US equity markets are little changed in afternoon trade, after President Trump pressed ahead with tariffs on car manufacturers as part of a widening trade war, which weighed on share prices in the sector. The S&P oscillated around flat in the absence of first tier economic data. European indices closed lower with the Euro Stoxx falling 0.7%. Treasuries edged higher in yield while the US dollar is mixed against G10 currencies.
President Trump has signed an order to put a 25% tariff on imports of foreign-made cars. This will go into effect on April 2 and will apply to car parts as well as completed vehicles. Tariff uncertainty has undermined business and consumer sentiment and increased the chance of a further slowdown in economic activity. The move has led to threats of retaliation from the EU, Canada, Japan and South Korea.
There was limited market reaction to US economic data. Weekly jobless claims matched consensus estimates at 225k. The goods trade deficit narrowed to US$150bn in February, but printed above the consensus estimate, likely due to stockpiling ahead of potential tariffs being implemented. Pending home sales rose by 2% in February, a bit stronger than the 1% consensus.
US treasuries are modestly higher in yield with a curve steepening bias. The 2y/10y curve has increased to 36bp, up from 20bp at the start of March, and not far below the 43bp cyclical peak reached in January. 10-year treasury yields traded to an intra-day high of 4.40%, the highest level in a month.
Gilt yields reached the highest level since January, on concerns about the UK’s fragile public finances, which is fuelling expectations the government will need to raise taxes or cut spending further at its October budget. 10-year yields closed 5bp higher at 4.78% contrasting with lower yields across European markets. 10-year bund yields fell 3bp to 2.77% as the market continues to recover from the sharp selloff at the beginning of March in response to Germany’s fiscal expansion.
The US dollar is weaker against most G10 currencies overnight. The pound was the top performing currency. On the other end of the spectrum, the yen and Canadian dollar fell against the US dollar. The NZD is marginally stronger, and NZD/JPY is the largest mover of the major crosses, trading up toward 86.80.
NZ government bonds closed 4-5bp higher across the curve in the local session yesterday aligning with the selloff in ACGBs. The weekly tender attracted decent demand, albeit not to the same extent as recent weeks, with NZ$1.4 billion of bids for the NZ$500 million being offered. The NZ swap curve matched the move in government bonds.
NZ Debt Management announced the joint lead managers for the syndicated tap of the May-2032 nominal bond. The panel announcement suggests the transaction is likely to launch next week. NZDM indicated it expects to issue at least NZ$3.0 billion, and the transaction will be capped at NZ$4.0 billion, which is smaller than recent syndications.
Australian 10y bond futures are little changed since the local close yesterday, which suggesting a limited directional bias, for NZ yields on the open.
In the day ahead, NZ consumer confidence will be closely monitored, after Westpac’s measure slumped in Q1, suggesting potential challenges for household spending. Filled jobs for February is also scheduled.
It is a busy international calendar. US personal income and spending data is the key release. The Fed’s preferred measure of inflation, the core PCE deflator, is expected to increase 0.3% in February, which would see the annual rate increase to 2.7% from 2.6% in January.
