CREDIT OPEN: Trump's tariffs proving to be anything but 'beautiful' for risk assets
European equities are bracing for a tumultuous start to the week, with EuroStoxx50 futures plummeting around 4% in early trading. This downturn mirrors the broader global market sentiment as investors grapple with escalating trade tensions and economic uncertainties. The Asia-Pacific session experienced significant volatility, characterized by initial fierce risk-off flows followed by a partial recovery as European trading hours approached. The MSCI Asia-Pacific index (MXAP) plunged over 7% at one point, underscoring the widespread retreat from risk assets. Asian Credit Default Swaps (CDS) widened at rates unseen since March 2020, indicating growing concerns over potential corporate defaults and economic slowdown.
In the United States, S&P500 e-mini futures are down nearly 3.2%, recovering from an earlier 5.4% drop that saw levels not witnessed since January 2024. This partial recovery, along with the dollar and Treasury yields bouncing back from lows, suggests a slight easing of panic selling. The weekend brought several developments in the ongoing US-China trade war, with the Trump administration signaling its intention to maintain tariffs despite market turmoil. In response, China imposed retaliatory 34% tariffs on US shipments and implemented limited export controls on rare earth minerals, hinting at a measured approach to the escalating situation.
The global trade landscape remains uncertain, with over 50 countries reportedly seeking trade talks with the US for potential exemptions or reductions in tariffs. However, the possibility of further escalation or de-escalation of trade measures continues to loom over the markets.
Friday's Non-Farm Payrolls (NFP) report for March revealed mixed signals in the US labor market. Headline employment growth exceeded expectations, with 228,000 jobs added versus the 140,000 forecast. The unemployment rate edged up to 4.2% from 4.1%, while the labor force participation rate increased to 62.5%. Average hourly earnings aligned with expectations at 0.3% month-over-month growth.
Federal Reserve Chair Powell emphasized the need to prevent tariff-induced price increases from becoming an ongoing inflation problem and acknowledged that the tariff increases and their potential economic impact are larger than initially expected. Meanwhile, US Treasury Secretary Bessent's earlier statement on the administration's focus on lowering 10-year yields appears to be materializing, with current yields approximately 55 basis points lower than pre-inauguration levels.
Looking ahead, the European session will see the release of German industrial production and trade data for February, while ECB Governing Council member Cipollone will speak on tax and financial regulations in the digital era. In the New York session, US consumer credit data for February will be released and Fed Governor Kugler is scheduled to speak mid-afternoon in Europe.
The US Treasury has also scheduled several auctions for this week, including USD58bn of 3yr Notes on Tuesday, USD30bn of 10yr Notes (reopening) on Wednesday, and USD22bn of 30yr Notes (reopening) on Thursday.
As global markets navigate these turbulent waters, investors will be closely monitoring trade developments, central bank communications, and economic indicators for signs of stability or further volatility. The interplay between these factors will likely shape market sentiment and drive asset prices in the coming days and weeks.
For more on latest developments see the European Breakfast Briefing.
Monday's supply prospects
Predicting how much supply will come to market this week should probably come with a health warning considering the broader tone, but poll participants expect a more subdued week ahead, putting forward a EUR20.5bn average combined estimate. SSAs are predicted to prevail once again with an average estimate of EUR12.5bn, with the EU waiting in the wings and set to be the main attraction of the week. Elsewhere, whether there will be appetite to put cash to work and/or issuers will be prepared to pay to play at potentially now-elevated pricing levels remains to be seen.
** AusNet EUR 10yr
** Woolworths Group EUR 7.5yr
** Japan Tobacco EUR Jun 2035
** Lagardere EUR500m no grow 5yr
** Queensland EUR 10yr debut
US ex-SSA issuance for the week finished at USD6bn and not even close to the lowest issuance estimate of USD15bn last week, let alone the average weekly estimate of USD25bn. Being the slowest ex-SSA issuance week since USD1.9bn came to market during the first week of last November, last week became only the third week this year that issuance failed to surpass the average weekly average. For more colour, see IGM's IG WEEKLY WRAP UP.
What to watch Monday (and for the week) – Slow start to week on the data front
** Key data: GE Feb Industrial Production (07:00), GE Feb Imports/Exports (07:00) and EC Feb Retail Sales (10:00)
** Key events/speakers: ECB’s Cipollone (10:45),
** Auctions: No major term auctions scheduled for Monday 4th Apr
** Viewpoint - The week ahead:
- Fedspeak throughout the week. Ueda (Wednesday). Lagarde (Friday)
- FOMC minutes (Wednesday). US March CPI (Thursday), PPI (Friday)
- BoC Q1 Outlook (Monday). RBNZ (Wednesday) to cut at least 25bp
- Japan February cash earnings (Monday). March PPI and bank lending (Friday)
- German February IP/trade, EMU retail sales and April Sentix (Mon). Final March German/Spain CPI (Fri)
- UK February GDP & KPMG/REC labour market report (Friday)
- Sweden February GDP/household consumption/private sector production. March final CPIF (Friday)
- Norway February IP (Tuesday). March CPI (Thursday). Q1 house price index (Friday)
All times BST
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