ASIA: Tariff Calculations Suggest US Wants To Eliminate Trade Deficits
Apr-03 04:16
X is abuzz with various accounts pointing to the fact that the figure Trump has used to indicate tariff levels appear to reflect the US' trade deficit with a particular country divided by its imports from it. Our quick calculation shows this roughly aligns in for countries in EM Asia.
- It’s clear that Trump’s goal is tackling and eventually eliminating the trade deficit.
- South East Asian economies have been hit with relatively high reciprocal tariff rates. Headlines have crossed today from the Thailand PM around looking to negotiate with the US and that it is willing to incentivize the US to reach a deal (including lowering its trade surplus with
the US). - Malaysia has stated that it won’t launch retaliatory tariffs against the US.
- Vietnam wasn’t spared a spike in reciprocal tariffs, despite announcing earlier this week it would cut import tariffs.
Thailand has also said it would look to do the same today. - Vietnam equities are down sharply so far today, off nearly 6%. Losses are more modest elsewhere, but EM markets in SEA are
likely to remain a focus point. - They may not attract the same degree of flows like other markets do, such as the EU, if the market continues to price in an
end to US exceptionalism. The market may want to see how these economies fair
first and what can be negotiated. - Any weakness could also be exacerbated by traditional limitations in EM liquidity. These will be watch points for markets
as the fallout from Trump’s reciprocal tariffs continue to be assessed. It may also drive long lasting shifts in terms of economic alliances/trade and investment flows.
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AUSSIE BONDS: Richer But Off Bests, Q4 GDP Tomorrow
Mar-04 04:15
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.
BONDS: NZGBS: Richer But Off Bests & Underperformed $-Bloc
Mar-04 03:58
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.
JGBS AUCTION: Very Poor Demand Metrics For 10Y Auction
Mar-04 03:46
The 10-year JGB auction delivered very poor results, with the low price falling well short expectations at 98.26, according to the Bloomberg dealer poll. 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. Additionally, the yield curve between 2- and 10-year bonds was slightly steeper compared to the prior 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.
- In early afternoon Tokyo trading, the cash 10-year JGB is 2bps cheaper from pre-auction levels, while JGB futures have gapped cheaper to session lows.
