## United States
Examining the current state of the US economy reveals a paradox, as the country experiences economic outperformance alongside record-high household net worth, even while the President criticizes global trade. President Trump’s remarks describe global trade as having “looted, pillaged, raped, and plundered” the US economy. His proposal for “kind reciprocity” seems to be a straightforward measure: using US imports as a percentage of the overall bilateral trade deficit. The enforcement of a 10% minimum began on April 5, with a reciprocity levy implemented on April 9. Despite this, there is hope that concessions from other countries might provide some reprieve. Yet, Israel, which eliminated tariffs on US goods, still faces a 17% reciprocal tariff. Consequently, the dollar has been aggressively sold, equities have sharply declined, and interest rates have dropped. All G10 currencies have risen against the greenback, with the Australian dollar gaining approximately 0.60% and the Swedish krona, Swiss franc, and Japanese yen emerging as leaders with increases between 1.9% and 2.2%. Most emerging market currencies have strengthened, with the Chinese yuan as a notable exception, experiencing pressure even before the PBOC’s high dollar fix. The Thai baht has also weakened following a 36% reciprocal tariff, exceeding those on China and India. Globally, equity markets are predominantly negative. In the Asia Pacific region, New Zealand’s market is a rare exception, managing a modest 0.15% gain. In Europe, the Stoxx 600 index is down approximately 1.6%, while US index futures have fallen between 2.5% and 3.5%. Yields on Japan and Antipodean 10-year bonds have decreased by 10-15 basis points, and European benchmark 10-year rates are down by 5-7 basis points. The 10-year US Treasury yield has dropped eight basis points to 4.05%, which represents its lowest level since last October. Gold prices reached a record near $3,168 before profit-taking ensued. Meanwhile, May WTI crude oil futures gap lower, having reached almost $72.30 yesterday, and are now approaching Monday’s low near $68.80.
The Dollar Index has plummeted, gapping lower and falling to nearly 102.10 during the European morning, losing approximately 1.6% today. In the current year, the lowest point was around 99.60, with the 2024 low slightly above 100.00. Last week, the February goods trade balance was reported at nearly $149 billion, wider than anticipated but slightly narrower than the $155.6 billion recorded in January. The overall trade balance is set for release today, with Bloomberg’s survey median forecast predicting a $123.5 billion deficit after January’s $131.4 billion. This would result in a two-month shortfall of about $255 billion, compared to $136 billion in the first two months of last year. Part of this can be attributed to businesses and households attempting to stay ahead of tariffs, with some goods accumulating in inventories before likely price increases. This distortion highlights the importance of final sales to private domestic purchasers as an underlying growth measure, excluding government, inventory, and trade when assessing Q1 2025 growth. The market is anticipated to be sensitive to the ISM services report, which is expected to show a small tick down with prices paid increasing slightly. Weekly initial jobless claims are also on the agenda. Government and private sector layoffs have not yet been reflected in jobless claims, though confidence is high that they are forthcoming, albeit with timing uncertainties. It is anticipated that these impacts will be evident later in the quarter.
## Eurozone
The euro has surged from approximately $1.08 to $1.1050 today, with last year’s high at around $1.1215 and the 2023 high near $1.1275. The Eurozone has reported an upward revision of its final services and composite PMI, with the services PMI increasing from 50.4 to 51.0. The composite PMI also rose from a flash estimate of 50.4 to 50.9, up from 50.2 in the preceding months. Meanwhile, markets have increased the odds of an ECB rate cut from around 75% to 90%. Notably, Danish firm Maersk has acquired a 76 km railroad running adjacent to the Panama Canal from US-based Lanco Group and Canada Pacific Kansas City railroad.
## United Kingdom
Facing a 10% reciprocal tariff, half that of the EU’s levy, Sterling remains resilient, closing above $1.30 for the third time since last November, with gains approaching $1.3185. Last year’s high reached $1.3435, which might be the next target. The final March services and composite PMI readings were revised lower, with the services PMI down to 52.5 from a preliminary 53.2, though it remains above February’s 51.0. The composite PMI was adjusted to 51.5 from an earlier estimate of 52.0 and February’s 50.5. The UK economy remained flat in Q3 2024 and grew by 0.1% in Q4. Unexpected contraction was observed in January (-0.1%), with February GDP data due later this week.
## China
The US has announced a 34% tariff on China, in addition to a prior 20% increase by Trump. The dollar rose to CNH7.3485 before stabilizing, marking the highest level since early February. The PBOC introduced slightly increased volatility in setting the dollar’s reference rate, with today’s fix at CNY7.1889, a 0.13% increase. Caixin reported improving March services (51.9 vs. 51.4) and composite PMI (51.8 vs. 51.5).
## Japan
Facing a 24% reciprocal tariff, Japan saw its dollar exchange rate initially rise to almost JPY150.50 before returning to session lows near JPY149.20. The exchange rate closely tracks US yields, causing the greenback to fall to approximately JPY146.30, its lowest point since last October. Technical support remains limited ahead of the JPY140 area, with JPY145 being a psychological level. Tomorrow, Japan’s February household spending figures are expected, lending support to the wider argument that consumption aligns with larger cultural forces rather than a simple income reflection. Household spending is predicted to have fallen by about 0.8% year-over-year, consistent with January’s increase. Early next week, February labor earnings are due, with cash earnings around 3% year-on-year, nearing their fastest growth since 1997.
## Canada
Despite complaints about Canada’s dairy industry protection and NAFTA, the country has escaped reciprocal tariffs, strengthening the Canadian dollar. The greenback has experienced slight declines, hitting new lows for the year at CAD1.4120. Breaking CAD1.4100 could signal a decline toward the CAD1.3950-CAD1.4000 range. Canada’s February merchandise trade and services and composite PMI reports are pending. January saw Canada’s goods trade surplus with the US reach a record C$14.4 billion, driven by a 7.5% export increase. These exports, primarily automotive, saw auto exports surge by 12.5%, with 90% destined for the US. Overall exports rose by 5.5% while imports increased by 2.3%, both reaching record highs. Adjusted for exchange rates, export volumes rose by 4.5% and imports by 1.5%. With looming tariffs, February’s forces are expected to mirror those seen in January, though PMI impact remains less significant as it does not yet capture the full extent of anticipated US tariff shocks.
## Australia
Australia faces the minimum 10% reciprocal tariff after expressing concerns about its US beef ban, while New Zealand contends with a 20% tariff. Despite this, the New Zealand dollar is outperforming the Aussie today, up nearly 1%, compared to Australia’s 0.65% gain. The Australian dollar hit a three-day low near $0.6230 before bouncing to $0.6345 late during European trading, surpassing yesterday’s high. The $0.6400 level has capped the Australian dollar this year. Recent data showed a narrower-than-expected February trade surplus in Australia, shrinking from A$2.97 billion in January to A$5.16 billion. Export and import activity narrates multiple facets of the country’s trade landscape.
## Mexico
The Mexican peso spent most of Wednesday within Tuesday’s range (~MXN20.32-MXN20.54), breaking down to a low near MXN20.19, and extended losses to almost MXN20.02. The four-month low in March was slightly below MXN19.85. Even in prosperous times, private consumption, capex, and leading indicators receive limited market attention, more so in the current climate. Prior to the US election, Mexico’s capital investment was weak, rising an average of 1.1% monthly in 2023 and 1.0% in 2022. However, the first half of 2024 saw a monthly decline of nearly 0.2%, worsening to a 0.5% decline per month in H2, marked by an almost 1% monthly decrease in Q4. Weak domestic conditions, compounded by the US focus on reshoring, are likely to exacerbate business caution.
