Market Briefing: Volatility continues
Market swings. Tariff headlines generated more vol. overnight. S&P500 traded in a ~8.5% range. AUD still tracking at levels last seen during COVID.
Negative vibes. Tariffs will slow US/global growth. But is the extreme market vol. justified? These types of moves only seen during a crisis.
AUD levels. Momentum/sentiment have been overpowering fundamentals. AUD in 'rarefied air' having only traded sub-$0.60 very infrequently since 2015.
Global Trends
Volatility has continued as markets adjust to the changing economic landscape stemming from recent tariff developments and react to new news. Negative sentiment dominated yesterday’s early trade as Friday’s US market turmoil carried over into the Asian and European sessions. Asian and European equities endured large falls. Hong Kong’s Hang Seng Index tumbled 13.2%, the largest one-day drop since 1997, while there were declines of ~4-8% recorded across the major regional/EU markets. Bond yields declined, while cyclical assets like commodities and currencies such as the NZD and AUD remained heavy.
That said, while there were more bursts of volatility in overnight US trade, on balance some markets look to have tentatively levelled off and/or backpedaled a bit. Key focus for markets and the driver of the latest swings were a fresh batch of tariff related comments. Various news outlets initially reported that US Economic Council Director Hassett said President Trump is considering a 90-day pause in tariffs for all countries except China, however this was subsequently dismissed as “fake news”. President Trump followed this up with threats of even higher tariffs on China following their recent retaliation to the US measures, though this was also counterbalanced by other reports indicating Treasury Secretary Bessent has been tasked with opening trade negotiations with Japan. This has been taken as a glimmer of hope deals can be struck and tariffs are ultimately walked back. Time will tell.
The US S&P500, on net, slipped back 0.2%, though this masks a ~8.5% intra-day trading range. US bond yields jumped up with rates rising ~11-19bps across the curve, with the moves lifting the benchmark 10yr yield back to where it was tracking at the start of the month (now ~4.18%). Across commodities copper (+0.8%) and WTI crude oil (+1%) ticked higher over the past 24hrs, while in FX the U-turn in bond yields supported the interest rate sensitive USD/JPY (+1.5% to ~147.75) which has underpinned the broader USD index a little. Elsewhere, GBP has softened (now ~$1.2730), with the tariff headlines push and pulling on other currencies during yesterday's trading. EUR (now ~$1.0915) and AUD (now ~$0.5994) have oscillated in wide ranges centered on where they kick things off, while NZD has lost some more ground (now ~$0.5548).
US CPI inflation (Thurs night AEST), the RBNZ meeting (Weds), and speeches by central bankers including BoJ Governor Ueda (Weds), RBA Governor Bullock (Thurs), ECB President Lagarde (Thurs), and several US Fed members are on the radar. But this will continue to be a secondary consideration to tariff news. Sentiment and momentum are still overpowering fundamentals. This points to heightened market volatility continuing over the near-term. More growth worries and/or further tariff retaliation could boost the USD, while signs the US is open to negotiate may see the USD fall back.
Global event radar: RBNZ Meeting (Weds), US CPI (Thurs), BoC Meeting (16th Apr), ECB Meeting (17th Apr)
Trans-Tasman Zone
Markets have continued to be whipsawed around by tariff headlines overnight (see above). The evolving backdrop has generated more bursts of intra-day volatility in the AUD and NZD. As our chart shows, although yesterday’s swings in the AUD and NZD weren’t as large as what happened on Friday, they were still much bigger than average. On net, the NZD has drifted a little lower (now ~$0.5548), while the AUD is little changed from where it was trading this time yesterday (now ~$0.5994) with the currency languishing at levels last seen during the start of COVID. That said, although the AUD has consolidated around multi-year lows against the EUR (now ~0.5492) and CAD (now ~0.8537), it has clawed back a bit of ground versus the JPY (+1.4% to ~88.57), GBP (+0.8% to ~0.4710), NZD (+0.4% to ~1.0804) and CNH (+0.4% to ~4.4023).
As outlined yesterday, the swings observed in asset markets such as global equities and the AUD over the past few days have been extreme. They have normally only occurred during periods of acute economic/financial stress such as the GFC (a banking collapse) and COVID (the shutdown of the global economy). While the trade tariffs being imposed will slow US and global growth, we don’t think things are teetering on a crisis. Sharp declines in the US equity market (which was trading at lofty valuations) doesn’t provide a good read of the state of play in the real economy. Moreover, the amplifiers, particularly in the US, that can make a bad situation worse such as high household debt and inadequate buffers/circuit breakers don’t look to be there, in our opinion.
We remain of the view that the “shoot first, ask questions later” market mindset has seen participants quickly price in something far more sinister than a stepdown in activity. And that the AUD has been unduly beaten up with sentiment/momentum overriding underlying fundamentals. As discussed before Australia’s direct trade exposure with the US is minimal (only ~4% of exports are sent to the US). Added to that, as per during President Trump’s first term, authorities in China are likely to counteract trade headwinds by stimulating domestic activity. This is where Australia’s key exports are plugged into, and media reports yesterday stating officials are discussing “front-loading” measures shows the intent is there. The prospect of more tariff headlines points to further AUD volatility over the period ahead, however we do believe there is more upside than downside potential given the low starting point (the AUD has only closed below ~$0.60 in 8 trading days since 2015) and valuation support (the AUD is ~5-6% under the average of our suite of ‘fair value’ models even after accounting for the recent market moves).
AUD & NZD event radar: RBNZ Meeting (Weds), US CPI (Thurs), BoC Meeting (16th Apr), NZ CPI (17th Apr), AU Jobs (17th Apr), ECB Meeting (17th Apr)
AUD levels to watch (support / resistance): 0.5900, 0.5960 / 0.6120, 0.6200
NZD levels to watch (support / resistance): 0.5460, 0.5510 / 0.5620, 0.5700
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
TUESDAY (8th April) AUD Consumer Confidence (Apr) (10:30am) AUD Business Conditions (Mar) (11:30am) EUR ECB's Guindos Speaks (7pm) USD NFIB Small Bus. Optimism (Mar) (8pm) EUR ECB’s Holzmann Speaks (11pm)
WEDNESDAY (9th April) EUR ECB’s Cipollone Speaks (12am) GBP BoE’s Lombardelli Speaks (2am) USD Fed’s Daly Speaks (4am) NZD RBNZ Decision (12pm) JPY BoJ Gov. Ueda Speaks (4:15pm) EUR ECB’s Knot Speaks (5:35pm) EUR ECB’s Cipollone Speaks (10:30pm)
THURSDAY (10th April) USD Fed’s Barkin Speaks (1am) USD FOMC Meeting Minutes (4am) CNY CPI/PPI Inflation (Mar) (11:30am) AUD RBA Gov. Bullock Speaks (8pm) USD CPI Inflation (Mar) (10:30pm) USD Initial Jobless Claims (10:30pm) GBP BoE’s Breeden Speaks (11pm) USD Fed’s Logan Speaks (11:30pm)
FRIDAY (11th April) USD Fed's Schmid Speaks (12am) USD Fed’s Goolsbee & Harker Speak (2am) GBP GDP – Monthly (Feb) (4pm) EUR ECB Pres. Lagarde Speaks (7:45pm) USD PPI Inflation (Mar) (10:30pm)
SATURDAY (12th April) USD Fed’s Musalem Speaks (12am) USD Uni. of Michigan Sentiment (Apr P) (12am) USD Fed’s Williams Speaks (1am)
*Note, all times/dates provided are AEST
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