Financial Markets:
Financial markets were on the back foot again, reacting to President Trump’s announcement of 25% tariffs on automobile imports from 2 April. Import flows Mexico, Japan and South Korea, Canada, and EU countries, the biggest exporters of automobiles to the US, are likely to be affected the most. US consumers will also be directly hit as tariffs will put upward pressure on domestic vehicle prices. Comments from St Louis Fed President Musalem on inflationary impact from tariffs highlighted that they might be longer-lasting prompting the Fed to keep interest rates higher for longer.
• The US equity markets reacted negatively to the tariff news, with the S&P500 index falling 1.1% after three consecutive days in green. The losses were led by mega-caps, including Nvidia and Tesla. European stocks were also hit significantly, with automakers selling off to leave Euro Stoxx 50 down 1.2%. FTSE100 in the UK, major equity markets in Asia, and domestic ASX200 traded in green in yesterday’s session.
• In FX markets, tariff news supported the USD index, which gained 0.4% reaching 104.6, the highest level since the first week of this month. GBP weakened 0.4% on the back of the downside surprise to the UK CPI figures. EUR was a touch more resilient, falling 0.3%. AUD dipped back below 0.63 as the monthly CPI indicator missed consensus estimates.
• Inflationary concerns from tariffs pushed US Treasury yields higher, with the 10Y gaining 4bp. Australian government bond yields were around 5bp higher across the curve, despite the decline in monthly inflation. Gilts in the UK rallied, with the 10Y yield down 3bp, as the UK Chancellor Rachel Reeves in her Spring Statement confirmed plans for public spending cuts. The 10Y Bund yield was steady at 2.80%.
• Crude gained on EIA data showing that US oil inventory fell by the most since late last year. The WTI rose 1.3% to $69.9. Copper was lower on the LME as reports suggested that US tariffs on copper imports could be coming within ‘several weeks’. Iron ore ticked higher helped by signs of Chinese steel mill maintenance ending lifting demand. Gold closed relatively unchanged yesterday, trading around the $3020 level.
