ASIA: Little In The Way Of Concrete Responses To US Tariffs So Far
Responses coming through from some major Asian economies' gov'ts regarding the US tariffs announced on 2 April. As would be expected, countries are still in the process of digesting their impact. Despite the widespread knowledge of 'Liberation day', many countries appear not to have retaliatory measures 'locked and loaded'.
- The Indian Trade Ministry (India hit with 26% 'reciprocal' tariff) says that they are "engaged with all stakeholders [...] taking feedback of their assessment of tariffs and assessing the situation [...] [US-India FTA] Talks are focused on enabling both nations to grow trade, investments, and tech transfers." Ends by saying they remain in touch with the White House on the issues and "expect to take them forward in the coming days".
- The Philippine Finance Secretary, Ralph Recto, claims that the economy is "relatively resilient against trade wars" (the Philippines hit with 17% 'reciprocal' tariff) but that "We won't be spared from the expected decline in international trade and possible slowdown of global growth." Earlier, Undersecretary of the Presidential Communications Office Claire Castro said “We will accept this; whatever the impact will be, of course we will respond accordingly. But as of the moment, its impact is very minimal,”
- Thai PM Paetongtarn Shinawatra said, “We won’t let it get to where GDP will miss the target, [...] We have prepared several steps, including sending our permanent secretary to talk with them...I think we can still negotiate.” Deputy Finance Minister Julapun Amornvivat said the rate (Thailand hit with 36% 'reciprocal' tariff) was higher than expected.
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CROSS ASSET: EUR Bid As Von Der Leyen Outlines Possible Defense Spend Size
The potential EUR800bln increase in EU defence spending touted by European Commission President Von Der Leyen is probably more sizeable than expected, given our policy team's report pointing to ~EUR100bln joint funding instrument (Von Der Leyen pointed to ~EUR150bln for the size of that instrument) and rumoured EUR400bln in German defence spending that could be funded via a special fund.
- To quantify that figure, EU defence spending sat at €326bln during ’24.
- The size, speed and horizon of any spending increase will be key for markets, with EGB long ends already sensitive to increased issuance risk (as evidenced by Monday’s price action).
- Reaction to Von Der Leyen’s comments from across the EU now eyed.
- Initial market reaction sees Bonds tick lower, Euro Stoxx futures off lows and EUR/USD to fresh session highs.
- Note that EUR/USD remains below the Jan 27 high and reversal trigger (1.0533), with highs of 1.0524 seen thus far.
- German curve steeper, but a more muted reaction in German ASWs.
- EU-bonds also showing little sign of underperformance via spreads, seemingly given the wide gap between the joint funding instrument and touted potential total expenditure, which would put more pressure on individual states to provide defence funding increases.
