China stops ordering new Boeing aircraft and halt purchases of aircraft and parts from US companies. No progress on EU-US trade negotiations. But financial markets calmer

Markets have been relatively calm compared to recent weeks, with only a couple of negative trade war-related headlines to digest.  US equities are flat, and the US 10-year Treasury yield has fallen for a second successive day, further reversing some of last week’s chunky rise. While the USD is broadly stronger overnight, the NZD has sustained much of the rally seen during local trading hours that saw it trade with a 0.59 handle for the first time this year.

In new trade-related headlines, China told its airlines not to place new orders for Boeing jets, seek approval before taking delivery of previously ordered Boeing aircraft, and halt any purchases of aircraft-related equipment and parts from US companies. Some Boeing aircraft destined for Chinese airlines have already been completed and are awaiting delivery.

The outcome of meetings between the EU and US on trade negotiations is that little progress has been made. An EU trade spokesman said the EU again offered to mutually drop all industrial goods tariffs to zero and the US side failed to set out its demands. Bloomberg reported that US officials indicated that the new 10% baseline tariff rate as well as other tariffs on autos and metals would not be removed outright. The EU’s proposed retaliatory tariffs against the tariffs on steel and aluminium remain on pause, pending further negotiations.

In economic news, the US Empire manufacturing survey is the first regional survey to be released capturing the early Liberation Day tariff impact. While the headline figure bounced back to -8.1 in April (from the terrible -20.0 reading in March) the future general business conditions index fell to its second lowest reading in the more than 20-year history of the survey, while the prices paid and received indices rose to their highest levels in more than two years, fitting the stagflation narrative normally associated with large-scale tariffs.

Canada’s headline CPI inflation was much weaker than expected, falling to 2.3% yoy in March from 2.7%, but this didn’t sway market or analyst expectations that the Bank of Canada is more likely to take a pause on the easing cycle, than cut rates again, at tonight’s policy meeting.

UK labour market data showed a steady unemployment rate of 4.4% and slightly weaker than expected, but still strong, wage inflation data, with annual increases running just under 6%.

With an hour of trading to go, the US S&P500 index is currently flat, losing early gains, with the high/low trading range of around 1% less than we’ve recently been accustomed to.  European equity markets were stronger, with gains in the order of 1½%.

In the bond market, European yields are modestly higher while US Treasury yields have fallen for a second successive day.  The 10-year rate is currently near the bottom of its daily trading range, down 6bps for the day to 4.32% or 3bps lower from the NZ close.  This takes the two-day fall to 17bps, still only partially reversing the 50bps gain last week.

Bank of America’s latest Global Fund Manager survey showed a net 61% expect the USD to depreciate over the next 12 months, the most since 2006. The report also showed a record number of global investors, a net 53%, intend to cut their exposure to US equities.

Following its recent poor run, the USD is broadly stronger overnight.  After last week’s surge in the euro that saw it blast up through 1.1450, some profit-taking has been evident and EUR/USD is back down to 1.1270. GBP has held its ground against a stronger USD, and trades over 1.32, attributed to comments earlier this week by US Vice President Vance that there was a “good chance” a trade deal could be reached with the UK.

The NZD saw a further recovery during NZ trading hours that took it above 0.59 for the first time this year and it made an overnight high of 0.5944, before a stronger USD took over and slipped just below 0.59 this morning. Still, the NZD is the best performing of the majors over the past 24 hours, meaning it is higher on all the key crosses. NZD/AUD rose to 0.9320 before slipping just below 0.93. NZD/EUR rose to 0.5250 before slipping a little. NZD/GBP met some resistance just under 0.45 before falling back to 0.4465. NZD/JPY took a peek above 85 and now sits near 84.5.

In the domestic rates market, it was another day of lower interest rates owing to global forces, and NZGB outperformance on a cross-market basis and against swaps, reversing previous underperformance.  Maturity of the April-2025 bond and 15-April being a big coupon day likely helped. While the short end of the curve showed modest falls in yield, rates were down 14-15bps at the longer end of the curve. In the swap market the 2-year rate closed unchanged at 3.14% while the 10-year rate fell 9bps 4.07.

On the economic calendar, China Q1 GDP and monthly activity indicators for March are released, with figures supported by some front-loading of activity ahead of fresh US import tariffs. For the same reason, US retail sales for March are expected to be solid. UK CPI data are expected to show some moderation in inflation. The Bank of Canada meets and is widely expected to take a pause in the easing cycle. Fed Chair Powell speaks to the Economic Club of Chicago, where focus will be on any comments regarding the tariffs and policy implications.