MNI EUROPEAN OPEN: US Tariffs On Canada & Mexico Take Effect

Mar-04 05:35By: Jonathan Cavenagh

Europe

EXECUTIVE SUMMARY

TRUMP PAUSES MILITARY AID TO UKRAINE AFTER ZELENSKIY CLASH - BBG
TRUMP'S TARIFFS ON CANADA AND MEXICO TAKE EFFECT - WSJ
INFLATION RISKS SKEWED TO UPSIDE - FED’S MUSALEM - MNI BRIEF
CANADA TO REALIATE IMMEDIATELY AGAINST US TARIFFS - MNI BRIEF
JAPAN Q4 CAPEX RISE SLOWS, GDP SEEN REVISED LOWER - MNI BRIEF
A FORMER RBNZ ECONOMIST SHARES HIS OCR OUTLOOK - MNI INTERVIEW

Fig 1: USD BBDXY Index & 10yr Yield

Source: MNI - Market News/Bloomberg/Refinitiv.

UKRAINE (BBC): “Sir Keir Starmer has told MPs that US President Donald Trump's commitment to achieving peace in Ukraine is "sincere". The prime minister said Europe would have to do "the heavy lifting" as part of a peace deal but reiterated that a peacekeeping force would need "strong US backing".”

US/UKRAINE (BBG): “President Donald Trump ordered a pause to all military aid to Ukraine, turning up the heat on Volodymyr Zelenskiy just days after an Oval Office blowup with the Ukrainian president left the support of his country’s most important ally in doubt.”

UKRAINE (BBC): “A statement by Ukrainian President Volodymyr Zelensky saying a deal to end the war with Russia was "very far away" has drawn a furious response by Donald Trump. "America will not put up with it for much longer," the US president said in a social media post, before accusing Zelensky of not wanting peace.”

GERMANY (POLITICO): “Germany’s likely next chancellor said Monday that the bitter clash between Ukrainian President Volodymyr Zelenskyy and United States President Donald Trump in the Oval Office last week was a “deliberate escalation” by the latter.”

FRANCE (POLITICO): “French Prime Minister François Bayrou on Monday declared the alliance with the U.S. is seriously wounded and called President Donald Trump’s attitude toward Ukraine “an indecency.””

TARIFFS (WSJ): “The U.S. imposed 25% tariffs on Mexico and Canada early Tuesday morning, along with imposing an additional 10% tariffs on Chinese imports. The 25% tariffs will apply to all imports from Mexico and Canada, with the exception of energy products such as crude oil and natural gas, which will be tariffed at 10%."

FED (MNI BRIEF): Federal Reserve Bank of St. Louis President Alberto Musalem said Monday his baseline outlook is for further disinflation but risks are skewed to the upside.

FED (MNI BRIEF): Federal Reserve officials can afford to be patient about deciding what to do next on interest rates because economic growth is strong and inflation remains above target, St. Louis Fed President Alberto Musalem said Monday.

FED (MNI BRIEF): New estimates of the natural rate of interest or r-star show the measure has likely risen by a quarter or half percentage point since the pandemic, according to a blog co-authored by New York Fed President John Williams, published Monday. R-star is the real short-term interest rate expected to prevail when an economy is at full strength and inflation is stable.

UKRAINE (DW): “"If you want real security guarantees, if you want to actually ensure that Vladimir Putin does not invade Ukraine again, the very best security guarantee is to give Americans economic upside in the future of Ukraine," Vance said in the interview for the Fox News broadcaster.”

OTHER

JAPAN (MNI BRIEF): Combined capital investment by non-financial Japanese companies excluding software rose 0.5% q/q in Q4, slowing from 1.1% in Q3, a quarterly revised survey released by the Ministry of Finance Tuesday showed. The MOF survey, based on the demand side, is the key to calculating Q4 GDP revisions due March 11 and indicated that capex will be revised lower from the preliminary 0.5% estimate, based solely on supply side data.

CANADA (MNI BRIEF): Canadian Prime Minister Justin Trudeau said Monday night the government will almost immediately retaliate against U.S. tariffs if they come into force as President Donald Trump has indicated, opening up a trade war between two of the world's largest trading partners unseen since the 1930s.

AUSTRALIA (MNI BRIEF): Weaker inflation and wages, and less concern over the non-market job sector alongside uncertainty over U.S. government policies drove the Reserve Bank of Australia Board to cut the cash rate 25 basis points to 4.10% at the February meeting, the published minutes showed Tuesday.

