Financial markets have been wild overnight, with extreme volatility due to poor liquidity conditions and not helped by an active session by President Trump on his social media account, including the threat of an additional 50% tariffs against China. As we go to print, US cash equities show a modest gain, wiping out early losses. US Treasury yields are much higher, and the NZD has continued to languish in the 0.55s but importantly the key support level of 0.55 has held.
The weekend US news cycle was replete with stories of Trump and his team digging their heels in, justifying their stand on punitive tariffs, and feigning a lack of concern about the market reaction or updated forecasts by some showing US economic recession as a base case on current policy. Trump said “Sometimes you have to take medicine to fix something”.
The result was another massive risk-off trading session during NZ trading hours. Asian equity markets were particularly hard hit, with the Hong Kong’s Hang Seng down 13.2%, Japan’s Nikkei down 7.8%, and China’s CSI300 down 7.1%, against a backdrop of lower global rates, tumbling commodity prices and the NZD and AUD significantly underperforming.
In the overnight trading session, volatility has been significant. Getting the market’s attention was a report of Economic Council Director Hassett saying that Trump is considering a 90-day pause in tariffs for all countries except China. There was an immediate 6% surge in the S&P500 before unwinding as the White House subsequently dismissed this report as “fake news”.
President Trump has added to market volatility with a series of social media posts, including further nonchalance about the market reaction, noting “oil prices are down, interest rates are down” and “President Trump is not going to bend”. He happily pointed out that China’s markets are crashing while not mentioning the same happening with US equities. He noted that more than 50 countries have reached out to him to begin a negotiation. Australian beef got a mention, as he reposted a quote “Australia has sold $29b worth of beef in the US, and we haven’t been able to sell one hamburger in the Australia because of barriers”.
Trump’s longest post, however, was dedicated to China, where he added “…if China does not withdraw its 34% increase above their already long-term trading abuses by tomorrow, April 8th, 2025, the United States will impose ADDITIONAL Tariffs on China of 50%, effective April 9th. Additionally, all talks with China concerning their requested meetings with us will be terminated!”
With China already about to face average US tariffs close to 70%, which will all but annihilate trade with the US, the threat of further Chinese tariffs is hollow and Trump may as well threaten tariffs of a million percent – the tariff rate becomes irrelevant after a certain level. Yesterday, there were reports of China looking to front load stimulus measures to support its economy. On the daily CNY fix, the PBOC allowed for a another small depreciation but still not tempted to unleash a much weaker yuan at this stage.
In terms of the EU’s likely retaliatory response to tariffs, a senior EU official said that member states are expected to vote on a final list of US goods that will be subject to the bloc’s retaliation for US metals tariffs, but they won’t target the same value of goods as the US tariffs. Media are reporting that the EU is considering 25% tariff rates. Then there will be discussions on how to respond to the US reciprocal tariffs. The EU has again offered “zero-for-zero” tariffs for industrial goods during trade discussions with US officials, but the US hasn’t responded.
Turning back to the markets, the S&P500 has traded a massive range overnight – down 4.8% near the open and up 3.4% at the peak following the “fake news”. With just an hour left of trading the index shows a small gain. The Euro Stoxx 60 index closed down 4.5%, while the UK FTSE 100 closed down 4.4%. Reflecting panic in the market, the VIX index rose to as high as 60, a rare event, and currently at 46.
After trading between 3.85-3.95%, during the NZ trading session, the US 10-year Treasury rate pushed higher as European markets opened. It traded as high as 4.21% overnight, and currently sits at 4.15%. The curve has steepened, with the 2-year rate rising by less. The market is grappling with questions about the likely persistent of US inflation as a result of the tariffs and the scope for the Fed to ease policy against such an inflationary backdrop, even in the midst of rising recession risk.
In the currency market, the NZD and AUD have underperformed since the weekend close while CHF has outperformed. The NZD traded an overnight low of 0.5507, importantly not breaking below key support around 0.55. It spiked up to a high just over 0.5640 on the “fake news” report and is around 0.5530 as we go to print. The AUD is languishing sub 0.60 after a brief overnight spike above 0.6125.
In overnight trading, GBP and JPY have actually underperformed the NZD, resulting in NZD higher cross movements from where we left them yesterday. NZD/EUR has probed fresh post-COVID lows around 0.5040.
In the domestic rates market, there was little appetite to dive into NZGBs, with the market significantly underperforming on a cross-market basis and against swaps. While rates were lower at the short end of the curve, the 10-year rate rose 5bps to 4.39% and the ultra long bonds were up 9bps. The 2-year swap rate fell 9bps to 3.10% while the 10-year swap rate fell 3bps to 3.89%.
On the economic calendar today, the NZ quarterly survey of business opinion will provide a snapshot of how businesses were faring ahead of the latest tariff shock, now of only academic interest. Likewise, the other surveys out today, on Australian consumers and businesses and US small businesses. Market attention will remain on the ongoing news on tariffs.
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