Key Highlights

• Global equity markets bounce on U.S. tariff pause – after an S&P 500 9.5% gain, Euro Stoxx up 5.3% – best day since March 2020; Nikkei up 8%, Asia ex-Japan up 4.4%. 

• German Bunds see selling – as safe haven demand sags – 10y up 8bp to 2.66%. 

• Australia turns down China offer to “join hands” to fight U.S. tariffs – Deputy PM Marles in midst of election push vows to pursue national self-interest. 

Chart of the Day

EXHIBIT #1: IFLOW COMPARISON OF APAC TO U.S./CANADA EQUITY FLOWS OVER LAST MONTH

^{Source: BNY}

The scored regional flows in equities between APAC and Canada/U.S. are worth considering given the overnight bounce back in risk in Asia and what is sustainable. There is a lot of room for a bigger bounce back in U.S. assets but uncertainty matters.

What's Changed?

The relief rally for risk driven by President Trump’s step back to 10% tariffs for most nations except China remains the key for day ahead. We are watching for three factors: 1) A dead cat bounce in equities – markets in U.S. futures are sagging and the USD is down 0.6% – there is a down trend in U.S. growth views and ongoing doubts about policy sustaining growth. Expectations for FOMC rate cuts have fallen from four or more to three, which is significant as is the delay in the House tax/debt ceiling vote as both are drivers for rethinking relief. Also, average tariffs globally are still 25%, but with the bulk on China – and there is no clear path to that resolving that as China is defiant and not negotiating.  2) The markets are still focused on USD and diversification away from U.S. assets. This will take time but rallies are going to be sold not chased. USD weakness is going to add to inflation concerns. This isn't a V-shaped recovery but a path to a new low. U is the more logical letter for this crisis. 3) On the day we are still going to be subject to Trump’s comments on tariffs but also get the painful risk of inflation before the full “liberation day” hit. The headline rate will be important. If it’s over 2.8% y/y, investors will be wary as many are still hopeful for 2-3 Fed cuts. A return to expectations of one cut would be painful. In addition, investors are watching for the effects of DOGE cuts and automotive layoffs on weekly jobless claims. If we see that number go over 250k, expectations could flip back to Fed 4-5 cuts. The bottom line is that volatility remains high enough to prevent chasing this rally and make position taking in anything a short-term rather than long-term play. For investors this is a hard-to-impossible environment, so the predominant attitude is wait and see and to hold cash – all of which makes for an uncertain relief rally. 

What You Need to Know

China weakens fix for yuan for the sixth straight day, with today at 7.2092, as pressure and trade tariffs escalate. China disinflation pressure continues with China March headline CPI staying negative at -0.4% m/m, -0.1% y/y. Core CPI at +0.5% y/y. China March PPI dropped faster than expected at -2.5% y/y. The cost of production materials dropped to -2.8% y/y while consumer goods prices fall at -1.5% y/y (February: -1.2%) with the largest drop in durable consumer goods at -3.4% y/y (February: -2.5%), the lowest since December 2005. SHCOMP up 1.2%, 10y CGB unchanged at 1.65% and CNY +0.2% at 7.356.

Japan 5-year JGB auction went smoothly, with a 0.9bp tail and average yield of 0.938%. This may help the 30-year U.S. sale outlook, which is the next focus.  Nikkei up +9%, 10y JGB up 8bp to 1.35%, JPY down 0.7% at 146.3.

Australia April Melbourne Institute inflation expectation surged from 3.6% y/y to 4.2% y/y – this was a bounce back from 4-year lows – and it was as high as 4.6% in February 2025. Volatile series and unsettling inflation expectations around tariffs will be cautionary sign for RBA faster easing. ASX200 up +4.5%, 10y ACGB down 6bp at 4.33%, AUD +1.8% to 0.614.

Sweden February monthly GDP -1.5% m/m, -0.3% y/y after -0.4% m/m, +2.2% y/y – worse than the +0.2% m/m expected – the second monthly drop led by slower services and government – both keep Riksbank easing risks in play. OMX flat, 10y SGB +6bp at 2.46%, SEK unchanged 9.966.

Philippines central bank cuts key rate by 25bp to 5.0%, with a dovish bias signaling more cuts to come. BSP revised risk-adjusted inflation forecast for 2025 from 3.5% to 2.3% and for 2026 from 3.7% to 3.3% y/y.

What We're Watching

U.S. March CPI expected up 0.1% m/m, 2.6% y/y after 0.2% m/m, 2.8% y/y, with a focus on core CPI expected up 0.3% mm, 3.0% after 0.2% m/m, 3.1% y/y. Service vs. goods inflation a key for tariff effects.  

U.S. weekly jobless claims expected up 223k from 219k, with a focus on continuing claims expected down to 1.88 million from 1.903 million. Length of unemployment key factor for productivity, health of consumer mood.  

U.S. Treasury sells $22bn in 30-year bonds – given the success of the 10-year following the 90-day reprieve from Trump’s tariffs, the focus is on this duration and demand, as curve steepening returned overnight.  

Mexico Central Bank policy meeting minutes – important for Banxico’s easing path and focus on debate about an already slowing economy vs. Inflation.

Peru central bank rate decision – expected on hold at 4.75% for third month – effect of tariffs and volatility key factors to watch in statement.

Fed Speakers: Dallas Fed Logan gives welcome remarks at event called "Outlook for North American Trade and Immigration,” Kansas City Fed Schmid speaks on the economy and monetary policy, Chicago Fed Goolsbee speaks at Economic Club of New York, Philadelphia Fed Harker speaks on fintechs.

What iFlow is Showing

Mood: iFlow Mood dropped further into risk-off territory with ongoing selling of equities against buying momentum in bonds.  