NEW ZEALAND (MNI): A former RBNZ economist shares his OCR outlook. On MNI Policy MainWire now, for more details please contact sales@marketnews.com

CHINA

US/CHINA (MOFCOM): “China will take countermeasures to safeguard its interests and hopes the U.S. can return to the right track of properly resolving differences via dialogue as soon as possible, said the spokesperson for the Ministry of Commerce, following the U.S. imposing an additional 10% tariff on Chinese goods starting Mar 4.”

DEPOSIT RATES (SECURITIES DAILY): “A number of small and medium-sized banks have started reducing deposit interest rates to shore up their profitability, with some cutting their rates by up to 50 basis points, Securities Daily reported on Tuesday.”

CHINA MARKETS

MNI: PBOC Net Drains CNY280.3 Bln via OMO Tuesday

MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY38.2 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net drain of CNY280.3 billion after offsetting the maturity of CNY318.5 billion today, according to Wind Information.

The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.6362% at 09:38 am local time from the close of 1.8599% on Monday.
The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 42 on Monday, compared with the close of 45 on Friday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.

MNI: PBOC Sets Yuan Parity Lower At 7.1739 Tues; -1.30% Y/Y

MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.1739 on Tuesday, compared with 7.1745 set on Monday. The fixing was estimated at 7.2782 by Bloomberg survey today.

MARKET DATA

UK FEB. BRC SHOP PRICE INDEX -0.7% Y/Y; EST. -0.6%; JAN. -0.7%

AUSTRALIA JAN. RETAIL SALES +0.3% M/M; EST. 0.3%; DEC. -0.1%

AUSTRALIA Q4 NET EXPORTS +0.2% PTS TO GDP; EST. -0.1%; Q3 +0.1%

AUSTRALIA Q4 CURRENT ACCOUNT DEFICIT A$12.5B; EST. -A$12.0B; Q3 –A$13.9B

AUSTRALIA Q4 PUBLIC SECTOR DEMAND TO CONTRIBUTE 0.2%-PT TO GDP; Q3 +0.7%

NEW ZEALAND JAN. BUILDING PERMITS +2.6% M/M; DEC. -5.6%

JAPAN Q4 CAPITAL SPENDING -0.2% Y/Y; EST. 5.0%; Q3 +8.1%
JAPAN Q4 COMPANIES' SALES +2.5% Y/Y; EST. +3.0%; Q3 +2.6%
JAPAN Q4 COMPANIES PROFITS +13.5% Y/Y; EST. +0.3%; Q3 -3.3%

JAPAN JAN. JOBLESS RATE 2.5%; EST. 2.4%; DEC. 2.5%
JAPAN JAN. JOB-TO-APPLICANT RATIO 1.26; EST. 1.25; DEC. 1.25

JAPAN MONETARY BASE FEB. -1.8% Y/Y; EST. -1.8%; JAN. -2.5%

SOUTH KOREA JAN. INDUSTRIAL OUTPUT -2.3% M/M; EST. -3.1%; DEC. +3.9%
SOUTH KOREA JAN. INDUSTRIAL OUTPUT -4.1% Y/Y; EST. -2.0%; DEC. +4.4%
SOUTH KOREA JAN. CYCLICAL LEADING INDEX -0.3 PT M/M; DEC. -0.1

SOUTH KOREA FEB. S&P GLOBAL MFG PMI 49.9; JAN. 50.3

MARKETS

US TSYS: Tsys Curves Steepen, 10yr At Four-Month Low Following Tariffs

Tsys are rallying as markets react to the US imposing tariffs on Canada, Mexico, and China, alongside growing concerns over the US economy. Investors remain hopeful for more negotiations or an extension, but they seem to be slim now. Another round of US tariffs on steel and aluminum is set to take effect next week, raising the risk of retaliatory measures from Canada, Mexico, or China. TU is trading -03¼ at 103-19¾, while TY is trading -07+ at 111-20+, both above Monday's highs, however off this mornings highs.
Tsys have outperformed stocks since Trump won the election, with a 2.1% return versus the S&P 500’s 1.6%, as 10yr yields hit its lowest since October amid trade war fears and expected Fed rate cuts.
Cash tsys are giving back some of this morning's moves, the curve has twist steepened, with yields now -1.5bps to +1bps. the 2yr is -1.5bps at 3.935%, while the 10yr is -0.4bps at 4.151%. The 2s10s is +1bps at 21.423.
Projected rate cuts through mid-2025 gained some traction vs. this morning's levels (*) as follows: Mar'25 at -2.2bp (-1.4bp), May'25 at -11.9bp (-7.9bp), Jun'25 at -30.0bp (-22.7bp), Jul'25 at -40.5bp (-32.4bp).
There is little on the calendar today.

