Tuesday turnaround following three heavy days of selling but Trump's ultimatum

EU Mid-Market Update: Tuesday turnaround following 3 heavy days of selling but Trump's ultimatum for China puts trade war into new gear.

Notes/observations:

- Fear across the market is dialed back slightly but Trump’s tariff hardline held firm, rejecting EU’s “zero-for-zero” industrial goods offer and threatening China with 50% tariffs if it doesn’t drop its 34% retaliation. China vowed to “fight to the end,” but signals of talks with 70 countries (per Treasury Sec Bessent) sparked cautious optimism. EU’s Von Der Leyen held call with China officials in hopes of reforming trade. Has Trump ironically reversed the poor relations between EU and China that existed before Liberation Day?

- Thailand and Indonesia joined Philippines, Taiwan and Vietnam in concessionary approach to reduce tariffs.

- In overnight Asia session, Nikkei surged 6%, rebounding from a 1.5-year low, fueled by US tech recovery and Japan’s trade delegation to Washington, eyeing a first-mover US deal. Yen steadied.

- European bourses bounced to snap 4-day losing streak. DAX reclaims 20K handle. Travel/Leisure and Industrial Goods lead sectors in Europe, while Telecoms lags.

- GBP sterling moves >1% lower as analysts evaluate tariff impact on growth and recession odds. Euro is more shielded due to tariff hopes on better deal and high liquidity of the pair.

- US 10-year Treasury yields steadied at 4.18% after Monday’s spike. US CPI approaches on Thurs, Apr 10th.

-Asia closed higher with Nikkei225 outperforming +6.0%. EU indices +1.1-2.1%. US futures +1.4-2.0%. Gold +0.6%, DXY -0.2%; Commodity: Brent 0.0%, WTI +0.1%; Crypto: BTC +3.6%, ETH +5.9%.

Asia

- South Korea Feb Current Account Balance: $7.2B v $2.9B prior.

- Japan Feb Current Account Balance: ¥4.061T v ¥3.800Te.

- Australia Apr Westpac Consumer Confidence: 90.1 v 95.9 prior.

- Australia Mar NAB Business Confidence: -3 v -1 prior.

- Several Asian nations (Philippine, Vietnam and Taiwan) to offer to cut tariffs on US products. China indicating it would not back down and will "fight to the end" (**Note: Trump threatened China with a further 50% tariff if China did not withdraw its own 34% retaliation).

- China PBOC set the Yuan reference rate below 7.20, the weakest since Sept 11th, 2023 as CNY also declined to the lowest level since Sept 2023.

- China PBOC stated that would support state-owned Central Huijin in EFT purchases; Vowed to defend capital markets stable operations (**Note: Huijin is a unit of China's Sovereign Wealth Fund – CIC).

- China Financial Regulator stated to raise the upper limit of equity asset allocation ratio and increase support for the capital market and the real economy

- RBNZ confirmed Christian Hawkesby as acting Gov for 6-months (**Note: RBNZ rate decision on Wed).

Europe

- EU officials said to be preparing a two-part response to President Trump's trade policies. Said to offer to reduce tariffs on American-made cars and industrial products under a "zero-for-zero" approach if the US reciprocated.

- Italy Govt said to cut its 2025 GDP growth forecast from 1.2% to 0.6% and saw 2026 GDP growth between 0.7-0.8%.

Americas

- Pres Trump and his Administration held the line on tariffs against significant Wall St and media (and Musk) pressure, and got even tougher by threatening China with a further 50% tariff if China did not withdraw its own 34% retaliation.

- Pres Trump stated that budget plan passed by Senate had his complete and total endorsement.

- Fed's Goolsbee (voter) noted that Fed policy makers were 'hearing anxiety'. Almost unprecedented situation where hard US economic data looked good, but lots of 'dust in the air'.

