ASIA: Coming Up In Asia Pac Markets On Wednesday

Goldman Sachs: "USD: Rates up, Dollar down? That’s not exceptional. Last week, we revised our Dollar outlook as we flipped our view about how tariffs would impact the currency, and developments since then have raised our conviction in this view. Specifically, we think that the design and implementation of these tariffs should have a negative impact on the currency because they have contributed to eroding consumer and business confidence, and the broad tariff enactment makes it more likely that US business and consumers will become price-takers. We have previously argued that exceptional US asset return prospects are responsible for the Dollar’s strong valuation. But, if tariffs weigh on US firms’ profit margins and US consumers' real incomes, like we think they will, they can erode that exceptionalism and, in turn, crack the central pillar of the strong Dollar. The clearest near-term risk to this view is disruptive market moves that are typically associated with a “dash for Dollars.” The 90-day “pause” has mitigated that risk somewhat, and even made the path to Dollar depreciation a little wider as the looming deadline cements the tariffs’ role in elevated uncertainty. By avoiding some of the most punitive new tariff measures for now, investors are likely to feel more confident in Dollar shorts as the economic outlook looks dim but not dark. In addition, it is actually instructive that, despite record-breaking market moves, there have been few signs of Dollar funding stress. At least so far, this has not been a market that is scrambling for Dollars—if anything, it is the opposite. The recent breakdown in usual correlations is a clear signal that markets are concerned about what recent policy actions imply about US governance and institutional credibility, and the confluence of a steepening curve, lower equities and a weaker dollar point to worrying parallels to the UK in late 2022. If it continues, fresh policy action would likely be required to restore market confidence. Some of the adjustments to narrow tariff negotiations and emphasize forthcoming fiscal support and clarity are a step in this direction, but so far do not change our framework."

Looking ahead to next week:

• Two of the Fed's most senior leaders speak on the economic outlook in the coming week: Gov Waller on Monday and Chair Powell on Wednesday. This will be the first commentary by both since the April 9 Trump administration announced a reciprocal tariff "pause" with a large hike in the Chinese levy, and associated bond / swap market turmoil.
• It's doubtful Powell will shift his approach on monetary policy versus his April 4 appearance when he said "it feels like we don't need to be in a hurry" to cut rates, but there will be attention paid to whether his tone reflects those of other Fed officials who have sounded increasingly cautious about the upside risks to inflation and downside risks to growth. Additionally, any discussion of how the Fed views volatility in Treasury markets by Waller or Powell will be closely eyed.
• March retail sales (Wednesday) is the week’s key data release: it’s expected to show a large sequential acceleration (1.4% M/M consensus vs 0.2% in Feb), with growth in the key Control Group reading remaining strong at 0.7% (1.0% prior). Should these expectations be met, it will add to the tension between solid incoming data and weaker sentiment indicators – and ultimately will be assessed for whether it represents tariff front-running more than continued strength in consumer demand.
• Meanwhile, the NY Fed’s consumer expectations survey will be watched for any corroboration of the soaring inflation concerns evident in recent UMichigan reports.