Reports the US 'reciprocal tariffs' will come in three bands, differing by country and industry. Wall Street rises. US Treasury yields rise

'Liberation Day' has arrived and in a couple of hours (from 9am NZ time) we’ll find out where President Trump and his team have landed on applying reciprocal tariffs. US equities and Treasuries had a rollercoaster session overnight, with much weak risk sentiment showing a sharp reversal and both equities and rates are higher.  The NZD has sustained the gain seen during NZ trading hours and sits comfortably above 0.57.

Speculation has been rife in the weeks leading up to the reciprocal tariff announcement and about all we know so far, as noted by the White House yesterday, is that they will apply to all countries and effective immediately.

Reports were swirling yesterday, according to insiders, that a final decision had yet to be made on whether to proceed with a tiered tariff system, a more targeted approach, or other options still under consideration. In the last hour or so, Sky News reported that there will be three separate bands of tariffs, 10%, 15% and 20% and the bands will differ both by country and industry, according to a White House source.  The specific band each country or industry is placed into will depend on how the White House views each country's barriers to entry for trade.

After today’s announcement, countries will be able to negotiate with Trump to whittle them down.  Fair to say that even after today, the scope of tariffs will likely remain uncertain. More tariff announcements on sector specific goods like pharmaceuticals, semiconductors and lumber remain are still to come at some future date. The only thing we can be certain about is that as a result of the tariffs, US inflation will be higher, and growth will be lower. The uncertainty about the outlook won’t go away and that is already impacting consumer spending and investment decisions.

Any retaliation by countries needs to be considered in assessing the outlook and how deep the trade war will run.  Bloomberg published a sourced report saying the EU is preparing a package of potential emergency measures to support parts of the economy that could be hit hardest by the tariffs. The package was said to depend on what the US announces, and the EU is not expected to retaliate immediately, instead taking time to assess the situation before proposing a response. European rates and the euro moved higher after the report.

Bloomberg also reported that over recent weeks China has taken steps to restrict local companies from investing in the US, a move that could give it more leverage for potential trade negotiations with President Trump.

Risk appetite weakened overnight and the S&P500 opened down more than 1% before sharply reversing course and it is up ½% as we go to print, fuelled by speculation that the tariffs will be more lenient than previously thought. Reports that Elon Musk is set to leave his government role soon, as agreed with President Trump, might have also contributed to the swing. The US 10-year Treasury yield fell to as low as 4.11% when risk appetite was at its worst, before rising sharply, up to 4.22%, and now 4.20% as we go to print, barely higher from the NZ close.

Apart from the yen, currency markets have shown less inclination for swinging, compared to rates and equities.  The USD has grinded lower, with the DXY index down 0.4% for the day. The NZD added to gains seen during the local trading session and met some resistance just under 0.5750.  EUR added to gains after the noted Bloomberg report and trades just over 1.0850. After regaining the 0.53 handle, NZD/EUR is back below the figure. The yen strengthened before reversing course as risk appetite turned around.  USD/JPY is back above 150 after falling towards 149. The AUD has underperformed against the NZD, with NZD/AUD pushing up through 0.91.

The economic calendar has been light, with the only release of note being US ADP private payrolls rising a stronger than expected 155k in March. As a predictor of the important non-farm payrolls release at the end of the month, ADP employment performs worse than naïve statistical models.

In the domestic rates market, NZDM successfully completed the syndicated tap of the 2032 bond, with $4b issued at a margin of 14bps over the 2031, at the tight end of the indicative pricing range, and with demand exceeding $18b. NZGB yields ended the day down 1-3bps across the curve, with a flattening bias.  The 2-year swap rate was flat at 3.37% and the 10-year rate fell 2bps to 4.09%.

In the day ahead, once we get over Trump’s tariff announcement, RBA Governor Bullock gives testimony in front of lawmakers, following the decision earlier in the week to keep the policy rate unchanged.  The only top-tier economic release is the US ISM services survey tonight, expected to show some slippage in March.