Breakfast Bites - More tariffs, Higher Yields
Impact of Auto Tariffs; Hot UK inflation pushes up gilt yields; 10Y JGB Yields hit fresh high; RBNZ cuts 50bps
Rise and shine everyone.
President Trump’s latest announcements are shaking up the market. First the firings at FHA and then tariff announcements on autos, pharma, and semis.
European markets opened mixed as former US President Donald Trump proposed sweeping 25% tariffs on auto, pharmaceutical, and semiconductor imports, set to take effect on April 2nd. The announcement rattled major European automakers, with Mercedes and BMW stocks dipping, while Stellantis managed to buck the trend. [Our Chart of the Day comes from MS showing the impact on Auto OEMs]
Geopolitical focus remains on Ukraine peace talks. Trump has expressed confidence in brokering a deal with Russian President Vladimir Putin and has pushed for elections in Ukraine—aligning with a key Russian demand. Ukrainian President Volodymyr Zelenskyy responded strongly to Trump’s latest comments, stating that no minerals deal would be fair without clear security guarantees.
Meanwhile, French President Emmanuel Macron reiterated his reluctance to deploy troops, emphasizing reliance on US support ahead of another EU-led Ukraine peace summit in Paris today.
The US also has not confirmed that Russian sanctions will be lifted.
UK inflation data came in hotter than expected, with headline CPI accelerating to 3.0% YoY in January (vs. 2.8% forecast), driven by rising transport, food, and education costs. However, services inflation softened to 5.0%, below the Bank of England’s 5.2% estimate. Despite this, sticky core inflation (3.7%) and strong wage growth kept gilt yields elevated, with the UK 10-year gilt yield reaching 4.6%, a three-week high.
The Reserve Bank of New Zealand (RBNZ) cut its Official Cash Rate (OCR) by 50 basis points to 3.75%, marking its fourth consecutive cut, in line with expectations. The central bank now projects a terminal rate of 3.10% by Q1 2026, implying an additional 65bps of easing. In his press conference, Governor Adrian Orr signaled two more 25bps cuts by mid-2025.
Japan’s January trade balance recorded its widest deficit since January 2023, with bond yields climbing to fresh 14–15-year highs. The 10-year JGB yield rose 4bps to 1.436%, though there was little market reaction to Bank of Japan board member Naoki Takata’s speech, as his comments remained in line with expectations.
South Korea’s Kospi outperformed, rising 2.1%, driven by semiconductor stocks as the K-Chips Act cleared a key legislative hurdle. SK Hynix surged 4%, Samsung added 3%, and Hanmi Semiconductor jumped 9%.
The Reserve Bank of New Zealand (RBNZ) cut its Official Cash Rate (OCR) by 50 basis points to 3.75%, marking its fourth consecutive cut, in line with expectations. The central bank now projects a terminal rate of 3.10% by Q1 2026, implying an additional 65bps of easing. In his press conference, Governor Adrian Orr signaled two more 25bps cuts by mid-2025.
Japan’s January trade balance recorded its widest deficit since January 2023, with bond yields climbing to fresh 14–15-year highs. The 10-year JGB yield rose 4bps to 1.436%, though there was little market reaction to Bank of Japan board member Naoki Takata’s speech, as his comments remained in line with expectations.
South Korea’s Kospi outperformed, rising 2.1%, driven by semiconductor stocks as the K-Chips Act cleared a key legislative hurdle. SK Hynix surged 4%, Samsung added 3%, and Hanmi Semiconductor jumped 9%.
Nvidia is trading marginally higher in the pre-market, up +0.3%. US Equity Futures are lower this morning, after hitting fresh highs yesterday. The US Dollar, precious metals, and energy are all trading higher.
Chart of the Day - Auto Tariffs
This is a great chart from MS that puts things in perspective. It was done in light of the Mexico-Canada tariffs to show where each of the major Auto Manufacturers produce their cars. However, it gives us quite a lot of insight for today’s broader announcement of a 25% tariff on autos.
If you follow the black line, that shows us how much each Group’s sales goes into the US. GM and Ford, of course, are very prominent. But this is followed mainly by the Japanese companies, and then a few European companies.
What We’re Watching Today
2 pm ET: FOMC Meeting Minutes
8:15 pm ET: China’s Loan Prime Rate Decision
Calendars
(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics & Earnings Hub)