JGBS: Early Gains Reversed After Poor 10Y Auction, BoJ Dep Gov Speech Tomorrow

JGB futures are weaker, -10 compared to settlement levels, after gapping lower in early afternoon trade following today’s 10-year auction results.

The 10-year JGB auction delivered very poor results, with the low price falling well short of Bloomberg dealer pol expectations. Moreover, the cover ratio declined to 2.6566x, the weakest since October 2021, from 3.1809x in the previous auction and the tail lengthened dramatically to 0.21 from 0.03.
This performance came despite the auction offering an outright yield 10-15bps higher than last month. Improving sentiment toward global long-end bonds and slightly less aggressive expectations of further near-term tightening by the BoJ didn’t appear to support demand.
Cash US tsys have reversed early strength to be little changed in today’s Asia-Pac session.
Cash JGBs are slightly mixed, with yield swings bounded by +/-1bp. The benchmark 10-year yield is 1.1bps higher at 1.425% after today’s supply.
Swap rates are flat to 2bps lower, with a flatter curve. Swap spreads are mostly tighter.
Tomorrow, the local calendar will see Jibun Bank Composite & Services PMIs alongside BoJ Rinban Operations covering 1-5-year and 10-25-year JGBs. BoJ Deputy Governor Uchida will also give a speech in Shizuoka.

AUSSIE BONDS: Richer But Off Bests, Q4 GDP Tomorrow

ACGBs (YM +6.0 & XM +5.0) are stronger but off session bests.

The February meeting minutes clarified the discussion around the Board’s decision to cut rates 25bp. The Board determined though that the risk of holding rates “high for too long” outweighed that of having to remain restrictive for longer but that it didn’t pre-commit them to further easing.
Cash US tsys are flat to 3bps richer in today’s Asia-Pac session.
Cash ACGBs are 5-6bps richer with the AU-US 10-year yield differential at +13bps.
Swap rates are 5-6bps lower.
The bills strip has bull-flattened, with pricing +1 to +6.
RBA-dated OIS pricing is flat to 7bps softer across meetings today.
Nevertheless, pricing remains mixed compared to February’s pre-RBA Decision levels—meetings through May are 1bp firmer, while those beyond are 4-17bps softer. A cumulative 64 bps of easing priced by year-end.
Tomorrow, the local calendar will see Q4 GDP data alongside S&P Global Composite & Services PMIs. RBA Deputy Governor Hauser will also deliver a keynote speech at the AFR Business Summit.
This week, the AOFM plans to sell A$800mn of the 4.25% 21 March 2036 bond tomorrow and A$700mn of the 1.00% 21 December 2030 bond on Friday.

NZGBS: Richer But Off Bests & Underperformed $-Bloc

NZGBs closed 3bps richer but in the middle of today’s ranges.

Outside of the previously outlined building permits, there hasn't been much by way of domestic drivers to flag.
Accordingly, today’s market swings have been more closely tied to movements in US tsys. Cash US tsys are flat to 3bps richer, with a steepening bias, in today’s Asia-Pac session after yesterday’s solid gains.
Nevertheless, the NZGB 10-year underperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 6bps and 2bps wider respectively.
Swap rates closed 3-4bps lower.
RBNZ dated OIS pricing closed flat to 3bps softer today. Nevertheless, this still leaves pricing mixed versus pre-RBNZ policy decision levels on February 19. While pricing for the April meeting is 2bps firmer, meetings from May to November are 3-13bps softer. Currently, 26 bps of easing is priced for April, with a cumulative 77bps by November 2025.
Tomorrow, the local calendar will see ANZ Commodity Price data.
On Thursday, the NZ Treasury plans to sell NZ$250mn of the 0.25% May-28 bond, NZ$200mn of the 4.25% May-36 bond and NZ$50mn of the 1.75% May-41 bond.

