The risk-off tone in trade since liberation day continued on Friday as tariff fears continued to dominate, escalated by the response from China, who implemented a 34% tariff on the US (matching the US rate on China). Meanwhile, Vietnam spoke with the US and said it would remove all tariffs on the US if it reciprocated (this gave a lift to NKE, ONON, LULU, DECK, etc). Stocks were slammed with traders fearful of equities approaching circuit breaker levels. T-notes rallied to north of 114 at the peaks which coincided with a 10 Year Yield of 3.86%, the lowest since October 2024, albeit pared after the strong NFP and a hawkish leaning Fed Chair Powell. Gold prices continued to sell with gold longs likely being unwound to cover equity losses. In FX, the Dollar staged a comeback with DXY looking to close the week at 103.00, versus the low on Thursday of 101.26. The moves in FX were chunky, The Australian Dollar fell over 4% and the New Zealand Dollar fell over -3% with both weighed on by China’s response given their exposure to the nation. The Japanese Yen was weaker despite its haven status and lower US Treasury yields with the Dollar comeback weighing, while there are fears that tariffs would likely delay rate hikes at the Bank of Japan, although not totally derail them – money markets no longer fully price in a BoJ 25bps rate hike this year. The Canadian Dollar was softer versus the Dollar, with a weak labour market report hitting the CAD at a time of tremendous uncertainty. Crude prices were slammed on the ongoing tariff woes, settling lower by c. USD 5.00/bbl for WTI and Brent from Thursday’s settlement. Aside from trade, the highlights were on the US NFP, which was largely looked through, but it did heavily beat expectations on NFP but unemployment ticked up while wages were soft. Fed Chair Powell spoke noting how tariffs are larger than expected, and therefore the impact on the economy will be larger, warning how tariffs will likely increase prices in the coming quarters with more persistent effects also possible. Powell also echoed his line from March when quizzed about a May rate cut, stating the Fed is not in a rush – this saw money markets pull back to just price in 8bps of easing for May, from 12bps earlier in the session, while 96bps of easing is priced through year-end, down from the 112bps previously. The Fed Chair also made it clear that due to the uncertainty, the path ahead for policy is not clear, noting tariffs bring upside risks to both unemployment and inflation, putting the Fed in a difficult position. In response to the USA’s hefty tariffs on China, they responded today and announced additional tariff measures on US goods. China will impose tariffs of 34% on all US goods, and to impose additional tariffs on some US goods from April 10th. Elsewhere in Asia, Cambodia is to cut tariffs on select US imports to 5% from 35%, while Trump posted on Truth that he had a very productive call with Vietnam’s General Secretary To Lam. Vietnam wants to cut their tariffs down to zero if they are able to make an agreement with the US, and is looking forward to their meeting in the near future. Following this, Vietnamese state media largely echoed this and To Lam noted Vietnam is ready to cut tariffs to zero and asks US to do the same, and he agreed with Trump to discuss and sign a bilateral agreement to concretize commitments on zero tariffs. To Lam invited Trump to Vietnam, and Trump accepted the invitation. Over the weekend attention will be on any updates or possible deals/resolutions with countries, given the baseline tariffs rate will go into effect on April 5th at 00:01EDT and reciprocal tariffs will go into effect on April 9th at 00:01EDT. Elsewhere, UK PM Starmer’s spokesperson said the PM will engage with other leaders over the weekend on trade. Separately, but worth noting, Fox reported that sources close to the White House say Treasury Secretary Bessent is trying to quietly moderate the President’s hard-line stance on trade. Headline NFP beat expectations at 228k, well above the 135k consensus and accelerating from February’s 117k (revised down from 151k). It was also above the most optimistic analyst forecast of 185k. The unemployment rate ticked back up to 4.2% from 4.1%, despite expectations for another 4.1% read, although it was accompanied by an uptick in the participation rate to 62.5% from 62.4%. Interestingly, government payrolls rose by 19k, up from the prior 1k (revised down from 11k). The BLS report noted that Federal government employment declined by 4k, less than the 11k in February. Showing that the DOGE layoffs may not be having as much of an impact for now. The earning metrics were on the soft side, rising 0.3% M/M (in line with the consensus) but the prior was revised down to 0.2%, while the Y/Y eased to 3.8% from 4.0%, beneath the 3.9% forecast. Although the labour market is not a cause of inflation at the moment, further weakness in earnings, coupled with fears of inflation upside in the wake of Trump tariffs, will likely dampen consumer spending even further – with a slowdown already feared. Although overall a strong jobs report, the market is highly focused on trade/tariff updates which is driving market sentiment, thus this NFP report overall had little impact. The reports in the months ahead will be eyed by the Fed to see how the jobs market is holding up in the wake of the aggressive Trump tariffs. Fed Chair Powell said their goals may be in tension, but they are not yet – but upside risks to unemployment and inflation puts the Fed in a tricky position. Meanwhile, Fed Chair Powell acknowledged that US President Trump’s tariffs are larger than expected, which risks higher inflation and slower growth. He warned tariffs are likely to raise inflation in the coming quarters, and more persistent effects are possible. Powell also stated how tariff increases will be significantly larger than expected, and the same is true for the economic effects. Given elevated risks of both higher unemployment and higher inflation, Powell says it is too soon to say what the appropriate path for monetary policy will be, but the Fed is well positioned to wait for greater clarity before considering adjustments – continuing to take a patient, wait-and-see approach. The Fed Chair also noted how most measures of long-term inflation expectations remain well anchored. Overall, it seems Powell is concerned about the impact on the economy from the tariffs, and he seems particularly concerned about the impact on inflation – stating how tariffs are likely to raise inflation in the coming quarters, and more persistent effects of inflation are also possible. He is also concerned about upside risks to unemployment while stressing the outlook remains uncertain. In the Q&A, Powell was asked about the May FOMC, where he repeated what was said at the March FOMC, noting the Fed is not in a hurry to cut rates – implying the Fed does not expect to cut at the next meeting, even after the recent large tariff announcements. The Fed wants to be patient to see the true impact of tariffs on the economy. He also said that policy stance is a good stance to wait, noting policy is modestly restrictive (note, at the March FOMC, Powell said policy is “clearly restrictive”). Powell made clear in the Q&A that it is a good time to step back and let things clarify, reiterating it is too soon to say what the monetary policy response should be and he cannot say with any confidence what it should be. He said they will wait for greater clarity before further adjustments, and that a year from now uncertainty should be much lower. Elsewhere, Oil closed over 6% lower for the second day in a row, while Gold was hammered, ending Friday with a loss of 3%.
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