- Asian equities fell sharply as trade tensions escalate, doubling tariffs on Chinese imports to 20% and imposing 25% levies on Canada and Mexico
- The USD is little changed today, 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.
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.
AUSTRALIA DATA: Iron Ore Prices Help Drive Terms Of Trade Rise
The terms of trade rose 1.8% q/q seasonally adjusted in Q4, the first rise since Q4 2023, but is still down 4.8% on a year ago down from Q3’s -3.8%. It was driven by a 2.3% q/q rise in the goods terms of trade as export prices for iron ore and gold rose in the quarter. Thus it is not surprising that the 5.9% q/q rise in profits was driven by the mining sector.
- While the goods terms of trade is off its Q2 2022 peak, it remains elevated and above the pre-Covid period (see chart). Services have not recovered from the pandemic and were almost 15% below Q4 2019 in Q4 2024.
- Both goods and services export prices rose in Q4 up 2.7% q/q and 1.1% q/q respectively.
- Import prices were also higher rising 0.8% q/q driven by services (+1.9% q/q – third straight increase), while goods increased only 0.4% q/q after three consecutive declines.
Australia terms of trade
AUSTRALIA DATA: Solid Start To 2025 As RBA Expects Mild Consumption Recovery
January retail sales values rose 0.3% m/m to be up 3.8% y/y, in line with consensus, with 3-month momentum remaining solid. Through the volatility retail spending has improved since March and the RBA is expecting private consumption to recover to a still soft 1.8% y/y in Q4 2025 up from 0.7% in Q4 2024 helped by higher real income growth.
- The rise was broad-based in January with all major components increasing except household goods, which had benefited from discounting during the festive period. Clothing rose 2.0% m/m, other retailing +2.4% m/m and restaurants 1.1% m/m.
- Large-scale events had boosted food expenditure as well as the resolution of supply-chain issues in Victoria.
- Monthly retail sales data will be replaced by household spending from July. January expenditure is released on Friday and forecast to rise 0.5% m/m and 3.4% y/y after 0.4% & 4.3% in December.
Australia retail sales %
AUSTRALIA DATA: Q4 Net Export Contribution Higher Than Expected
The Q4 current account deficit narrowed to $12.5bn from $13.9bn, the seventh straight negative. The ABS notes 2024 saw the largest current account deficit since 2016.The net export contribution to GDP, released Wednesday, was higher than expected at 0.2pp, which may see some forecasts revised higher, but public demand contributed only 0.2pp, significantly below Q3’s 0.7pp.
- The improvement in the current account was driven by an increase in the goods & services surplus, while the primary income deficit widened $2.3bn. Both goods and services contributed to the $3.7bn rise in the trade surplus.
- Q4 goods exports rose 2.9% q/q, driven by rural goods and non-monetary gold, but they are still down 6% y/y after -7.2% y/y in Q3. Services shipments rose 4.6% q/q and 6.7% y/y boosted by more tourists from the US encouraged by the weaker AUDUSD.
- Merchandise imports rose 1.5% q/q, after falling two consecutive quarters, and are up 4.8% y/y. The increase was driven by consumer goods with capex down on the quarter consistent with weak private investment data. Consumption imports rose 9.5% y/y, the highest rate in two years. Services imports fell 0.7% q/q, as Australians travelled to less expensive destinations, but were still up 6.6% y/y.
- The widening of the primary deficit was due to an increase in interest outflows as foreigners increased their holdings of Australian debt securities, as well as higher dividends paid.
Australia balance of payments A$bn
AUSTRALIA: Growth Forecast To Be Stronger In Q4
Q4 GDP prints on Wednesday, including productivity, and Bloomberg consensus is forecasting a 0.6% quarterly rise bringing the annual rate to 1.3%. This would be the fastest quarterly rate since Q4 2022. The RBA believes the risks to growth are to the downside and expects Q4 rose 1.1% y/y but GDP should improve to 2.4% y/y by end-2025. With it seeing growth as “subdued” and productivity still a problem, the Q4 national accounts will be monitored closely.
- Forecasts on Bloomberg range from +0.4% q/q to +1.0% q/q resulting in annual growth of 1.1% to 1.7%. ANZ is in line with consensus at 0.6% q/q, whereas NAB, CBA and Westpac are slightly stronger forecasting 0.7% q/q.
- Q4 data suggest that household consumption should be faster with spending volumes rising 1.4% y/y up from 0.2% y/y in Q3.
- Public demand will make a lower contribution at 0.2pp with 0.1pp from government consumption and 0.1pp from GFCF. In Q3, these components contributed 0.3pp and 0.4pp respectively.
- Private investment is likely to be soft after capex fell 0.2% q/q and construction rose only 0.5% q/q. Q3 could be revised up though.
- The ABS said that net exports contributed 0.2pp up from 0.1pp, which was more than expected. This is the third straight quarterly positive.
- Inventories were flat on the quarter after detracting 0.4pp from Q3 quarterly GDP growth.
Table of Contents
GLOBAL MACRO: Global Manufacturing PMI Subdued But Trending Higher
With protectionism on the rise with the US Trump administration’s focus on tariffs, global IP and trade trends are likely to be monitored closely. An additional 10% has been added to the 10% for imports from China and 25% for goods from Canada and Mexico are scheduled to be introduced today. The JP Morgan global manufacturing PMI for February held up though and signalled slightly stronger industrial growth with the index rising to 50.6 from 50.1, the highest since June.
- While the PMI remains around the breakeven 50-mark, which it averaged in 2024, it has trended higher since September. It doesn’t yet seem to be materially impacted by tariff threats and the significant economic uncertainty that has created but export orders remain weak.
- The improvement in the manufacturing PMI was due to stronger output and orders growth but employment continued to contract. The increase in orders was driven by domestic demand as export orders continued to decline although at a slightly slower rate.
- Heightened uncertainty also didn’t dampen confidence in the outlook with it rising to its highest in 9 months.
- The price/cost components showed a pickup in cost and selling price inflation, which may concern central banks.
- Global IP growth remains subdued but has been improving with it up 0.8% m/m in December, its ninth consecutive non-negative outcome. It rose 2.6% y/y, strongest since October 2022, while 3-month momentum is its highest in almost three years. Global trade volume growth has also been trending higher.
Global growth
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 |