30th April 2025

Snapshot

• DXY: Market looks ahead to key US data of interest today, which includes 1Q GDP Annualized QoQ, March Personal Income data, March Personal Spending data and the Core PCE Price Index MoM, to provide more clues on the impact of tariffs policy on US economy
• EUR/USD: March Consumer CPI expectations suggest short term expectations appear to exceed the ECB’s 2% target but longer-term expectations remains anchored
• USD/JPY: BOJ to stand pat in upcoming policy rate meeting but to signal in its outlook report that they will maintain existing stance of gradually raising interest rates
• AUD/USD & NZD/USD: Weak China Manufacturing PMI could weigh on bulls / NZ business confidence slumped in April amid tariff concerns
• Oil: Bulls could get a reprieve if Trump's administration pares back "reciprocal" tariffs & push out "successful" trade deals that firms risk appetites
• Gold: Rising stagflationary risks from this week's US docket could keep Gold prices buoyant

US Dollar

Dxy breach below the 98 mark to post fresh 3year lows at 97.921 (21 Apr low) before bouncing. Upticks should fade under 100.276 (15 Apr minor lower reaction high), on overshoot, possibly towards former 101.267 low (3 Apr low) before bears reassert. The 30 Mar 2022 low at 97.685 is next downside target, loss of which opens 97.441 (28 Jan 22' former high) - 96.523 (25 Feb 22' low) next. A 50-200 DMA death cross that was triggered on 16 Apr weighs and suggest longer term bears now taking a hold on market. Recovery bulls thus far capped under 23 Apr 99.939 high for the past week

Looks like when Bessent said they have an “escalation ladder in his back pocket and we’re very anxious not to have to use it” and added that escalation could include an “embargo”, China took that as a veiled threat instead of US reluctance to resort to that. Chinese Foreign Minister urge other countries against giving in to US tariffs, saying it would only embolden the “bully”. No one said the pathway to a June Birthday summit was easy…not if you slap over 100% tariffs on China made birthday candles.

As we mentioned before, we expected tough talk from the US administration least Trump’s initial eagerness to back down is seen as weakness and US decided to go with a carrot and stick approach. Turns out China really hates the stick and would just rather have the carrot and the cake. The Trump administration would have been made aware of the dire warnings from major companies like Walmart and Target that US shoppers may face empty shelves and higher prices if the US-China trade impasse persists. Shipping data appears to support their warnings with cargo shipments from China to US down an estimated 60%. In other signs of the economic impact of the trade war, Shein increased it’s US prices by 10% or more across a 50-item sample cart, by comparison UK prices stayed flat. For a president elected partly because of frustration with inflation, it could end up costing lawmakers loyal to him, their jobs in midterm elections next year. Trump could then end up being a “lame duck” President for the rest of his term with the Democrats in control of the House. Already voter dissatisfaction is showing, with Fox News polling indicating a low 38% approval rating on the economy and even lower 33% approval rating in inflation

In contrast to Trump’s lower approval ratings, the US tariffs have sparked a wave of nationalist sentiments from across all walks in China, backing President Xi to hunker down against this “external threat”. How long this wave of patriotism will last as the weeks and months go by and more Chinese workers lose their jobs, remains to be seen

While the Trump administration sees China granting tariff exemptions on pharmaceuticals, microchips, aircraft engines and latest ethane imports, as overtures to trade negotiations, it could also be Chinese pragmatism to ensure essential US imports remain affordable. A recent Beijing Daily editorial called on the Chinese people to prepare for a “protracted war”. The editorial argued that “China should neither compromise with the US in hopes of getting a “good idea” or assume a trade war victory was imminent”. Basically throwing the ball back in Bessent’s court that the first step in de-escalating the tariff war should come from US and not China side

We suspect if the dire warnings from the US soft survey data starts reflecting in the hard data, Trump’s administration sticks and carrots approach towards China will shift towards more carrots than sticks. As Assistant professor Dylan Loh of NTU said “The Chinese want to show resolve because they believe that showing weakness is a playing a losing card but that does not mean they don’t want to cut a deal”. At the end of the day, it is back to the game of who blinked first.

Trump's auto tariffs relief according to a government official, will provide credits of up to 15% of the value of vehicles assembled domestically and can be used to offset against the value of imported parts. US Commerce Secretary touts his deal with a foreign power that would permanently ease the nation of "reciprocal" tariffs. Details lacking for now but expect more such rollback of the "reciprocal" tariffs debacle as the Trump administration shift focus to their tax cuts agenda. Already Treasury Secretary Bessent is targeting a July 4 deadline to pass a multi trillion dollar tax cut to placate irate voters disillusioned with Trump's economic leadership

Meantime Amazon was warned by White House Press Secretary Leavitt that displaying cost of President Trump’s tariffs on their products constitute an “hostile” and “political” act. It is a strange world we are living in when the Communist country is the one portraying itself as the bastion of free trade while the supposedly “freest” country in the world now picks winners (Tesla, Oracle) and threatens companies that don’t toe the party line (Amazon, CBS, JP Morgan), possibly yet another reason why the capital outflow from US assets could continue

