No rest in a storm of volatility as China responds with matching 125% tariff

EU Mid-Market Update: No rest in a storm of volatility as China responds with matching 125% tariff; Doubt on US strategy and credibility weighing on US dollar.

Notes/observations

- A historically volatile week continues into weekend as China raises tariffs on US goods from 84% to 125%, matching the recent increase by Trump. However, key point that China said they will ignore any further tariffs, effectively capping rate at 125%. Optimism from 90-day tariff pause had already faded during Wall Street session yesterday, paring some of previous day's gains, just before Trump threatened additional tariffs on Mexico over 1944 Water Treaty, increasing headwinds for buyside.

- US dollar taking most heat from trade escalation, moving lower yet again, adding to ongoing weakness that sees traders embrace ‘sell everything US’ mentality and add positions to safe haven flows (specifically gold and Swiss Franc). US 10-year yield at 4.43%, 30-year nearly hit 5% overnight. EUR/USD hit 3-year high, surging to 1.14 and USD/JPY dropped to 142.4 (6-month low).

- Traditional macro catalysts from economic data and central bank speak remain less important as market pivots on every Trump comment. Worth noting, UK monthly GDP was better than expected and US PPI Final Demand to hit tapes at 08:30 ET.

- Asia closed lower with Nikkei225 underperforming -3.0%. EU indices -1.1% to -1.9%. US futures -0.7%. Gold +1.3%, DXY -1.5%; Commodity: Brent -0.5%, WTI -0.4%; Crypto: BTC -0.6%, ETH -3.5%.

Asia

- Japan Fin Min Kato reiterated that currency rates should be set by markets; Had agreed with US that would continue to closely communicate with US on FX at Minister level. Would continue to exchange views with G7 on US tariffs.

- Japan Econ Min Akazawa noted that US Treasury Sec Bessent had raised FX and non-tariff barriers as a topic. Still assessing impact of US tariffs on domestic industries. Difficult to decide now on most proper measures to rescue domestic firms from tariff impact.

- Potentially getting first view of what new US trade deals may look like: Thailand reported to regulate certificate of origin for US exports (going forward); Put more products in watch-list for US exports, while Vietnam govt to implement stricter checks against export of chips and dual-use goods with China, hoping to have US duties cut to 22-28% (v 46% last week):

- Further reports that Trump Admin may be considering delisting shares of Chinese public companies on US exchanges, and the White House confirmed that China's effective tariff rate is at 145% (125% combined with the 20% fentanyl tariff).

Europe

- EU Commission Pres Von der Leyen stated that EU would seek a "completely balanced" trade agreement with the US during the 90 day tariff pause. There was a wide range of countermeasures, in case the negotiations were not satisfactory. EU ready to dramatically expand the transatlantic trade war to services if those talks failed.

- EU leaders said to be planning trip to Beijing in July for summit with China President Xi Jinping.Trip signaling Brussels' intent to improve relations with China amid escalating U.S. trade tensions under Trump.

- BOE Dep Gov Breeden stated that the world had moved significantly since March MPC meeting; Overall, tariffs were likely to lower UK growth, and supply chain disruptions could be pushed higher.

Americas

- Pres Trump threatened additional tariffs on Mexico over 1944 water sharing treaty; President accusing Mexico of breaking an 81-year-old treaty and "stealing the water from Texas Farmers.

- Fed's Collins (voter) stated that might still be appropriate to cut this year; 10% effective tariff rate might push inflation well above 3%; Monetary policy was well positioned for a range of outcomes. Should guard against unmooring of inflation expectations.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -1.5% at 479.88, FTSE -0.5% at 7,781, DAX -2.1% at 20,155, CAC-40 -1.5% at 7,016, IBEX-35 -1.3% at 12,167, FTSE MIB -1.8% at 3,287, SMI -1.7% at 11,066, S&P 500 Futures -0.5%].

Market Focal Points/Key Themes: European indices opened higher across the board but quickly turned around to trade broadly negative as concerns over the trade situation reasserted themselves; among sectors managing to stay in the green are health care and materials; underperforming sectors include energy and telecom; oil & gas subsector under pressure despite crude prices as demand concerns gain traction; focus on US PPI figures coming out later in the day; unofficial start of earnings season with major American banks reporting; earnings expected in the upcoming US session include JPMorgan, Wells Fargo, Morgan Stanley and BlackRock.

Equities

- Consumer staples: Character Group [CCT.UK] -1.5% (withdraws FY guidance).

- Energy: BP [BP.UK] -2.0% (production update).

- Healthcare: Gerresheimer [GXI.DE] +4.5% (results).

- Industrials: Stellantis [STLA.FR] -4.5% (Q1 production results).

- Technology: Meyer Burger [MBTN.CH] -9.0% (prelim FY results).

