Investors Remain Highly Skeptical about President Trump’s Tariff Plans on This April Fool’s Day – Currency Thoughts
Investors Remain Highly Skeptical about President Trump’s Tariff Plans on This April Fool’s Day
April 1, 2025
The lack of confidence in the U.S. tariff changes to take effect tomorrow is underscored by diverse movements overnight in equities. The expectation is that his tariff moves and other dramatic changes made to the federal government will turn out very poorly for the United States and ultimately improve the relative significance of other countries in the world order. So while U.S. stock futures are currently about 0.5% in the red, share prices elsewhere today closed up 2.8% in Taiwan, 1.0% in Australia, and 1.6% in in South Korea. Also, key European stock market gains thus far today range from 0.7% in Great Britain to 1.8% in Germany.
The dollar fell overnight by 0.5% against the yen and 0.2% versus the Swiss franc but rose 0.4% versus the Mexican peso, 0.2% relative to sterling and 0.1% vis-a-vis the euro. 10-year sovereign debt yields dropped today by ten basis points in Italy, eight bps in Spain and France, seven bps in Germany, six bps in Great Britain and five bps in the United States. Trade wars historically have exerted a drag on economic growth for everyone.
Bitcoin‘s price recovered 1.8% overnight, but gold remained in demand also and rose 0.4%.
As expected, the Reserve Bank of Australia’s Official Cash Rate was left unchanged at 4.1% following this month’s scheduled review of monetary policy. A 25-basis point cut at the February review has reversed the rates previous changed done in November 2023, but policy overall remains in restrictive territory. Officials aren’t hurrying to lower such even though “recent information suggests that underlying inflation continues to ease in line with the most recent forecasts,” according to today’s recent statement. In such, officials note a continuing tight labor market, speaks of the lags between monetary policy changes and resulting impacts on pricing behaviors, and brings up the array of external uncertainties that President Trump’s return to power has imposed:
Recent announcements from the United States on tariffs are having an impact on confidence globally and this would likely be amplified if the scope of tariffs widens, or other countries take retaliatory measures. Geopolitical uncertainties are also pronounced. These developments are expected to have an adverse effect on global activity, particularly if households and firms delay expenditures pending greater clarity on the outlook.
The Bank of Japan’s quarterly Tankan survey of corporate conditions and expectations was published today. The diffusion indices of conditions faced by larger manufacturers, large non-manufacturers, and all survey participants respectively printed at +12 (two points below the December reading and at a one-year low), +28 and +15. The latter two readings were unchanged December results. The survey includes a robust estimate of business investment last fiscal year but anticipated positive but a significantly smaller increase in the new fiscal year that began today.
There’s been yet another statement by a higher Federal Reserve officials dispelling any expectation of central bank rate cut happening real soon, this time from New York Federal Reserve District President Williams.
Data reported this Tuesday include publication of a slew of manufacturing purchasing manager surveys, but first here are some other items of special interest.
Euroland’s 6.1% jobless rate in February constitutes a record low and is down from 6.2% in the three prior months and double-digit territory prior to July 1916. Total consumer price inflation in Euroland in March unexpectedly edged down 0.1 percentage point to a 4-month low of 2.2% and was associated with the lowest core inflation (2.4%) in 38 months. Service sector price inflation dropped to 3.4% from 3.7% in February and 4.0% this past December.
Britain’s Nationwide house price index stagnated month-on-month in March and matched February’s 12-month 3.9% rate of increase. A 0.4% year on year drop in U.K. shop prices was the smallest dip in a negative sequence going back to last September.
China’s $163.8 billion current account surplus in the final quarter of 2024 represented a record high and a 2.8-fold jump from the size of the surplus in the final quarter of 2023. The surplus of $424 billion in 2024 slightly exceeded 2.0% of GDP.
Japanese unemployment in February edged back down to December’s 2.4% low level.
Czech GDP grew by 0.7% on quarter and 1.8% on year in the final quarter of 2024. Growth for full 2024 averaged just 1.1%.
Kazakhstani consumer price inflation accelerated further to a 16-month high of 10.0% in March from 9.4% in February and 8.3% last September.
Business confidence in Mexico, one of the major objects of Trump’s tariff war, weakened to a 46-month low in March.
As a reminder, purchasing manager indices that are above 50.0 connote improving business conditions, and vice a versa. If a reading in March is above its February level, it means that either conditions deteriorated more slowly, improved more quickly, or swung from deterioration territory into an improving mode.
In March, manufacturing PMIs exceeded both the prior month’s reading and the 50 level in China (51.2), Vietnam (50.5), Hungary (51.2), Australia (52.1), Norway (50.6), Sweden (53.6), Poland (50.7) and the Global S&P-compiled U.S. survey (50.2).
Manufacturing PMIs exceeded February levels but remains below the 50 level last month in the Czech Republic (48.3), Germany (48.3), France (48.5), Austria (46.9) and Euroland (48.6). Euroland’s reading rose to a 26-month high, eliciting cautious optimism from survey compilers, who noted that the full-point increase of the index may have been distorted by front-loaded demand to beat Trump’s coming tariffs but also said that subdued inflation and the promise of more robust German defense spending are substantive reasons to suspect that better times could endure.
Economies where March PMI readings were lower than 50.0 as well as below results from February include Taiwan (49.8), Thailand (49.9), South Korea (49.1), the Netherlands (49.6), Russia (48.2), Switzerland (48.9), Japan (a one-year low of 48.4), Spain (49.5), Italy (46.6), South Africa Absa (48.7) and Great Britain (a 17-month low of 44.9).
Ireland’s PMI reading of 51.6 showed the fastest positive growth among all reporting euro area economies but was at a 2-month low.
Brazil’s PMI also dropped to a 2-month low but stayed above the 50 neutral threshold at 51.8.
Not surprisingly considering President Trump’s disdain for America’s northern neighbor, the Canadian manufacturing purchasing managers index dropped additionally to a sour 15-month low of 46.3 from 47.8 in February and 52.2 at end-2024.
The U.S ISM-compiled purchasing managers survey in March provides even more confirmation that the very sector whose health U.S. tariffs are supposed to promote is in fact fearing the worst. That index dropped to a four-month low of 49.0 from 50.3 in February and 50.9 in January. The sub-index for business orders sank to 45.2 from 48.6. Inflationary pressure accelerated with a reading of 69.4 after 62.4, and employment conditions deteriorated to 44.7 after 47.6 the month before. A separate labor market measure reported today, the JOLTS data, reflected a bigger-than-expected drop in job openings along with fewer job quits.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Japan Tankan survey, Euroland CPI and unemployment, manufacturing purchasing manager surveys March 2025, Reserve Bank of Australia
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