GLOBAL MACRO: March Exports Jump Ahead Of US Tariffs, Especially From Asia
The March CPB global trade data showed a significant pickup in export growth as countries, especially in Asia, try to beat the imposition of US duties. Reciprocal tariffs were announced on April 2 and then delayed until July 9 to allow negotiations to take place. Exporters are likely to continue front loading shipments in case agreements are not reached, increasing inventories and thus the likelihood of a drop in trade in H2.
- Global trade rose 2.2% m/m in March to be up 6.6% y/y, fastest since December 2021, after 0.5% & 3.0% in February. Exports rose 2.3% m/m and 5.9% y/y up from 2.0% y/y with both DM and EM posting monthly increases. The Baltic Freight Index and manufacturing PMI suggest there will be a correction.
Global trade y/y% vs Baltic Freight Index
Source: MNI - Market News/LSEG
- Shipments from developed markets rose 1.2% m/m and 3.9% y/y after 1.4% y/y. This was the fifth consecutive monthly rise. Advanced Asia saw exports increase 12.1% y/y, while Japan’s rose 6.6% y/y. The euro area rose 0.5% y/y, highest since November 2022, and the US by 4.3% y/y.
- EM Asia also saw strong export growth with China up 16.9% y/y and excluding China +6.4% y/y. Latin America increased 10.2% y/y. Mexico received some reprieve from US duties through USMCA-compliant goods worth around half of US imports from Mexico but still faces universal tariffs on steel and autos. Overall EM exports rose 3.7% m/m to be up 9.1% y/y following February’s 3.1% y/y.
Global exports y/y%
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