Speakers

- China raised the tariffs on US goods from 84% to 125% and would ignore further US tariffs if imposed. No longer made sense if US imposed more tariffs. US should be solely responsible for markets turmoil.

- China State Council Customs Tariff Commission stance to fight to the end if US insists on continuing to substantially infringe on China's interest.

- ECB's Villeroy (France) stated that Trump's economic and financial agenda was wrong path; Deregulation sowed seeds for financial crisis.

- Spain PM Sanchez commented from Beijing that tariff rifts must not get in way of China-EU relations.

- Eurogroup Chief Donohoe (Ireland) stated that needed to de-escalate relationship with US. Have to assess trade elsewhere and see opportunities.

- Trump envoy Witkoff said to travel to Russia to meet Pres Putin (**Note: Reports that he later arrived in Russia).

Currencies/fixed income

- USD exhibited broad weakness during the Asian session with weakness continuing into Europe. USD Index hitting a 3-year low at 99.41. A ‘Sell America” theme was emerging. Dealers believing that the volatile tariff policy of Trump could erode confidence in the USD. Markets said to also incorporated the risk to Fed independence. Market appear to be signaling that the implementation of US tariffs had undermined confidence and point edto the wake of sharply lower equities, higher yields, higher gold and significant USD softness.

- EUR/USD hit a 3-year high as the pair tested above the 1.14 level.

- GBP/USD probed the 1.31 area.

- USD/JPY tested below 142.50.

- 10-year German Bund yield at 2.60% and 10-year Gilt yield at 4.70%. 10-year Treasury yield at 4.44%.

Economic data

- (FI) Finland Feb Current Account Balance: €0.5B v €0.4B prior.

- (UK) Feb Monthly GDP M/M: 0.5% v 0.1%e; 3M/3M: 0.6% v 0.4%e.

- (UK) Feb Industrial Production M/M: 1.5% v 0.1%e; Y/Y: +0.1% v -2.3%e.

- (UK) Feb Manufacturing Production M/M: 0.2% v 0.2%e; Y/Y: +0.3% v -2.2%e.

- (UK) Feb Construction Output M/M: 0.4% v 0.1%e; Y/Y: 1.6% v 1.7%e.

- (UK) Feb Index of Services M/M: 0.3% v 0.1%e; 3M/3M: 0.6% v 0.5%e.

- (UK) Feb Visible Trade Balance: -£20.8B v -£17.2Be; Overall Trade Balance: -£2.0B v -£1.4Be.

- (DE) Germany Mar Final CPI M/M: 0.3% v 0.3% prelim; Y/Y: 2.2% v 2.2% prelim.

- (DE) Germany Mar Final CPI EU Harmonized M/M: 0.4% v 0.4% prelim; Y/Y: 2.3% v 2.3% prelim.

- (SE) Sweden Mar Final CPI M/M: -0.7% v -0.7% prelim; Y/Y: 0.5% v 0.5% prelim; CPI Level: # v 419.08 prior.

- (SE) Sweden Mar Final CPIF M/M: -0.5% v -0.5% prelim; Y/Y: 2.3% v 2.3% prelim.

- (SE) Sweden Mar Final CPIF (ex-energy) M/M: 0.0% v 0.0% prelim; Y/Y: 3.0% v 3.0% prelim.

- (NO) Norway Q1 House Price Index Q/Q: 2.4% v 1.7% prior.

- (RO) Romania Mar CPI M/M: 0.3% v 0.3%e; Y/Y: 4.9% v 4.9%e.

- (ES) Spain Mar Final CPI M/M: 0.1% v 0.1% prelim; Y/Y: 2.3% v 2.3% prelim.

- (ES) Spain Mar Final CPI EU Harmonized M/M: 0.7% v 0.7% prelim; Y/Y: 2.2% v 2.2% prelim.

- (ES) Spain Mar CPI Core M/M: 0.4% v 0.3% prior; Y/Y (final): 2.0% v 2.0% prelim.

- (CH) Swiss Mar SECO Consumer Confidence: -34.8 v -32.0e.

- (TR) Turkey Feb Retail Sales Y/Y: 12.2% v 12.6% prior.

- (TR) Turkey Central Bank (TCMB) Apr Inflation Expectation Survey Next 12-month Outlook: 25.6% v 24.6% prior.

- (CN) Weekly Shanghai Copper Inventories (SHFE): 182.9K v 225.7K tons prior.

- (TH) Thailand May Foreign Reserves w/e Apr 4th: $246.9B v $245.3B prior.

- (RU) Russia Narrow Money Supply w/e Apr 4th (RUB): 17.95T v 17.94T prior.

- (CZ) Czech Feb Current Account Balance (CZK): B v 32.0Be.

Fixed income issuance

- (IN) India sold total INR320B vs. INR320B indicated in 2039 and 2065 bonds.

