Markets are pricing in risks of tariffs with diverging movements across regions and asset classes.
Tariffs risks saw US and Asian equities retreat while European equities outperformed.
However, most G10 currencies outperformed the USD. Commodity- linked currencies like the CAD, AUD and NOK performed best.
The yield curve shifted down across most major markets as investors flocked to safe havens.
This theme also saw support for gold which hit a record high in the session.
On the Eve of Liberation Day, markets priced in their positions. There remains a distinct lack of clarity around what the tariffs may look like but rumours suggest there will be at least a 20% tariff across most imports to the US with some expecting tax deductions for buying US-made goods. Volatility remains high with the MOVE posting a second day of increases while the VIX tempered a little after four days of increases.
Despite tariff risks, the S&P500 closed 0.4% higher while the NASDAQ was up 0.9%. The Dow Jones finished flat. European markets were the outperformers – the Euro Stoxx 50 was up 1.4% and the German DAX 1.7%. A constructive inflation print supported European equities but most of the gains were seen when markets opened in the US. Markets were more cautious in Asia. The Japanese Nikkei closed flat as did Shanghai’s CSI 300. Hong Kong’s Hang Seng was up 0.4%. India’s NIFTY50 was down 1.5% the fall happening early in the session. At present, India has the third highest effective tariff rate against the US at 2.25% and will likely be subject to reciprocal tariffs hampering growth. Despite a slow start to the day, the ASX 200 began its ascent at around 12pm and finished 1.0% higher even as the RBA kept rates on hold.
Meanwhile, the US yield curve flattened with the 10Y down 4bps and the 2Y down 1bp. Markets continue to price in a third cut for 2025. The next cut is expected to come in July followed by another in September. In Europe, the German yield curve shifted lower across all tenors, notably the 10Y Bund yield was down 5bp while the 2Y was down 3bps. UK Gilt yields were also down, the 2Y down 2bps while the 10Y down 4bps. Aussie yields are also anticipated to fall, the 2Y and 10Y futures is down 3bps. Swaps market pricing was little changed with the next rate cut fully priced in for July and three cuts priced for 2025.
The US dollar index was little changed in the session finishing at 104.23. The strongest performer was the CAD after Prime Minister Carney vowed to retaliate on tariffs and support the auto sector. The CAD finished at 1.4300 against the USD. The AUD was the next cab off the rank, appreciating through most of the day to 0.6276. There was little change during our day, much of the leg up happened at US open. The euro weakened despite the exuberance in equity markets closing at 1.0790.
Gold prices hit another record high of 3149.00/oz before moderating to 3118.84/oz. A flock to safe haven assets as markets prepare for tariffs drove this move. Crude oil prices fell 0.4% to US$71.2 per barrel. US President Trump’s threat to impose secondary tariffs on buyers of Russian oil saw refiners in India look to other suppliers for the May delivery. Production is anticipated to ramp up over coming months. Upbeat sentiment data from China saw copper prices pick up but this optimism was quickly unwound by worries of US tariffs on growth. Copper finished 0.2% lower to 9693.
