated around the upcoming US tariff announcements. But we don’t expect any further falls in the AUD to be overly large or long-lasting. Over the medium-term we continue to believe there is more upside than downside potential for the AUD. A decent amount of negativity still looks factored in (the AUD is ~4 cents below our 'fair value' models). The AUD has not traded much below where it is over the past decade (AUD has only closed below $0.63 ~3% of the time since 2015). Structural forces that supported the AUD at these low levels remain (i.e. Australia’s improved capital flow trends and higher terms of trade). And when it comes to trade risks we also think any tariff induced export pain in China should be offset via measures aimed at boosting commodity-intensive infrastructure investment. This is where Australia’s key exports are plugged into. Added to that Australia’s direct trade relationship with the US is limited (only ~4% of Australia's exports are sent to the US).
AUD & NZD event radar: China PMI (Today), RBA Meeting (Tues), EZ CPI (Tues), US Reciprocal Tariffs (Tues/Weds), US Jobs (Fri), Fed Chair Powell (Sat), RBNZ Meeting (9th Apr), US CPI (10th Apr), BoC Meeting (16th Apr), NZ CPI (17th Apr), AU Jobs (17th Apr), ECB Meeting (17th Apr)
AUD levels to watch (support / resistance): 0.6220, 0.6260 / 0.6320, 0.6360
NZD levels to watch (support / resistance): 0.5650, 0.5690 / 0.5760, 0.5800
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
MONDAY (31st March) JPY Industrial Production (Feb P) (10:50am) NZD ANZ Activity Outlook (Mar) (11am) CNY PMIs (Mar) (12:30pm) EUR ECB’s Panetta & Villeroy Speak (7pm) EUR Germany CPI Inflation (Mar P) (11pm)
TUESDAY (1st April) USD Chicago PMI (Mar) (12:45am) JPY Tankan Survey (Q1) (10:50am) AUD Retail Sales (Feb) (11:30am) CNY Caixin PMI – Manufacturing (Mar) (12:45pm) AUD RBA Decision (2:30pm) AUD RBA Gov. Bullock Speaks (3:30pm) GBP BoE’s Greene Speaks (7:15pm) EUR ECB's Cipollone Speaks (7:30pm) EUR CPI Inflation (Mar P) (8pm) EUR ECB President Lagarde Speaks (11:30pm)
WEDNESDAY (2nd April) USD Fed’s Barkin Speaks (12am) USD JOLTS Job Openings (Feb) (1am) USD ISM Manufacturing (Mar) (1am) EUR ECB’s Lane Speaks (3:30am) AUD RBA’s Kent Speaks (10:25am) AUD Building Approvals (Feb) (11:30am) EUR ECB’s Schnabel Speaks (9:30pm) USD Reciprocal Tariff Announcement (no set time) USD ADP Employment (Mar) (11:15pm)
THURSDAY (3rd April) USD Reciprocal Tariff Announcement (no set time) USD Fed’s Kugler Speaks (7:30am) AUD Job Vacancies (Q1) (11:30am) AUD Trade Balance (Feb) (11:30am) AUD RBA Financial Stability Review (11:30am) CNY Caixin PMI – Services (Mar) (12:45pm) EUR ECB's Guindos Speaks (6:20pm) EUR ECB's Schnabel Speaks (9pm) EUR ECB Meeting Minutes (10:30pm) USD Trade Balance (Feb) (11:30pm) USD Initial Jobless Claims (11:30pm)
FRIDAY (4th April) USD ISM Services (Mar) (1am) USD Fed’s Jefferson Speaks (3:30am) USD Fed’s Cook Speaks (5:30am) AUD Household Spending (Feb) (11:30am) EUR Germany Factory Orders (Feb) (5pm) CAD Jobs Report (Mar) (11:30pm) USD Jobs Report (Mar) (11:30pm)
SATURDAY (5th April) USD Fed Chair Powell Speaks (2:25am) USD Fed’s Barr Speaks (3am) USD Fed's Waller Speaks (3:45am)
*Note, all times/dates provided are AEDT
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