Capitulation turned to euphoria as tariff risk premium starts unwinding

EU Mid-Market Update: Capitulation turned to euphoria as tariff risk premium starts unwinding; Bears advise caution, noting most of US equities best days have been in volatile bear markets.

Notes/observations

- European stocks rocket higher, following US session as markets reacted to Trump’s announcement of a 90-day pause on higher reciprocal tariffs for most countries (ex-China), which now faces an increased 125% tariff (from 104%). All other countries’ tariffs set at the minimum 10% level. China’s leaders plan a meeting later today to discuss stimulus, while ASEAN opts for dialogue over retaliation.

- US equity futures edge lower, paring some of the euphoria from historic Wed session for SP500, seeing its best daily gain since Oct 2008. SP closed +9.5%, Nasdaq +12.0%, Dow +7.9%

- Analysts see volatility reducing as tariff pause effectively eliminates risk of catastrophic market meltdown but hit to US credibility could linger much longer. Traders see downside risk to USD and note 10-year Treasury yields might break through the 4.0%-4.5% range, possibly reaching 5.0% again within the next year.

- Sudden policy pivot has led market participants to revise central bank rate cut expectations, dialing back projected cuts for ECB by roughly 70bps by year-end. Although unlikely to sway upcoming ECB meeting, it signals a recalibration of market sentiment, reducing fears of aggressive easing that would have been needed to combat lower growth induced from tariffs

- US inflation upcoming at 08:30 ET, with annual CPI expected to ease to 2.6% in (lowest since Oct 2022), and core inflation slowing to 3.0% (lowest since April 2021). Monthly core CPI, however, may rise to 0.3%, hinting at underlying pressures. Data could be overlooked as tariff news not likely to have had any impact yet

- Asia closed higher with Nikkei225 outperforming +9.0%. EU indices +4.0-6.3%. US futures -1.6% to -2.6%. Gold +0.7%, DXY -0.7%; Commodity: Brent -3.4%, WTI -3.5%; Crypto: BTC +5.2%, ETH +7.4%

Asia

- China Mar CPI Y/Y: -0.1% v 0.0%e; PPI Y/Y: -2.5% v -2.3%e

- Japan Mar PPI M/M: 0.4% v 0.2%e; Y/Y: 4.2% v 3.9%e

- Japan Mar Bank Lending Y/Y: 2.8% v 3.0% prior; Bank Lending (ex-trusts) Y/Y: 3.0% v 3.3% prior

- Australia Apr Consumer Inflation Expectation: 4.2% v 3.6% prior

Europe

- UK Mar RICS House Price Balance: 2% v 8%e

Americas

- Pres Trump authorized a 90 day reciprocal tariff pause (ex-China); Tariffs set to the minimum 10% level, effective immediately; Raised China tariffs immediately to 125% from 104% after retaliation

- White House official noted that US tariffs on Mexico and Canada were unaffected by 90-day pause

- Fed's Kashkari (non-voter) noted that things had changed dramatically with tariff pause. There would be a little less of an impact on inflation if the tariff pause endured; Uncertainty could still cause an economic downturn

- Fed's Hammack (non-voter for 2025) noted that desk stood ready to engage in money markets if needed; Had been seeing markets work themselves out

- Goldman Sachs analysts rescinded their 65% chance of US recession following Pres Trump's 90-day tariff delay (ex-China) with a 10% blanket tariff on imports; Reverted to baseline forecast of 45% recession odds

- House Speaker Johnson (R) stated that Chamber was pulling vote on GOP budget resolution [ This made it impossible for anyone to file disapproval resolutions on tariffs through Sept 30.]

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +5.0% at 494, FTSE +4.0% at 7988, DAX +5.3% at 20730, CAC-40 +5.2% at 7218, IBEX-35 +5.0% at 12414, FTSE MIB +6.3% at 3399, SMI +4.8% at 11392, S&P 500 Futures -2.3%]

Market Focal Points/Key Themes: European indices opened massively higher across the board, though came off the highs in the early part of trading; rebound in risk sentiment seen after suspension of reciprocal tariffs (except China); all sectors start the day in the green; among sectors leading the way higher are consumer discretionary and industrials; lagging sectors include telecom and utilites; focus on US CPI figures coming out later in the day; earnings expected in the upcoming US session include CarMax.