ASIA STOCKS: Equities Track Wall Street's Sell-Off Following Tariffs Headlines

Asian equities fell sharply as trade tensions escalate, doubling tariffs on Chinese imports to 20% and imposing 25% levies on Canada and Mexico. This sparked fears of a broader trade war, with Japan's Nikkei and Hong Kong’s Hang Seng leading declines. Indian equities extended their selloff, with the NSE Nifty 50 Index nearing a record 10-day losing streak as global funds continued to pull out. Auto and chip stocks were hit hardest, particularly in Japan and South Korea, while Chinese EV makers slumped following BYD’s large share placement. Investors are closely watching China’s National People’s Congress for potential stimulus measures and trade responses.

Japan's Topix -1.05% and Nikkei -1.90% amid trade war concerns, with major auto stocks like Toyota, Honda, and Mazda falling. A stronger yen and exposure to Mexican tariffs also weighed on sentiment.
China's CSI 300 -0.25% and Hong Kong's HSI is -0.45% as investors reacted to higher US tariffs. EV makers like BYD declined sharply after a large share placement, while robotics-related stocks gained on government support. UBS expects Chinese stocks to outperform in the long run due to resilient domestic flows.
South Korea's Kospi is unchanged with Hyundai and HL Mando dropping due to auto tariff risks. Battery stocks like CATL and Eve Energy slumped ahead of a European policy announcement. Defense stocks gained on expectations of higher European military spending.
Taiwan's TAIEX is 0.45% lower after TSMC slid 2.4% despite announcing a $100b US investment.
Australia ASX200 is 0.65% lower while New Zealand's NZX 50 dropped 0.65%, tracking global weakness. Australia’s GDP data release is in focus.
India's Nifty 50 down 0.30% neared a 10-day losing streak as global investors pulled nearly $14b this year, citing high valuations and slowing growth. Technical indicators suggest a possible rebound.
Indonesia’s JCI tumbled 1.3%, Malaysia’s KLCI lost 0.8%, and Vietnam’s VN Index fell 0.8%, while Thailand and the Philippines saw slight gains.

OIL: Crude Continues Decline On OPEC Plans & Upcoming US Tariffs

Oil prices fell sharply on Monday after reports that OPEC will surprisingly go ahead with its output normalisation from April. They have continued declining during today’s APAC session. The IEA is forecasting a global oil surplus in 2025 even if OPEC left its production unchanged. The market is also worried about the impact of US tariffs and retaliatory measures on global demand.

WTI is down 0.4% to $68.11/bbl but off its intraday low of $67.96. It has broken below support at $68.36 opening $67.75. Brent is 0.7% lower at $71.09/bbl after falling to $71.04, remaining just above support at $70.96. The USD index is slightly higher.
An additional 10% US tariff was imposed on China today but it didn’t provide details of any further retaliatory measures against the US. 25% will go on imports from Mexico and Canada today.
Canada has responded with 25% tariffs on around C$30bn of US goods initially followed by C$125bn in three weeks. Ontario is threatening to stop energy and critical mineral shipments to the US. The US will impose 10% on Canadian energy imports, including oil. Canada has few options to divert its crude flows away from the US.
Canadian oil producers have increased flows to the US to beat tariff deadlines resulting in stock builds. Industry data for last week are released later today.
Later the Fed’s Williams speaks and the euro area’s January unemployment rate prints.

Gold Consolidates Last Night’s Gains

Following last week’s profit taking, gold’s rally resumed overnight as the threat of tariffs hung over markets but traded side ways in Asian trading today. .
As President Trump’s deadline for tariffs draws near, markets sentiment was very weak with the S&P down heavily and bond yields rallying as much as 6bps.
No surprise in that environment that gold rallied, with bullion up +1.2% on the day.
Gold it rose steadily all day to finish the US trading session on its highs of $2,892.79, where it oscillated around throughout the day, down marginally at $2,891.90
US data releases didn’t help to improve investor sentiment with ISM Prices Paid higher than expected whilst ISM Manufacturing softened.
The weaker than expected data release adds to speculation of potential interest rate cuts by the Federal Reserve which is an additional boost to gold.

FOREX: Yen and CNH Outperform, AUD/USD Back Sub 0.6200

The USD BBDXY index is little changed in the first part of Tuesday dealings, with the index last near 1293. This has masked some divergent trends, with yen and to a lesser extent CHF outperforming higher beta plays, particularly the AUD.

