Key Highlights

• China weakens fix for yuan beyond 7.20, suggesting currency as a tool for trade war after Trump threatens further 50% tariffs. 

• Chinese sovereign fund Central Huijin confirmed market stabilization operations. PBoC pledges to provide sufficient re-lending  support to Huijin if necessary to maintain smooth capital market operations. 

• Global markets stabilize following interventions and ongoing trade negotiations – Japan/U.S. talks given priority, export tax credit for U.S. considered as tariff counterweight. 

Chart of the Day

EXHIBIT #1: CHINESE SOVEREIGN FUND CENTRAL HUIJIN ADDS ETF HOLDINGS

^{Source: BNY}

Buying of Chinese ETFs was three times higher than October 2024 but had only a modest impact.

What's Changed

Risk sentiment mixed as global equity markets recover modestly, but fixed income markets see volatility, the JGB market being the prime example in APAC. Intervention in the region adds to doubts about the sustainability of the present recovery of risk appetite with an eye toward the balance sheets of central banks and reserves.  The role of negotiations on trade tariffs and the support of President Trump for the Senate budget bill added to the risk turnaround story on Tuesday. The problems ahead remain focused on U.S./China trade tensions and how this tension is resolved, along with the collateral damage to other trading partners in the process. The flows we are seeing in equities continue to show risk off but in a more orderly fashion, with 1.5 standard deviation moves rather than the 3 standard deviation drops of the overall S&P 500 yesterday. The correlation of USD to stocks has returned to negative and dollar selling in EMEA supports views of normalization. The lack of U.S. data today adds to dependence on tariff headlines as a key driver.

What You Need to Know

Japan 30-year JGB auction saw unexpectedly weak demand, with 4.3bp tail, the most since December 2024 (5.8bp). 30-year JGB average auction yield at 2.414% against stop yields of 2.457%. The weak auction was driven by extreme volatility, concerns about trade talks and government’s extra budget. 30-year JGB yields fell from 2.54% last Tuesday to 2.28% lows yesterday before climbing back to 2.42% this morning. Nikkei +6%, 10y JGB yield up +14bp to 1.26%, JPY -0.6% at 147.08.

Australia April Westpac Consumer Confidence down 6%, the most since -7.9% in May 2023 on concern over tariffs and market volatility. Survey also shows consumers less confident on prospect of interest rate cuts. Elsewhere, March NAB Business confidence edged lower from -2 to -3. Labor costs ease to 1.5% q/q (February: 1.6%) and capacity utilization rates higher at 82.9% (February: 82%). ASX200 +2%, 10y ACGB +14bp higher at 4.24%, AUD +0.3% at 0.605.

New Zealand Finance Minister Nicola Willis warns U.S. tariffs weighing on New Zealand’s growth prospects and could lead to higher inflation. The government would stick to its fiscal strategy, which is to achieve a budget surplus by 2027/2028. Elsewhere, Acting Reserve Bank Governor Christian Hawkesby has been appointed governor of the Reserve Bank for a six-month period, effective immediately from April 8, 2025. NZX550 +1%, 10y NZGB 17bp at 4.55%, NZD +0.3% at 0.560.

What We're Watching

Canada March Ivey PMI expected at 53 from 55.3, with hit from tariffs starting. Role of jobs and prices key for more BoC easing.

San Francisco Fed Daly speaks in discussion on economic outlook – how she balances inflation against growth and market functioning will be key focus.

U.S. Treasury 3-year $58bn sale – given the volatility in markets focus on this sale will be key for repricing FOMC easing and the state of market liquidity following the rapid yield moves of the last week.

What iFlow is Showing

Mood: Risk aversion mood continues with ongoing heavy equities outflows. iFlow mood in risk off zone, returning to near extreme levels.

FX: Similar flows trend but at a more moderate pace with CAD, MXN and GBP outflows, against USD and JPY inflows. Flows are mixed in LatAm and EMEA, but inflows biased in APAC.

FI: Cross-border demand for US Treasurys stood out along with demand for Eurozone government bonds against selling of LatAm and EMEA as bond yields shifted higher.

Equities: Broad reduction of equity risk exposure in G10 complex with mixed flows in the rest of the region. iFlow shows a turnaround of flow dynamic, with Chinese equities outflows picking up momentum.

Quotes of the Day

“It is only in sorrow bad weather masters us; in joy we face the storm and defy it.” – Ameilia Barr

“When you are in the eye of the storm, you are often not aware of the whiplash around you.” – Hugh Bonneville

Economic Details

Japan March preliminary first 20 days of exports grew 4.2% (February full month: 11.4% y/y) while imports were at 3.1% (February full month: -0.7%), and trade surplus of ¥82bn (February full month: ¥590.5bn. Elsewhere, Japan’s February seasonally adjusted current account balance rebounded to ¥4060.7bn from ¥-248.1bn. Japan March Eco Watchers Survey outlook for household activities eases from 46.6 to 45.2, driven primarily by the slowdown in the food & beverage and services sector.

The latest New Zealand NZIER Quarterly Survey of Business Opinion (QSBO) showed a further lift in business confidence in the first quarter of 2025. Across the sectors surveyed, the building sector was no longer the most upbeat sector. Continued weak demand, as reflected in reduced new orders and output, is weighing on confidence in the sector. The latest NZIER QSBO showed mixed results for costs and pricing indicators. Cost pressures have intensified, particularly in the retail sector. The lower New Zealand dollar is likely to be a key contributor to this, given the increased costs of imported goods.

Philippines February unemployment rate falls to 3.8% with a higher participation rate at 64.5% (January: 63.9%). The accommodation and food services activities sector added the most jobs while agriculture and forestry shed the most jobs in February. This is unlikely to sway BSP from cutting rates at policy meeting next week.  

Indonesia March inflation rebounded higher with headline at 1.03% (February: -0.09% y/y) while core inflation was unchanged at 2.48% y/y. Indonesia posted a 1.65% m/m gain, the most since December 2014, driven by the normalization of electricity prices after heavy discounts in January and February.  

Taiwan March inflation rose 0.2% m/m, 2.29% y/y after 0.25% m/m, 1.58% y/y – as expected. The PPI rose 0.36% from the preceding month and rose 3.53% compared with the same month of 2024. The IPI on USD basis fell 0.32% from the preceding month and fell 2.70% compared with the same month of 2024. The EPI on a USD basis fell 0.13% from the preceding month and fell 1.16% compared with the same month of 2024.