FX: Active G10, with CAD and MXN outflows easing, while demand for USD and CHF continues. CNY inflows stood out in APAC, with mixed flows in LatAm and EMEA.

FI: Divergence in flows, with selling pressure in LatAm and EMEA. Mixed flows in APAC, with broad demand in the G10 complex.  

Equities: Equity risk reduction continues, especially in G10 and APAC, with mixed flows in LatAm and EMEA. U.S., Sweden and U.K. equities posted the most selling.

Quotes of the Day

“Our anxiety does not empty tomorrow of its sorrows but only empties today of its strengths.” – C.H. Spurgeon 

“Faith means living with uncertainty – feeling your way through life, letting your heart guide you like a lantern in the dark.” – Dan Millman

Economic Details

China disinflation pressure continues, with March the second negative m/m reading at -0.4% m/m after -0.2% m/m drop in February – the largest monthly drop since November 2024 (-0.6%). March CPU stayed in negative territory for the second month at -0.1% y/y from -0.7% y/y. The transportation & telecommunication component is the main drag at -2.6% y/y, while the food & tobacco component improved to -0.6% y/y from -1.9% y/y. Core inflation escaped from deflation at +0.5% y/y after a brief negative reading at -0.1% in February 2025. Overall, improving price data with March services inflation up +0.3% despite consumable inflation at negative levels -0.4% y/y (February: -0.9% y/y). We are not out of the woods yet. Clearly, before tariffs, more effort needed to encourage domestic demand and bring inflation to a more comfortable level. Note that the recent lowering of crude oil prices would make the above effort more difficult.  

China March PPI declined further from -2.2% to -2.5% y/y. This is the steepest drop since November 2024. The cost of production materials dropped to -2.8% y/y (February: -2.5% y/y) led by sharp decline in mining (-8.3% y/y, vs. February: -6.3%), raw materials down -2.4% y/y (Feb: -1.5%) and processing up slightly at -2.6% y/y (February: -2.7%). Consumer goods prices fell at -1.5% y/y (February: -1.2%) with largest drop in durable consumer goods at -3.4% y/y (February: -2.5%), the lowest since December 2005, while food up slightly at -1.4% y/y (February: -1.6%). SHCOMP up 1.2%, 10y CGB unchanged at 1.65% and CNY +0.2% at 7.356.

Japan March Producer Price Index rose 4.2% y/y from upwardly revised 4.1% y/y in February. On the month, the PPI m/m gains at 0.4%. However, both export and import price index posted second month-on-month decline at -0.7% m/m and -1.6% m/m, bringing year-on-year toward the lows of 2024 at 0.3% y/y and -2.2% y/y, respectively. Elsewhere, Japan March bank lending eased modestly, staying steady in 2.5-3.5% y/y range. Bank lending including trusts at 2.8% (February: 3.0%) while ex-trust at 3.0% (Feb: 3.3% y/y). Interesting to note the sharp drop in total city and regional banks deposits and CD growth to 1.0% y/y, lowest since 2007. Nikkei up +9%, 10y JGB up 8bp to 1.35%, JPY down 0.7% at 146.3.

The U.K. RICS House Price Balance posted a net balance of +2% in March, easing from +11% and +20% in January and February 2025. Home sales market conditions continue to deteriorate, with both domestic and global macroeconomic concerns seemingly starting to weigh more heavily on sentiment. In keeping with this, respondents have turned increasingly cautious on the near-term sales outlook, even if 12-month expectations are still mildly positive for now. FTSE +4%, 10y gilt down 10bp to 4.68%, GBP +0.3%at 1.286.

Australia April Melbourne Institute inflation expectation surge to 4.2% y/y from 3.6% y/y – bouncing back sharply from 4-year lows as it was 4.6% y/y in February 2025. Volatile series and unsettling inflation expectations. ASX200 up +4.5%, 10y ACGB down 6bp at 4.33%, AUD +1.8% to 0.614.

Norway March CPI fell -0.7% m/m, 2.6% y/y after 1.4% m/m, 3.6% y/y – better than the -0.5% m/m, 2.9% y/y expected. The core CPI rose 0.2% m/m, 3.4% y/y after 1% m/m, 3.4% y/y. The slowdown was largely driven by a sharp deceleration in housing and utilities inflation (1.3% vs. 5.1%). Price growth also moderated for furnishings, household equipment and maintenance (0.4% vs. 1.8%), health (4.8% vs. 5%), transport (1.5% vs. 1.7%), and restaurants and hotels (3.4% vs. 3.9%).

Sweden February monthly GDP -1.5% m/m, -0.3% y/y after -0.4% m/m, +2.2% y/y – worse than the +0.2% m/m expected – the second monthly drop – and even with household consumption up 1.1% m/m, 2.3% y/y bouncing from -0.2% m/m, +0.7% y/y. Industrial production was up 0.4% m/m, -0.7% y/y after -8.3% m/m, -2.1% y/y. Construction output fell -0.2% y/y after +1.5% y/y. OMX flat, 10y SGB +6bp at 2.46%, SEK unchanged 9.966.

Taiwan March exports ease from 31.5% but remain at strong 18.6% y/y. Exports of information & communication component at 34% y/y, more than the average 12.2% y/y average growth rates since 2020. Imports dropped from 47.8% to 28.8% y/y leaving a trade surplus of $6.95bn. TWSE +9%, TWD +0.4% to 32.87.

Philippines central bank cuts key rate by 25bp to 5.0% with a dovish bias signaling more cuts to come. BSP revised risk-adjusted inflation forecast for 2025 from 3.5% to 2.3% and 2026 from 3.7% to 3.3% y/y. PSEi +1.2%, PHP down 0.1% to 57.35.