Soft risk tone overnight as uncertainty about US trade policy weighs on investor sentiment. US traded copper futures reach a record high after a 25% plus gain since the start of the year

There was a soft risk tone overnight with US equities reversing some of the gains from earlier in the week. The S&P is close to 1% lower in early afternoon trade amid further tariff uncertainty. It was reported that President Trump will announce taxes on US car imports this morning, ahead of the broader imposition of tariffs, next week. Treasury yields moved modestly higher, and the US dollar was mixed against G10 currencies.

In commodity markets, US copper futures hit a fresh record high after it was reported that the US may implement copper import tariffs within weeks. New York traded copper futures prices have gained more than 25% since the beginning of the year. Oil prices extended recent gains with brent crude trading up towards US$74 per barrel, the highest level since early March.

US treasuries are modestly higher in yield with a curve steepening bias. 10-year notes are yielding 4.34%, up towards the top end of the trading range from the past month. Chicago Fed President Goolsbee noted that if market-based long-run measures of inflation began to rise like consumers’ inflation expectations, that would be concerning and could impact policymakers’ easing bias.

UK inflation was softer than expected but remains well above the Bank of England’s (BOE) target. Headline CPI decreased to 2.8% y/y from 3.0% in January. However, headline CPI is expected to rise over coming months with higher utility prices and increased employer taxes the key drivers. Core inflation in February also was below expectations at 3.5% y/y though services inflation remained elevated at 5.0% y/y.

UK Chancellor Reeves outlined cuts to government spending in the midyear statement required by fiscal rules after a downward revision to growth forecasts by the Office for Budget Responsibility. Its 2025 growth projection was reduced to 1% from 2% previously. Gilts rallied and the curve flattened, on the announcement of less bond sales for the upcoming fiscal year, and with issuance skewed less towards longer maturities.

The market is pricing in around 20bp of easing by the BOE at the May meeting compared with 15bp ahead of the CPI data. The market continues to expect a cautious easing cycle with a total of 47bp of cuts priced by December. The pound fell with EUR/GBP gaining around 0.3%. NZD/GBP traded up towards 0.4460, but is only modestly above the 0.4395 multi-year low, reached earlier in March.

Except for the pound, currency markets were subdued overall with small absolute moves against the dollar. NZD/USD traded up towards 0.5760 before retracing to be little changed from the local close.

The Australian headline CPI indicator edged lower to 2.4% y/y in February, modestly below consensus estimates. The annual rate for the trimmed mean measure, which excludes volatile items, decreased to 2.7% from 2.8% in January. Australian front end rates dipped immediately after the release, but then retraced, with similar price action for the AUD. The RBA is widely expected to leave rates steady at its April meeting and there is around 18bp of easing priced by May.

NZ swap rates moved modestly lower in the local session yesterday. 2-year rates dipped 4bp following the Australian CPI print but retraced to close 1bp lower at 3.40%. The session low near 3.38% correspond with the base of the range through March. 10-year government bonds closed unchanged at 4.62%. Australian 10y bond futures are around 2bp higher since the local close yesterday, which suggests an upwards bias, for NZ yields on the open.

The weekly government bond tender is scheduled today. NZ Debt Management is auctioning NZ$500m of nominal bonds across the May-2029 ($250m), May-36 ($200m) and May-2054 ($50m) lines. The May-2054s are offered for the third consecutive week, suggesting an increase in indicated demand from investors, with the NZGB 10y/30y curve back towards the highs. NZ$25m of Sep-2040 inflation indexed bonds being will also be tendered.

There is no domestic economic data of note today. The calendar is US centric and only second tier releases. The advance goods trade balance and pending home sales for February are scheduled. Initial jobless claims are expected to remain steady at 225k.