Intensifying Flight to Safety – Currency Thoughts

Intensifying Flight to Safety

April 4, 2025

Normally the first Friday of every month is focused on the U.S. Labor Department release of the prior month’s jobs report but not this time. The radical program of reciprocal tariffs unveiled late Wednesday afternoon by President Trump continued to reverberate around world financial markets and government halls overnight. Inevitable retaliation from former ally and foe is underway. China wasted little time matching the 34% reciprocal tariff against it with a levy of equal size on imports from the United States, and French President Macron is calling for a suspension of all investment into the United States economy, even deals already in progress.

Ten-year sovereign debt yields have dropped by a additional 18 basis points in Japan, 15 basis points in Germany, 14 bps in the Netherlands, 12 bps in the U.K., 9 bps in France and Switzerland, and 8 bps in Spain. The U.S. 10-year Treasury yield is 13 basis points below yesterday’s close and at 3.89% some 93 bps under its 2025 high back in January.

Passing into correction territory and taking aim on a bonafide bear market, U.S. stock futures at this writing have plummeted by an additional 4.7% in the case of the Russell 5000, 3.4% in the Nasdaq, and 3.2% in the DJIA and SPX indices. European stock markets already sunk today by 3.9% in the U.K., over 4% in Switzerland and France, 5.0% in Germany and over 6% in Italy and Spain. Earlier today in Pacific Rim stock markets, share prices closed down 2.8% in Japan, 2.4% in Australia, 1.5% in Hong Kong, and 1.2% in India.

Financial market worries have been amplified by doubts that President Trump will back away from his recently imposed tariff hikes. While employing a zig-zagging style in many other areas, reliance on tariffs is one idea that he has been resolutely consisting with for many decades. Moreover, to rescind the tariffs in the face of financial market pain would be an admission of a mistake that seemingly would go entirely against his combative nature. So unlike earlier market slumps in 1987, 2001, and 2009, no cavalry should be expected to put this fire out soon. Besides federal agencies stripped recently of manpower aren’t in a good position to lend help.

The dollar has been volatile, with gains of 2.7% and 2.1% overnight against the Australian and New Zealand currencies and of 1.7% relative to the Mexican peso and 0.6% versus sterling. The dollar has also dropped 1.2% against the Swiss franc, 0.7% versus the yen and 0.4% vis-a-vis the euro.

The price of oil fell another 6.5% overnight to a 3-1/2 year low, depressed by the decision from OPEC Plus producers to move forward plans for increased production. Bitcoin’s price retreated 0.8%.

More purchasing manager surveys have been reported for March.

• Euroland’s construction PMI recovered 2.1 points to a 2-month high, but at 44.8 reflected a significant continuing rate of negative growth. The low point last July-August was a reading of 41.4.
• Within the euro area, Germany’s PMI in construction worsened to a 3-month low of 40.5, and the French index was only up to 43.8. On a brighter note, Italy’s index rose another 0.7 points to a 15-month high of 52.4.
• Britain’s construction PMI rallied after February’s 37-month low of 44.6 with a rise to 46.4 last month.
• India’s composite and service sector PMI readings were revised upward to 7-month highs of 59.5 and 58.5.
• Brazil’s composite and service sector PMIs printed at 4-month highs of 52.6 and 52.5.
• But Canada’s composite PMI sank to a 57-month low of 42.0.
• The United Arab Emirates non-oil purchasing managers index fell a full point in March to a half-year low of 54.0.

German industrial orders again disappointed. Such flat-lined in February after a 5.5% monthly plunge in January and have posted a monthly increase in just one of the past five months. Orders in December-February were 1.6% lower than the previous three-month average, and February orders were 0.2% lower than a year earlier.

French industrial production, by contrast, rose 0.7% in February, more than doubling what analysts were predicting but still not enough to lift the year-on-year comparison (-1.0%) into positive territory.

Spanish industrial production also climbed 0.7% during February but recorded their largest on-year drop (-1.9%) in 17 months.

Italian retail sales edged only 0.1% higher in February and were 1.5% lower than a year earlier.

Japanese household spending leaped 5.5% higher in February, the most since early in the 2020 pandemic, but showed a year-on-year dip of 0.5%.

U.S. jobs data in March do not portray an onset of significant weakness. The jobless rate rose to a 4-month high of 4.2% from 4.1% in February and 4.0% in January. 4.2% matches the highest rate since October 2021. The broader U6 measure of under-employment and unemployment retreated 0.1 percentage point to 7.9% following a half-percentage point rise in February. March saw a robust 228k increase in non-farm payroll employment, beating market expectations by about 100k, but the combined increases in January and February were revised 50k lower than reported earlier. Average hourly earnings posted an as-forecast 0.3% monthly increase but were associated with a lower-than-forecast 3.8% 12-month rate of rise (lowest in 8 months).

March consumer price figures were reported today in the Czech Republic, Sweden, and Thailand. Czech CPI inflation matched February’s 5-month low of 2.7%. CPI inflation there has receded from 18.0% in September 2022 to as low as 2.0%, a 9-year low visited several times and most recently last June. Swedish consumer price inflation, which crested at 12.3% in December 2022, fell sharply last month to a 51-month low of 0.5% and was associated with lower core inflation of 2.3%. In Thailand, too, CPI inflation last month moved below 1.0%, printing at a lower-than-expected 0.8%.

Unlike the United States, Canadian labor market conditions clearly worsened last month. Employment had been expected to advance about 10k but instead fell by 32.6k, and the jobless rate rose to a 3-month high of 6.7%.

Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: French and Spanish industrial production., German factory orders, U.S. and Canadian labor statistics

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on Friday, April 4th, 2025 at 6:00 am and is filed under New Overnight Developments Abroad – Daily Update.
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