- Treasury Sec Bessent flew to Florida on Sunday to encourage President Trump to start putting more emphasis on talking about his ‘endgame’. He later noted Pres Trump had a productive call with Japan PM Ishiba and would be directly involved in the negotiations with Japan.

Energy: - US and Iran said to plan meeting in Oman on Sat, Apr 12th for indirect high-level talks.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +1.7% at 482, FTSE +2.1% at 7861, DAX +1.7% at 20083, CAC-40 +1.3% at 7018, IBEX-35 +1.2% at 11922, FTSE MIB +1.1% at 3246, SMI +1.7% at 11236, S&P 500 Futures +1.6%]

Market Focal Points/Key Themes: European indices opened higher across the board but moderated gains through the early part of the session; markets seen rising on hopes of a negotiated settlement around tariffs; among the sectors trending to the upside are energy and financials; lagging sectors include utilities and telecom; oil & gas subsector following uplift in crude prices; earnings expected in the upcoming US session include Walgreens-Boots Alliance.

Speakers

- ECB’s De Guindos (Spain) stated that was currently in a moment of anxiety and uncertainty.

- ECB's Stournaras (Greece) stated tnat negative impact from Trump tariffs on Greek economy would be limited.

- ECB's Simkus (Lithuania) stated that a 25bps rate cut was needed in Apr; Undecided what to do at the June meeting. No need to talk about the need for a 50bps cut

- Sweden Central Bank (Riksbank) Bunge noted that recent turbulence was increasing uncertainty about future inflation and economic recovery. Always ready to act if necessary.

- Norway Central Bank (Norges) Gov Bache noted that was closely monitoring market developments.

- EU Commission Pres Von der Leyen said to stress to China President Xi the responsibility of Europe and China to support a strong reformed trading system.

- Russia Central Bank (CBR) Gov Nabiullina stated that saw risk to economy from oil price decline.

- Japan DPP Head Tamaki (opposition party): BOJ should consider rate cut if tariffs hurt econ.

- Thailand Fin Min Pichai noted that would lower tariffs and reduce non-tariff barriers.

- China Foreign Ministry reiterated govt stance that if US insisted on waging a trade war, China would fight to the end and take necessary measures.

Currencies/fixed income

- FX price action was less volatile, but the USD did manage to squeak out small gains

- Dealers were awaiting the Wed rate decision from New Zealand suggesting it could offer clues to how central banks would confront the opposing threats of rising inflation and cooling growth. Dealers note that central bank could be trapped between a rock and a hard place with above-target inflation on one side, and rising recession risks on the other and which would they be forced to prioritize.

- EUR/USD at 1.0940 by mid-session with GBP/USD at 1.2756.

- USD/JPY at 147.38.

- 10-year German Bund yield at 2.63% and 10-year Gilt yield at 4.62%. 10-year Treasury yield at 4.17%.

Economic data

- (SE) Sweden Mar Maklarstatistik Housing Prices: 1.8% v 3.1% prior.

- (NL) Netherlands Mar CPI M/M: 0.4% v 1.1% prior; Final CPI Y/Y:3.7% v 3.7% prelim.

- (NL) Netherlands Mar CPI EU Harmonized M/M: No est v 0.5% prelim; Y/Y: No est v 3.4% prelim.

- (NL) Netherlands Feb Consumer Spending Y/Y: 2.1% v 0.7% prior.

- (DK) Denmark Feb Industrial Production M/M: +5.1% v -11.4% prior.

- (HU) Hungary Mar CPI M/M: 0.0% v 0.3%e; Y/Y: 4.7% v 5.0%e.

- (FR) France Feb Trade Balance: -€7.9B v -€6.5B prior; Current Account Balance: -€1.9B v -€2.3B prior.

- (MY) Malaysia end-Mar Foreign Reserves: $117.5B v $118.0B prior.

- (TW) Taiwan Mar CPI Y/Y: 2.3% v 2.2%e; CPI Core Y/Y: 1.6% v 1.7%e; PPI Y/Y: 3.5% v 3.7% prior.

