In the case of China, which according to the Trump administration charges 67% tariffs on US goods after including non-tariff barriers, Chinese goods will now face 34% reciprocal tariffs. The European Union, which charges 39% tariffs, will now face 20% reciprocal tariffs. As for other countries cited by the US President, reciprocal tariffs of 24% have been announced for Japan, 31% for Switzerland, 25% for South Korea, and 10% for the United Kingdom. All motor vehicles imported into the United States will face a 25% tariff. The tariffs that have just been announced were in most cases higher than expected. For additional insight, consult the White House Fact Sheet, and the first comments by our economists, Discounted reciprocal tariffs applied to on Liberation Day. Global financial markets are hit badly by the announcement. US and European equity-index futures tumbled (S&P500 -3%; Eurostoxx 50 -2.2%) along with the dollar (DXY -1% to 102.7; EUR/USD +0.9% to 1.0945), while Asian shares fell (Nikkei -2.95%, Japanese banks -7%). US 10-year Treasury yields slumped to the lowest level in more than five months to 4.03%, while JPY surges 1,3% vs USD.
Rates: while the € rates market was trending lower in anticipation of the announcement of US reciprocal tariffs, a rebound kicked in at the end of the session on the news concerning the EU, which is said to be preparing emergency measures to support sectors likely to be affected by the tariffs imposed by the US administration. The yield for the 10Y Bund rose by 3bp to 2.72%, while the yield for the 2Y Schatz put on 2bp to 2.04%. The 2Y-10Y segment of the € swap curve steepened by 1bp to 45bp. The market put at 75% the probability of a 25bp rate cut by the ECB at its April meeting. Sovereign spreads tightened slightly by around 1bp. The 10Y OAT-Bund spread closed at 71bp and the 10Y BTP-Bund spread at 110bp.
Equities: European equity indices were in the red ahead of the tariff announcement. However, indices recouped some of their losses in the second half of the session, with the bond market switching from a bull flattening to a bear flattening configuration. In the case of the SXXE, travel, retail and construction outperformed, while telecoms, healthcare and real estate fell back. The V2X closed above 21.
Credit: slight widening of iTraxx indices (+0.4bp for the Main, +2bp for the X-Over) in a calm market ahead of the Liberation Day announcements last night. Cyclical names again underperformed the Main (3bp widening by Alstom and Electrolux, 2bp widening by Saint-Gobain and Lufthansa in particular). As for the cash market, it was above all automotive suppliers that continued to suffer from the tariff uncertainty: the Forvia 5.625% 2030c27 widened by 10bp against swap, while the recently issued Schaeffler 3Y and 6Y held up better. On average, the sector’s spreads widened by 2bp against swap. Turning to the primary, Advanz Pharma and Miller Homes placed €620m and €480m, respectively, in the high yield market, with prices for the Advanz Pharma issue giving up 0.35p at the close.
FX: the DXY dollar index shed 0.41% to 103.8 ahead of the US tariff announcement, ignoring the day's better-than-expected US macroeconomic data (see below). Among G10 currencies, Japanese yen and Swiss franc, two safe haven currencies, were the only ones not to appreciate against the US dollar, with the yen off 0.4% (USD/JPY at 150.19), while the Swiss franc treaded water (USD/CHF at 0.8833). The euro did end up appreciating to 1.0873 against the US dollar, mainly in the second half of the session, after hovering around 1.08 for a long time. The Swedish krona was the currency that appreciated the most against both the US dollar (+0.85%) and the euro (+0.36% to its highest level since November 2022, with the EUR/SEK at 10.7314). As for emerging currencies, the Latin American currencies all fell against the greenback (losing 0.3% on average).
