Tariff Confusion, Inflation, Industrial Production, and Continuing Financial Market Volatility – Currency Thoughts
Tariff Confusion, Inflation, Industrial Production, and Continuing Financial Market Volatility
April 10, 2025
President Trump’s peek-a-boo tariff policy is putting Lincoln’s warning that you cannot fool all of the people all of the time to a test. Investors got severely whiplashed yesterday afternoon by the 90-day tariff pause. The subsequent sharp rally in U.S. equities extended in Asian and European markets overnight, but U.S. futures prior to today’s U.S. CPI data release had pared Wednesday closing levels by 1.1% in the case of the DOW, 1.5% in the S&P 500 and 1.8% for the Nasdaq. Trump’s announcement left much unclarified. He could always change his mind without warning again. The basic 10% tariff on all imports remains in place. China was handled differently, getting a whopping 125% levy and intensifying tension between the world’s two biggest economies. Tariff exemptions remain on several special commodities such as copper and semiconductors, and the 25% tariffs on autos, steel and aluminum weren’t halted.
Today’s data menu mostly features a slew of price and industrial production releases.
Despite lower-than-projected U.S. consumer price inflation in March, U.S. equities and the dollar gave back more ground in the wake of that release. A 0.1% month-on-month CPI dip was the first decline since the first half of 2020 when the Covid pandemic was in its early days. Year-on-year CPI inflation fell back 0.4 percentage points to 2.4%, matching last September’s 43-month low. Excluding food and energy, the so-called core CPI inflation rate dropped to a 48-month low of 2.8% from 3.1% in February and a cyclical high in mid-2022 6.6%. The shelter component of the CPI, up 4.1% from a year earlier, was at its lowest point since the end of 2021 and down from 7.6% in the first month of 2023. Excluding energy services, the service component’s pace of rise fell to 3.7%.
Shortly after the CPI release, the dollar’s overnight losses amounted to 2.2% against the Swiss franc, 1.8% versus the yen and 1.5% relative to the euro. Gold had risen 2.1% above yesterday’s closing level, while Bitcoin was worth 1.1% less. At $60.47, WTI oil had fallen a net 3.0% and was barely hanging on to a 60 dollar handle.
Equities in the Pacific Rim closed Thursday with gains of 9.3% in Taiwan, 9.1% in Japan, 8.2% in Vietnam, 6.6% in South Korea, 4.9% in Thailand, 4.8% in Indonesia, 4.7% in Sri Lanka, 4.5% in Malaysia and Australia, but just 2.1% in Hong Kong and 1.2% in China.
Major Euroland stock markets are currently hovering about 5% above yesterday’s closing levels, and the British FTSE is up by 3.8%.
With 15 minutes to go before the U.S. opening bell, futures quotes on the SPX, DOW, Nasdaq, and Russell 2000 are down by 2-3%.
China reported a pair sub-zero CPI and PPI readings for the second month in a row. March consumer prices fell 0.4% on month and 0.1% on year following a 0.7% 12-month drop posted in February. Core consumer price inflation printed at a mere +0.5%. Producer price inflation, which has been negative since October 2022, deepened to a -2.5%, its most negative reading since November.
Japanese domestic producer goods prices rose 0.4% last month, lifting their year-on-year advance to a 2-month high of 4.2%. But due to dollar weakness, Japanese import prices fell 1.6% on month and 2.2% on year, which was the largest 12-month slide in five months.
Norwegian consumer price inflation fell a full percentage point from a 10-month high of 3.6% in February to a lower-than-forecast 2.2% last month.
Irish CPI inflation ticked up another 0.2 percentage points to a 43-month high of 2.0%, having bottomed last September-October at 0.7%. The prior cyclical peak of 9.2% in 2022 was similar to the U.S. cyclical peak of 9.1%.
Danish CPI inflation retreated to 1.5% in March from February’s 9-month high of 2.0% and well below 10.1% in October 2022.
Portuguese CPI inflation of 1.9% in March was its lowest in seven months and down from 10.1% in October 2022.
Czech consumer price inflation in the Czech Republic matched February’s 5-month low of 2.7%.
Greek CPI inflation dipped to a 4-month low of 2.4% in March.
High inflation continues in Mongolia in spite of a half percentage point drop to 9.1% last month. Likewise, CPI inflation in Egypt punched in at 13.6% last month up from February’s 35-month low of 12.8%.
Only 223k new U.S. jobless insurance claims were filed last week, matching the latest four-week average. This is a low figure historically speaking and, in conjunction with consumer price data, reveals little effect so far of Trump’s tariff changes so far. This contrasts with a notable deterioration in survey data. The FOMC minutes released yesterday afternoon also discuss tariffs, conceding such carry upside inflation risks and downside danger to employment over the short run.
According to released industrial production figures around the world today, output in Italy fell 0.9% on month and 2.7% year-on-year; a 1.0% monthly decline and a 1.8% on-year rise in Austria; 12-month rates of decline of 1.3% in Slovakia, 2.4% in Finland and Slovenia and 4.6% in Bulgaria; and a 3.3% monthly drop in Greece that pushed its year-on-year comparison to -0.1% and thus below zero for the first time since October. In Sweden, industrial production in February was 0.7% lower than in the same month one year earlier, and a 3.2% production decrease was experienced in South Africa.
The National Bank of Serbia‘s policy interest rate was cut three times between June and September last year after staying at 6.5% from July 2023 until that first cut in June 2024. A less restrictive stance had been justified by inflation’s retreat from 16.2% in March 2023 to 3.8% by June 2024. Disinflation subsequently stalled above the 3.0% target midpoint, reaching a 9-month high of 4.6% this past January. The NBS statement today also addresses “the introduction of high tariffs and the uncertainty of policy going forward.” While this new issue offers some downside elements such as weaker European growth and more interest rate cuts by the ECB, there are also countervailing potential forces to monitor such as “increasing the risks of a halt in global supply chains and a rise in global inflation.” All in all, monetary official felt it prudent to extend the pause on interest rate reduction, with the rate at 5.75%, and they did not commit to the likely timing of a fourth rate cut, other than to say decisions will be made meeting to meeting.
At the Central Bank of the Philippines, however, the key interest was cut today by 25 basis points to 5.5% following a scheduled review of the monetary stance. This was the fourth 25-bp reduction since last August, and the new rate is a full percentage point below the peak of 6.5% maintained from October 2023 until August 2024. In taking today’s move, officials reduced their projected CPI inflation forecasts slightly for this year and 2026, and released a statement revealing that “The Monetary Board noted the more challenging external environment, which would dampen global GDP growth and pose a downside risk to domestic economic activity. On balance, the more manageable inflation outlook and the risks to growth allow for a shift toward a more accommodative monetary policy stance.”
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bangko Sentral Ng Pilipinas, National Bank of Serbia, U.S. and Chinese consumer prices
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