The markets were taken by surprise when President Trump dropped a new tariff announcement and the ADP jobs report came in blazing hot, causing a stir and influencing key assets across the board. From gold’s remarkable climb to the dollar’s unpredictable journey, here’s a breakdown of what moved and its significance.
Key Developments:
Australia’s building approvals for February saw a small dip of 0.3% month-on-month, against an anticipated decline of 1.4%. Last period’s result was a more robust 6.9%.
China appears to be tightening the reins on local companies investing in the U.S., according to Bloomberg. This is likely in response to ongoing trade tensions.
There is speculation that Trump’s so-called “Liberation Day” tariffs might actually be negotiable, which initially buoyed market risk sentiment on Wednesday.
The Reserve Bank of Australia (RBA) hinted at tighter funding conditions by planning to hike new OMO repo rates by 5-10 basis points over the cash rate target.
In the U.S., the March ADP employment numbers impressed with a 155,000 rise, significantly above the 60,000 forecast and previous 77,000.
February’s factory orders grew by 0.6%, surpassing the 0.3% expectation, though that’s a slowdown from the 1.7% rise prior.
The U.S. Energy Information Administration (EIA) reported a crude oil stock increase of 6.17 million barrels, contrasting with previous drops.
ECB’s Robert Holzmann sees no need for further cuts in interest rates.
In a decisive move, President Trump revealed a minimum 10% tariff on most imports, with much steeper rates imposed on imports from various countries.
Market Reaction Overview:
As traders awaited the "Liberation Day" tariffs, major assets didn’t decisively commit in early trading. Stocks managed an initial rebound but took a hit post-Trump’s briefing, especially in tech sectors due to their strong ties with Asian manufacturing. European markets showed caution, resulting in declines there as well.
Here’s a closer look at Trump’s tariff details:
- A baseline 10% tariff applies to all U.S. imports.
- China bears the brunt with an effective 54% tariff rate, factoring in an additional 34%.
- The de minimis exemption for low-value shipments from China has been axed.
- Manufacturing centers in Taiwan are facing tariffs exceeding 30%.
- There were no substantial tariffs announced for Canadian and Mexican goods.
Gold shot up to an all-time high of $3,140, as investors sought it for safety. Oil prices reacted by increasing to $72.20, despite an unexpected U.S. inventory build, although they settled back to around $70.65 amid demand concerns.
The 10-year U.S. Treasury yield initially dipped after the ADP employment and factory orders outperformed expectations but rebounded, reaching 4.13% amid fears of the new tariffs. Bitcoin maintained stability, hovering between $83,000 and $85,000, while ETFs with an Asian focus experienced significant outflows.
FX Market Insights: U.S. Dollar vs. Majors:
The dollar started on a shaky note, pressured by stronger Chinese manufacturing data which lifted the Australian and New Zealand currencies. This pattern held in Europe, with the dollar lagging but holding ground against the yen and the antipodeans.
In the U.S., promising data briefly boosted the dollar, as better-than-expected ADP employment figures and positive factory orders nudged yields higher. Yet, the USD/JPY couldn’t break past 149 due to persistent safe-haven demand.
As the countdown to Trump’s speech progressed, dollar movements became erratic. Once the tougher-than-expected tariffs were unveiled, particularly the 34% blow to China, the dollar spiked briefly, then fell back against traditional safe havens.
However, the dollar gained against emerging market currencies that are vulnerable to trade disruptions, capturing the nuanced market reaction to what one analyst described as "the most significant U.S. tariff levels in generations."
Upcoming Economic Calendar Highlights:
The European session sets off with Switzerland’s CPI and a series of final PMIs from France, Germany, and the Eurozone. Look out for the ECB meeting minutes and a potential shake from a speech by SNB’s Tschudin, which could impact EUR and CHF pairs.
In the U.S., key indicators on the docket include jobless claims, trade data, and the ISM services PMI. Fed speeches from Jefferson and Cook are scheduled, which could sway interest rate outlooks. Meanwhile, markets tread carefully in the wake of Trump’s tariff announcement, with implications for trade tensions and inflation.
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