- (CZ) Czech Mar Unemployment Rate: 4.3% v 4.3%e.

- (HU) Hungary Mar YTD Budget Balance (HUF): -2.554T v -1.723T prior.

Fixed income issuance

- (EU) European Union opened its book to sell EUR-denominated 2028 and 2052 NGEU bonds via syndicate.

- (NL) Netherlands Debt Agency (DSTA) sold €2.095B vs. €2.5B indicated in 0.5% July 2032 DSL bonds; Avg Yield: 2.567% v 2.627% prior.

- (ES) Spain Debt Agency (Tesoro) sold total €5.82B vs. €5.5-6.5B indicated range in 6-month and 12-month bills.

- (UK) DMO sold £2.25B in 4.375% July 2054 Gilts; Avg Yield: 5.357% v 5.104% prior; bid-to-cover: 3.04x v 2.85x prior; Tail: 0.2bps v 0.2bps.

- (AT) Austria Debt Agency (AFFA) sold total €2.3B vs. €2.3B indicated in 2030 and 2035 RAGB Bonds.

- (CH) Switzerland sold CHF456.6M in 3-month Bills; Avg Yield: 0.020% v 0.115% prior; bid-to-cover: 4.54x v 6.80x prior.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (DE) Germany to sell €3.0B in 2.5% Dec 2035 Green Bunds.

- 05:30 (CH) Switzerland to sell 3-month Bills.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (BE) Belgium Debt Agency (BDA) to sell combined €2.4B in 3-month and 12-month bills.

- 05:30 (ZA) South Africa to sell combined ZAR3.75B in 2032, 2037 and 2044 bonds.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 06:00 (IE) Ireland Feb Industrial Production M/M: No est v -3.8% prior; Y/Y: No est v 11.6% prior.

- 06:00 (US) Mar NFIB Small Business Optimism: 99.0e v 100.7 prior.

- 06:00 (FI) Finland to sell combined €2.0B in 6-month and 9-month bills.

- 07:30 (BR) Brazil Feb Nominal (overall) Budget Balance (BRL): -78.7Be v 63.7B prior; Primary Budget Balance: -25.4Be v 104.1B prior; Net Debt % GDP: 61.7%e v 60.8% prior.

- 07:30 (SE) Sweden Central Bank (Riksbank) Gov Thedeen.

- 08:00 (CL) Chile Mar CPI M/M: 0.5%e v 0.4% prior; Y/Y: 4.9%e v 4.7% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.- 08:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (AT) ECB's Holzmann (Austria) in Vienna.

- 10:00 (CA) Canada Mar Ivey Purchasing Managers Index: No est v 55.3 prior; PMI (unadj): No est v 53.6 prior.

- 10:00 (ES) ECB’s De Guindos (Spain).

- 10:30 (CA) Canada to sell 1-month, 3-month, 6-month and 12-month bills.

- 11:30 (US) Treasury to sell 6-Week Bills.

- 12:00 (UK) BOE's Lombardelli.

- 13:00 (US) Treasury to sell 3-Year Notes.

- 16:30 (US) Weekly API Oil Inventories.

- 19:00 (KR) South Korea Mar Unemployment Rate: 2.8%e v 2.7% prior.

- 21:10 (KR) Bank of Korea to sell KRW500B in 1-year Bonds.

- 21:10 (JP) BOJ Outright Bond Purchase Operation for1~3 Years; 5~10 Years and 10~25 Years.

- 22:00 (NZ) New Zealand Central Bank (RBNZ) Interest Rate Decision: Expected to cut Official Cash Rate (OCR) by 25bps to 3.50%.

- 23:00 (KR) South Korea Mar Total Bank Lending to Household (KRW): No est v 1143.7T prior.

- 23:00 (TH) Thailand to sell combined THB45B in 2028 and 2040 bonds.

-23:30 (JP) Japan to sell ¥3.5T in 6-Month Bills.