USD/JPY got to lows 148.60, but sits back close to 149.10 in latest dealings. This is up in yen terms around 0.25%. We are close to 148.57, the Feb 25 low and bear trigger. Beyond that lies the Oct 9 low from last year at 148.01.
Various Japan officials, including right up to the Prime Minister, have denied devaluing the yen. A comment that US President Trump made on Monday. We also various data prints, with capex softer than forecast for Q4, likely meaning downside Q4 GDP revisions.
US yields continued lower in the first part of trade, before steadying. We were last slightly weaker for the 10yr at 4.14%. US-JP yield differentials are still arguing for more USD/JPY downside.
AUD/USD is back under 0.6200, amid broader high beta FX weakness. The MXN is down 0.50%, last near 20.79. USD/CAD is up above 1.4500, although is sub recent highs. Tariffs on both Mexico and Canada look set to come into effect. Regional equity market sentiment is mostly weaker, although US futures are up a touch.
For AUD/USD we are close to the Feb 28 low at 0.6193. NZD/USD is back near 0.5600. We had Australian data prints, ahead of Q4 GDP tomorrow, along with the RBA minutes. These outcomes didn't shift the AUD though. AUD/JPY is back under 92.40, fresh lows since early August last year.
USD/CNH is back lower, last near 7.2830, testing 20 and 50-day EMA support. Like Japan, Trump accused China of devaluing its currency. To the extent a firmer yuan may be seen as helping prevent further trade escalation may be helping yuan today.
Later the Fed’s Williams speaks and the euro area’s January unemployment rate prints.

UP TODAY (TIMES GMT/LOCAL)

Date	GMT/Local	Impact	Country	Event
04/03/2025	0700/1500		CN	Chinese People's Political Consultative Conference
04/03/2025	1000/1000	**	GB	Gilt Outright Auction Result
04/03/2025	1000/1100	**	EU	Unemployment
04/03/2025	1355/0855	**	US	Redbook Retail Sales Index
04/03/2025	1630/1130	*	US	US Treasury Auction Result for Cash Management Bill
04/03/2025	1920/1420		US	New York Fed's John Williams
05/03/2025	2200/0900	*	AU	S&P Global Final Australia Services PMI
05/03/2025	2200/0900	**	AU	S&P Global Final Australia Composite PMI
05/03/2025	0030/0930	**	JP	S&P Global Final Japan Services PMI
05/03/2025	0030/0930	**	JP	S&P Global Final Japan Composite PMI
05/03/2025	0030/1130	***	AU	Quarterly GDP
05/03/2025	0100/0900		CN	National People's Congress opens
05/03/2025	0145/0945	**	CN	S&P Global Final China Services PMI
05/03/2025	0145/0945	**	CN	S&P Global Final China Composite PMI
05/03/2025	0730/0830	***	CH	CPI
05/03/2025	0745/0845	*	FR	Industrial Production
05/03/2025	0815/0915	**	ES	S&P Global Services PMI (f)
05/03/2025	0815/0915	**	ES	S&P Global Composite PMI (final)
05/03/2025	0845/0945	**	IT	S&P Global Services PMI (f)
05/03/2025	0845/0945	**	IT	S&P Global Composite PMI (final)
05/03/2025	0850/0950	**	FR	S&P Global Services PMI (f)
05/03/2025	0850/0950	**	FR	S&P Global Composite PMI (final)
05/03/2025	0855/0955	**	DE	S&P Global Services PMI (f)
05/03/2025	0855/0955	**	DE	S&P Global Composite PMI (final)
05/03/2025	0900/1000	***	IT	GDP (f)
05/03/2025	0900/1000	**	EU	S&P Global Services PMI (f)
05/03/2025	0900/1000	**	EU	S&P Global Composite PMI (final)
05/03/2025	0930/0930	**	GB	S&P Global Services PMI (Final)
05/03/2025	0930/0930	***	GB	S&P Global/ CIPS UK Final Composite PMI
05/03/2025	1000/1100	**	EU	PPI
05/03/2025	1000/1100	*	IT	Retail Sales
05/03/2025	1000/1000	**	GB	Gilt Outright Auction Result
05/03/2025	1000/1000	**	GB	Gilt Outright Auction Result
05/03/2025	1200/0700	**	US	MBA Weekly Applications Index
05/03/2025	1315/0815	***	US	ADP Employment Report