- (IT) Italy Debt Agency (Tesoro) sold total €9.0B vs. €7.25-9.0B indicated range in 3-year, 7-year and 15-year BTP bonds.

- Sold €3.5B vs. €3.0-3.5B indicated range in 2.65% Jun 2028 BTP bonds; Avg Yield: 2.44% v 2.77% prior; bid-to-cover: 1.55x v 1.58x prior.

- Sold €2.5B vs. €2.0-2.5B indicated range in 3.15% Nov 2031 BTP bonds; Avg Yield: 3.30% v 3.18% prior; bid-to-cover: 1.63x v 1.83x prior.

- Sold €1.5B vs. €1.25-1.5B indicated range in 0.95% Jun 2032 BTP bonds; Avg Yield: 3.34% v 3.36% prior; bid-to-cover: 1.80x v 1.72x prior.

- Sold €1.5B vs. €1.0-1.5B indicated range in 3.25% Mar 2038 BTP; Avg Yield: 4.06% v 3.85% prior, bid-to-cover: 1.82x v 1.61x prio.

Looking ahead

- (DE) Germany Feb Current Account Balance: No est v €11.8B prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2031, 2033 and 2043 Bonds.

- 05:45 (EU) ECB chief Lagarde.

- 06:00 (UK) DMO to sell £6.0B in 1-month, 3-month and 6-month bills (£1.0B, £2.0B and £3.0B respectively).

- Sells £1.0B in 1-month bills; Avg Yield: % v 4.3782% prior; bid to cover: x v 2.72x prior.

- Sells £2.0B in 3-month bills; Avg Yield: % v 4.4184% prior; bid to cover: x v 5.61x prior.

- Sells £3.0B in 6-month bills; Avg Yield: % v 4.3157% prior; bid to cover: x v 4.38x prior.

- To sell combined £B in 1-month, 3-month and 6-month Bills on Fri Apr 18th (£B, £B and £B respectively).

- 06:30 (IN) India Feb Industrial Production Y/Y: 3.6%e v 5.0% prior.

- 07:30 (IN) India Forex Reserve w/e Apr 4th: No est v $665.4B prior.

- 08:00 (PL) Poland Feb Current Account Balance: -€0.7Be v -€0.2B prior; Trade Balance: -€1.7Be v -€1.5B prior; Exports: €27.5Be v 27.2B prior; Imports:€29.0Be v 28.7B prior.

- 08:00 (BR) Brazil Mar IBGE Inflation IPCA M/M: 0.5%e v 1.3% prior; Y/Y: 5.5%e v 5.1% prior.

- 08:00 (BR) Brazil Feb Economic Activity Index (Monthly GDP) M/M: 0.3%e v 0.9% prior; Y/Y: 3.3%e v 3.6% prior.

- 08:00 (MX) Mexico Feb Industrial Production M/M: +0.1%e v -0.4% prior; Y/Y: -3.5%e v -2.9% prior; Manufacturing Production Y/Y: -2.6%e v -0.8% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Mar PPI Final Demand M/M: 0.2%e v 0.0% prior; Y/Y: 3.3%e v 3.2% prior.

- 08:30 (US) Mar PPI (ex-food/energy) M/M: +0.3%e v -0.1% prior; Y/Y: 3.6%e v 3.4% prior.

- 08:30 (US) Mar PPI (ex-food/energy/Trade) M/M: 0.3%e v 0.2% prior; Y/Y: No est v 3.3% prior.

- 09:00 (RU) Russia Feb Trade Balance: No est v $7.2B prior; Exports: No est v $29.2B prior; Imports: No est v $22.1B prior.

- 09:00 (RU) Russia Q1 Preliminary Current Account: $16.0Be v $13.5B prior.

- 09:00 (IT) Bank of Italy (BOI) Quarterly Economic Bulletin.

- 09:00 (IN) India announces upcoming bill issuance (held on Wed).

- 10:00 (US) Apr Preliminary University of Michigan Confidence: 53.8e v 57.0 prior.

- 10:00 (US) Fed’s Musalem.

- 11:00 (US) Fed's Williams on Outlook, Monetary.

- 12:00 (EU) Potential sovereign ratings after European close (S&P on Italy & UK; Moody's on France & Belgium; Fitch on Spain & Switzerland).

- 12:00 (RU) Russia Mar CPI M/M: 0.6%e v 0.8% prior; Y/Y: 10.3%e v 10.1% prior.

- 12:00 (RU) Russia Mar CPI Core M/M: No est v 0.8% prior; Y/Y: No est v 9.6% prior.

- 13:00 (US) Weekly Baker Hughes Rig Count data.

- 15:00 (AR) Argentina Mar National CPI M/M: 2.7%e v 2.4% prior; Y/Y: 54.4%e v 66.9% prior.