Markets have begun the week on a calmer note but there have still been some noteworthy movements, including a strong rally in US Treasuries, reversing some of last week’s hefty move. Global equity markets are stronger and the NZD has outperformed, adding to last week’s strong recovery and making a fresh 2025 high just over 0.5890.
Overnight, President Trump indicated he is looking at providing some relief to the auto sector by scaling back fresh tariffs, saying “I’m looking at something to help some of the car companies, where they’re switching to parts that were made in Canada, Mexico and other places, and they need a little bit of time, because they’re going to make them here”. Trump added that “I don’t change my mind, but I’m flexible”.
This move on the auto sector follows the late Friday announcement to backtrack on some electronic goods from China to help Apple. Over the weekend, he played down the temporary exemption from reciprocal tariffs given to some electronic goods, saying “NOBODY is getting off the hook”, adding that those goods will be just moving to a different tariff bucket.
Still to come, details on tariffs for semiconductors will be announced in the coming week and will likely come into effect in a month or two, while tariffs on pharmaceuticals will be rolled out in the “not too distant future”.
The backtracking on previous announcements only serves to highlight the chaotic nature of the tariffs policy, the uncertainty around their implementation, and the scope for “favours” for companies that get in President Trump’s ear. This isn’t a conducive environment for businesses to invest and we’ve already seen the impact of the tariff policy on consumer sentiment.
In terms of negotiating new country trade deals, Treasury Secretary Bessent said he is prioritising the UK, Australia, South Korea, India and Japan as among his top targets.
Market conditions have remained choppy but not nearly as bad as last week. Still the S&P500 has traded a high/low range for the session of 1.9%, with strong early gains wiped out before the market recovered again. The index up over 1% with an hour of trading to go. European markets showed strong gains, with the UK FTSE100 up 2.1% and the Euro Stoxx 600 index up 2.7%.
US Treasuries broke a five-day losing streak, with the 10-year rate down 13bps from Friday’s close to 4.36%, near the bottom edge of the range for the day. It has been a relatively steadily grind lower from the Asian open. Rates are down across the curve, with the 5-year rate showing an even larger 16bps fall, while the 2-year rate is down 13bps.
Former Treasury Secretary Yellen said that the recent selloff in Treasuries signalled a worrying drop in confidence in American policymaking, rather than a dysfunctional event that warrants Fed intervention.
Fed Governor Waller outlined two scenarios for the economy based on “large tariff” and “small tariff” policies, with the result of higher inflationary proving to be temporary in both. If the economic slowdown is significant and even threatens a recession, he would favour rate cuts “sooner and to a greater extent than previously thought”. Under the smaller tariff scenario he would support a limited monetary response, with rate cuts “very much” on the table for the latter half of 2025.
In currency markets, the USD has been mixed, with falls against most majors but flat against EUR and CAD. The DXY index is lower for a fifth consecutive day, down 0.4%, although Friday’s intraday low of 99.0 has held. A Bloomberg survey showed 77% of respondents expected the Bloomberg dollar spot index to trade lower over the next month, driven down from further rotation out of US assets.
Adding to last week’s outperformance, the NZD sits top of the daily leaderboard, with a gain of 1% from last week’s close to 0.5885, after reaching a fresh 2025 high just over 0.5890 overnight. The AUD is up 0.8% to 0.6340, with NZD/AUD pushing up to 0.9290. NZD/EUR is up just over 1% to 0.5185, NZD/JPY is back over 84 while NZD/GBP is modestly higher at 0.4460.
Yesterday, Chinese trade data showed a record trade surplus as exports surged, given the front-loading of activity ahead of tariffs. Even though China faced an extra 20% tariff imposed in February and March, shipments to the US continued to grow, ahead of anticipated additional tariffs. There were also signs of China increasing shipments to countries across Southeast Asia. The additional 145% tariff rate that hit during April, being the equivalent of a trade embargo, should see Chinese exports to US diminish towards zero.
In the domestic rates market, NZGBs performed better, reversing some recent underperformance. The curve significantly flattened, with rates modestly higher at the short end and ultra-long bond yields down 8bps. The 10-year rate closed down 4bps to 4.72%, against a 1bp fall in the 10-year swap rate. The 2-year swap rate rose 3bps to 3.15%.
In domestic data of note, the performance of services index showed further signs of stabilisation in March, with the composite index consistent with weak economic growth – better than the recessionary conditions endured over much of the past two years, but consistent with only a mild recovery at this stage. This was underlined by very weak electronic card spending data for March.
On the economic calendar in the day ahead, UK labour market and Canadian CPI data are the key releases. NZ monthly pricing indicators will help firm up Q1 CPI estimates for Thursday’s release. The RBNZ’s Conway delivers a speech on the RBNZ’s forecasting process.
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