Equities

- Consumer discretionary: Volkswagen [VOW3.DE] +4.0% (affirms FY25 guidance - post close)

- Consumer staples: Tesco [TSCO.UK] -5.0% (FY results, weakness attributed to adj op profit guidance for next year declining)

- Financials: Banco BPM [BAMI.IT] +6.5%, Anima [ANIM.IT] -0.5% (set to take over Anima after reaching 90% of capital)

- Healthcare: DocMorris [DOCM.CH] +9.5% (Q1 results and CHF200M capital increase)

Speakers

- Sweden Central Bank (Riksbank) Seim commented that it was well positioned in a changing world. Best it could do was to ensure inflation at 2% target in the medium term

- China Commerce Ministry (MOFCOM) stated that the resilience of its foreign trade had not diminished; had confidence to deal with various risks and challenges

- China Foreign Ministry stated that its govt would not sit by and let international trade rules and multilateral system be undermined

- Philippines Central Bank Policy Statement noted it would maintain measured approach to policy easing. It saw a further 25bps rate cut but could not say how many more. Risk to inflation outlook had eased and was broadly balanced. Noted more challenging external environment but on balance, allowed shift to more accommodative policy stance

- Japan Econ Min Akazawa noted that US imposition of tariffs on steel and autos was regrettable

- Iran advisor to Supreme Leader Khamenei noted that continued threats against country could lead to the expulsion of IAEA inspectors

Currencies/fixed income

- USD was slightly softer during the EU morning after President Trump paused the so-called reciprocal tariffs on most countries for 90 days. Some are saying that a volatile tariff policy could erode confidence in the USD

- EUR/USD climbed back above the 1.1040 level as markets scaled back the number of ECB rate hikes seen in 2025

- GBP/USD at 1.2875 by mid-session

- USD/JPY at 146.35

- 10-year German Bund yield at 2.65% and 10-year Gilt yield at 4.69%. 10-year Treasury yield at 4.28%

Economic data

- (NL) Netherlands Feb Manufacturing Production M/M: 1.3% v 0.9% prior; Y/Y: 1.0% v 0.3% prior; Industrial Sales Y/Y: 1.4% v 3.4% prior

- (FI) Finland Feb Industrial Production M/M: -0.9% v +0.4% prior; Y/Y: -2.4% v -0.8% prior

- (SE) Sweden Feb GDP Indicator M/M: -1.5% v 0.0%e; Y/Y: -0.3% v +2.2% prior

- (SE) Sweden Feb Private Sector Production M/M: % v -1.0% prior; Y/Y: % v 1.9% prior

- (SE) Sweden Feb Industrial Orders M/M: -6.2% v +2.6% prior; Y/Y: 2.5% v 16.9% prior

- (SE) Sweden Feb Industry Production Value Y/Y: -0.7% v -2.0% prior; Service Production Value Y/Y: 2.6% v 5.0% prior

- (SE) Sweden Feb Household Consumption M/M: +1.1% v -0.2% prior; Y/Y: 2.3% v 0.7% prior

- (NO) Norway Mar CPI M/M: -0.7% v -0.3%e; Y/Y: 2.6% v 2.9%e

- (NO) Norway Mar CPI Underlying M/M: 0.2% v 0.1%e; Y/Y:3.4 % v 3.4%e

- (DK) Denmark Mar CPI M/M: -0.5% v +1.0% prior; CPI Y/Y: 1.5% v 2.0% prior

- (DK) Denmark Mar CPI EU Harmonized M/M: -0.6% v +1.0% prior; Y/Y: 1.4% v 2.0% prior

- (RO) Romania Q4 Final GDP Q/Q: 0.6% v 0.8% prelim; Y/Y: 0.5% v 0.7% prelim

- (AT) Austria Feb Industrial Production M/M:-1.0 % v +3.9% prior; Y/Y: 1.8% v 2.0% prior

- (CZ) Czech Mar Final CPI M/M: 0.1% v 0.1% prelim; Y/Y: 2.7% v 2.7% prelim

- (CZ) Czech Feb Import Price Index Y/Y: 2.2% v 3.9% prior; Export Price Index Y/Y: 2.1% v 4.0% prior

- (TR) Turkey Feb Industrial Production M/M: -1.6% v -2.6% prior; Y/Y: -1.9% v +1.2% prior

- (PH) Philippines Central Bank (BSP)cut the Overnight Borrowing Rate by 25bps to 5.50% (as expected)

- (IT) Italy Feb Industrial Production M/M: -0.9% v -1.0%e; Y/Y: -2.7% v -1.5%e; Industrial Production NSA (unadj) Y/Y: -6.4% v -3.7% prior

- (TW) Taiwan Mar Trade Balance: $7.0B v $8.3Be; Exports Y/Y:18.6 % v 8.1%e; Imports Y/Y: 28.8% v 14.0%e

- (GR) Greece Mar CPI Y/Y: 2.4% v 2.5% prior; CPI EU Harmonized Y/Y: 3.1% v 3.0% prior

- (GR) Greece Feb Industrial Production Y/Y: -0.1% v +2.7% prior

Fixed income issuance

- (ES) Spain Debt Agency (Tesoro)sold total €6.457B vs. €5.5-6.5B indicated range in 2029, 2032 and 2035 SPGB bonds

