TARIFFS: The US Has Large Deficits With Much Of APAC

USD/CNH remains sub 7.2600, but dips back towards 7.2500 have been supported so far today. Current levels are close to the 100-day EMA, which we have been sub since late last week. Earlier highs of 7.2630 couldn't be sustained. 

• The weakness in onshore equities is likely not helping CNH, although the currency didn't follow the recent strong outperformance theme in local equities relative to the rest of the world.
• Some nervousness may be creeping into markets given some of the negative news flow around US/China trade/tariff related issues. We have heard the US pressing Mexico to impose tariffs on China imports, potential levies on China ships, investment curbs from China into key sectors like tech in the US, and a potential ramping up/tightening of semiconductors curbs that the Biden administration put in place (limiting chip exports from the US to China).
• These developments follow last week's remarks from US President Trump that a trade deal with China was possible.
• The USD/CNY fixing also edged to fresh highs since January.
• For USD/CNH sentiment in the implied vol space remains fairly benign though. 1 month implied vol levels hold close to recent lows, last near 4.52%. In the risk reversal space, the 1 month is up from recent lows sub -0.5000, but at -0.28 is still well off recent cycle highs. 

NZGBs closed at session bests, with benchmark yields 3-4bps lower. 

• With the local calendar light, today’s strength appears tied to cash US tsys, which are 2-3bps richer in today’s Asia-Pac session after yesterday’s gains.
• Nevertheless, NZGBs have underperformed US tsys, with the NZ-US 10-year yield differential ~2bps wider versus yesterday’s close.
• Swap rates closed 3-4bps lower, with implied swap spreads little changed.
• RBNZ-dated OIS pricing is slightly firmer across meetings today, holding 1bp softer to 7bps firmer than last Wednesday’s pre-RBNZ policy decision levels. Currently, 26bps of easing is priced for April, with a total of 58bps expected by November 2025.
• Tomorrow, the local calendar will see NZ Treasury Chief Economic Adviser Dominick Stephens deliver a presentation on the State of the Economy.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 3.00% Apr-29 bond, NZ$225mn of the 3.50% Apr-33 bond and NZ$50mn of the 1.75% May-41 bond.

At the Tokyo lunch break, JGB futures are sharply stronger, +56 compared to the settlement levels, but slightly off the session’s best level.

• Outside of the previously outlined services PPI, there hasn't been much by way of domestic drivers to flag.
• Later today, department store sales print, along with machine tool orders (both for Jan). There is also an Auction for Enhanced-Liquidity 15.5-39-year.
• “Joyo Bank Ltd. is holding off from investing in domestic bonds for now, despite being one of Japan's largest regional lenders. The bank's managing executive officer, Yoshitsugu Toba, expects the Bank of Japan to lift interest rates once more in July, but sees a risk that debt yields will climb further if the BOJ raises rates to around 1.5% in about three years.” (per BBG)
• Cash US tsys are ~3bps richer in today’s Asia-Pac session after yesterday’s modest gains.
• Beyond the 1-year, cash JGBs are 1-6bps richer across benchmarks, with the 7-year leading. The benchmark 10-year yield is 4.3bps lower at 1.387% versus the cycle high of 1.466%, set last week.
• Swap rates are 1-3bps lower. Swap spreads are generally wider.