ASIA STOCKS: Stocks Hold Their Breath Ahead of US China Talks

NZGBs closed with a dramatic twist-steepening of the curve, with yields 13bps lower to 21bps higher. The short-end finished at its yield lows, while the long-end finished at its yield high. 

• The source of the move has been US tsys. Cash US tsys are currently trading 3-20bps cheaper across benchmarks, with the curve steeper.
• US long-end yields have risen for the third straight day amid growing cracks in the haven status of US government debt.
• Alongside the steepening of the curve, interest-rate swaps have extended their recent extreme outperformance of US treasury securities as traders sought to avoid costs associated with holding bonds.
• Yesterday, Trump officials confirmed 104% tariff on China went into effect at noon. Concurrently, China vowed to "fight to the end".
• Meanwhile, the RBNZ cut rates 25bp to 3.5% as was widely projected, due to significant spare capacity and a weaker outlook from “global trade policy” which should result in inflation staying close to the target mid-point.
• Swap rates closed 12bps lower to 14bps higher, with the 2s10s curve steeper and implied long-end swap spreads wider.
• RBNZ dated OIS pricing closed 1-10bps softer across meetings beyond April, with 117bps of easing by November 2025.
• Tomorrow, sell NZ$275mn of the 0.25% May-28 bond and NZ$225mn of the 4.25% May-34 bond.

• RES 4: 1.1276 High Jul 18 ‘23 
• RES 3: 1.1214 High Sep 25 2024 and a key resistance 
• RES 2: 1.1188 0.764 proj of the Feb 28 - Mar 18 - 27 price swing  
• RES 1: 1.1144 High Oct 1 2024 / High Apr 3 and the bull trigger     
• PRICE: 1.1052 @ 05:47 BST Apr 9
• SUP 1: 1.0882 Low Apr 7     
• SUP 2: 1.0844 20-day EMA     
• SUP 3: 1.0733 Low Mar 27 and a key short-term support     
• SUP 4: 1.0713 50-day EMA and a short-term pivot level

The trend condition in EURUSD is bullish and the latest pullback is considered corrective. Key resistance at 1.0955, Mar 18 high, was breached last week, confirming a resumption of the uptrend and this maintains the price sequence of higher highs and higher lows. Sights are on 1.1188 next, a Fibonacci projection. MA studies are in a bull-mode position highlighting a dominant uptrend. Initial firm support lies at 1.0844, the 20-day EMA. 

The US’ reciprocal tariffs have gone into effect including 104% on imports from China. In response, most assets have sold off with US bond yields higher, the USD weaker and equity & commodity prices lower. Markets are very concerned that a trade war will cause not just a recession in the US but globally. Negotiations to reduce some of these duty rates are expected but talks for most seem yet to begin. Japan is likely to be one of the first to announce if there was any success.

• Equities are significantly weaker except in China. S&P e-mini is down 2.6%, Euro stoxx futures -4.3%, Hang Seng -1.6%, Nikkei -5.0% and ASX -2.1%. The CSI 300 is up 0.3%.
• The BBDXY USD index is down 0.5% to fall below Tuesday’s lows. Flight-to-quality flows continue to benefit the yen and Swiss France with USDJPY down 1.0% to 144.87 and USDCHF -0.9% to 0.8403. EURUSD is also higher at +0.9% to 1.1055 and GBPUSD +0.6% to 1.2846. Aussie and kiwi are lagging given their sensitivity to a pullback in risk with AUDUSD +0.1% to 0.5963 and NZDUSD flat at 0.5535. The RBNZ cut rates 25bp as expected.
• Cash US Treasuries have continued yesterday’s sell off driven by the possibility that China retaliates for the additional 50% tariff. Nothing has been announced yet. 10yr JGB and ACGB yields are also materially higher.
• Commodity markets are afraid that increased protectionism will reduce demand. WTI crude is down another 4.3% to $57.02 after 4% yesterday. Copper is 0.6% lower and iron ore is round $96/t. Safe haven gold is up 0.9% to $3009/oz after finishing flat on Tuesday.
• Later the Fed’s Barkin speaks and March FOMC meeting minutes are published. The ECB’s Cipollone participates in a panel and BoE’s FPC meeting record is released.