Number of key US data market will be looking out for later today. This includes 1Q GDP Annualized QoQ, March Personal Income data, March Personal Spending data and the Core PCE Price Index MoM, which will provide more clues on the impact of tariffs policy on US economy

1Q GDP Annualized QoQ expected to dip down to -0.2% QoQ from 2.4% prior, with risk potentially skewed towards a lower reading as data starts to reflect the early fallout from the tariffs

March Personal Income expected to come in at 0.4% compared to prior 0.8%. Lower income households, disproportionately affected by tariffs may see weaker income growth. Goldman Sachs forecasts real income growth for 2025 at 2.0%, down from 2.5%, suggesting a broader slowdown. Falling consumer sentiment (U of Michigan indext at 64.7 in February) could also dampen labour market activity

March Personal Spending expected to post 0.6% growth compared to prior 0.4%. A March retail sales surge (1.4% MoM) driven by a 5.3% spike in autos, suggest front running purchase ahead of the auto tariffs, temporarily boosting spending. As we head into the April and May data, which will reflect the trade embargo on China, we could see a sharp downturn in personal spending

March Core PCE MoM is expected to show deflationary pressures with forecast of 0.1% compared to prior 0.4%. However, recent Fed speak is suggesting some members are getting concerned about rising inflation expectations seen in numerous Fed surveys and this could keep the Fed from cutting rates despite the market anticipating earlier rate cuts to forestall an economic slowdown

Euro

EurUsd have fully retraced the September 2024-February 2025, 1.1214-1.0141 fall, extending gains to post 3 1/2-year highs at 1.1573 (21 Apr high) thus far. Scope seen for advance towards 28 Oct 21’ 1.1692 high next (also near 76.4% retrace of January 2021-September 2022, 1.2349-.9536. fall). The 1.1214-1.1264 zone (25 Sep 24' high - 15 Apr low) should cushion corrective pullbacks, with stronger support seen below at 1.1144 (3 Apr former high)

March Consumer CPI expectations over a 1 year /3 year period hit 2.9% vs fc 2.5% and prior 2.6% / 2.5% vs fc 2.3% vs prior 2.4%. The 1 year inflation expectations gauge was the highest in one year even as the ECB weighs further reduction in rate cuts. ECB also publish 5 years CPI expectations for the first time and it came in at 2.1%. Short term expectations now appear to exceed the ECB’s 2% target but longer-term expectations (2.5% for 3 years and 2.1% for 5 years) remains anchored. This mismatch could see ECB prioritize near term growth support while monitoring if short term price pressures will spill into the broader inflation dynamics

With ECB recently revising it’s 2025 GDP forecast from 1.1% down to 0.9% and dismal April Economic Confidence Indicators (93.6 vs f/c 94.5 vs prior 95.2), with Industrial and Services sectors all saw worsening sentiment compared with March, markets are betting that in the trade off between growth and inflation risk, ECB will choose growth. OIS Markets still pricing in a near certainty for a June cut and possibly a further two more cuts after that, with ECB deposit rates possibly bottoming around 1.75%-1.50%

Germany's May Gfk Consumer Confidence Survey ticked up unexpectedly to -20.6 from April’s -24.5. The stability of a new government and the new fiscal regime they bring overcame the negative impact from Trump’s tariffs. The US continues to place a 10% import tariff on German goods, alongside a 25% levy on autos, steel and aluminium and the IMF recently downgraded expectations for the German economy

However, that did not dent income expectations and consumers’ willingness to buy which showed noticeable increases. Even economic expectations improve a little. Pantheon economist Claus Vistesen said that “the prospect of lower energy prices and a quicker decline in European interest rate could also be contributing factors”. Indeed recent data from ECB showed positive credit impulse is helping boost economic activity at a time when US tariffs are starting to make things harder for European exporters

In a contrarian call, Franklin Templeton (FT) expects the ECB to start pivoting to considering rate hikes by the end of the year. FT sees Europe recover off it’s low base in 2025 and enter a Goldilocks situation of economic growth and low inflation in 2026. Once ECB’s deposit rate start bottoming between 1.75% to 1.5% by September, FT expects the focus to shift back towards the boost from Europe and Germany’s defence and infrastructure spending, which will stimulate economic growth and reignite inflationary pressures

JPMorgan Chase & Co, BNP Paribas and Danske Bank are all calling for EurUsd at 1.20 or more by year end. Euro is becoming an alternative destination for investors seeking to diversify out of US assets but along with this strength in the Euro it complicates recovery in export heavy European nations like Germany

On Geopolitical front, hopes for a peace deal between Russia and Ukraine further derailed as Russia demands control of four regions of Ukraine it doesn't fully occupy as part of any agreement to end the war.

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