- Sold €2.849B in 3.50% May 2029 SPGB bonds; Avg Yield: 2.462% v 2.580% prior; Bid-to-cover: 1.12x v 2.74x prior (Sept 5th 2024)

- Sold €1.638B in 2.55% Oct 2032 SPGB bond, Avg Yield: 3.014% v 3.399% prior, bid-to-cover: 1.83x v 1.83x prior (Feb 16th 2023)

- Sold €1.970B in 3.15% Apr 2035 SPGB bonds; Avg Yield: 3.349% v 3.382% prior; bid-to-cover: 1.90x v 1.54x prior

- (IT) Italy Debt Agency (Tesoro) sold total €8.5B vs. €8.5B indicated in 3-month and 12-month Bills

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills

- 05:40 (UK) BOE 7-day short-term repo operation (STR)

- 06:00 (DE) German Bundesbank Monthly Report

- 06:00 (IE) Ireland Mar CPI M/M: No est v 0.9% prior; Y/Y: No est v 1.8% prior

- 06:00 (IE) Ireland Mar CPI EU Harmonized M/M: No est v 0.8% prior; Y/Y: No est v 1.8% prior

- 06:00 (PT) Portugal Mar Final CPI M/M: No est v 1.4% prelim; Y/Y: No est v 1.9% prelim

- 06:00 (PT) Portugal Mar Final CPI EU Harmonized M/M: No est v 1.7% prelim; Y/Y: No est v 1.9% prelim

- 06:00 (IL) Israel Mar Consumer Confidence: No est v 63 prior

- 06:00 (AU) RBA Gov Bullock

- 6:00 (CZ) Czech Republic to sell CZK5.0B in 12-month Bills

- 06:00 (RO) Romania to sell RON600M in 6.85% July 2030 bonds

-06:00 (VN) Vietnam Finance Ministry announcement on upcoming bond issuance (held on Wed)

- 07:00 (ZA) South Africa Feb Manufacturing Production M/M: No est v 0.2% prior; Y/Y: No est v -3.3% prior

- 08:00 (BR) Brazil Feb IBGE Services Volume M/M: -0.2%e v +0.2% prior; Y/Y: -3.1%e v 1.6% prior

- 08:00 (IS) Iceland Mar Unemployment Rate: No est v 4.3% prior

- 08:00 (BR) Brazil CONAB Crop Production

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

- 08:30 (US) Mar CPI M/M: 0.1%e v 0.2% prior; Y/Y: 2.6%e v 2.8% prior- 08:30 (US) Mar CPI (ex-food/energy) M/M: 0.3%e v 0.2% prior; Y/Y: 3.0%e v 3.1% prior

- 08:30 (US) Mar CPI Index NSA: 320.151e v 319.082 prior; CPI Core Index : 326.410e v 325.475 prior

- 08:30 (US) Mar Real Avg Hourly Earning Y/Y: No est v 1.2% prior; Avg Weekly Earnings Y/Y: No est v 0.6% prior- 08:30 (US) Initial Jobless Claims: 224Ket v 219K prior; Continuing Claims: 1.88Me v 1.903M prior

- 08:30 (CA) Canada Feb Building Permits M/M: No est v -3.2% prior

- 08:30 (CL) Chile Central Bank Economist Survey

- 08:30 (US) Weekly USDA Net Export Sales

- 09:00 (RU) Russia Gold and Forex Reserve w/e Apr 4th: No est v $645.6B prior

- 09:00 (UK) BOE's Breeden

- 09:30 (US) Fed's Logan gives Welcome Remarks

- 10:30 (US) Weekly EIA Natural Gas Inventories

- 11:00 (MX) Mexico Central Bank (Banxico) Mar Minutes

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills

- 12:00 (CA) Canada to sell 5 Year Bonds

- 12:00 (CH) SNB's Tschudin at Money Market Event in Zurich

- 12:00 (US) Fed's Goolsbee at Economic Club of NY

- 12:30 (US) Fed's Harker on Fintech

- 13:00 (US) Treasury to sell 30-Year Bond Reopening

- 14:00 (US) Mar Federal Budget Balance: -$130.0Be v -$236.6B prior

- 18:30 (NZ) New Zealand Mar Manufacturing PMI: No est v 53.9 prior

- 19:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to leave Reference Rate unchanged at 4.75%

- 19:50 (JP) Japan Mar M3 Money Supply Y/Y: No est v 0.7% prior; M2 Money Supply Y/Y: No est v 1.2% prior

- 20:00 (KR) South Korea Apr Imports 10 Days Y/Y: No est v 7.3% prior; Exports 10 Days Y/Y: No est v 2.9% prior

- 22:00 (KR) South Korea to sell KRW600B in 50-Year Bonds; Avg Yield: % v 2.440% prior; bid-to-cover: x v 1.70x prior (Mar 13th 2025)

- 23:30 (JP) Japan to sell 3-Month Bills