Reuters Econ World: 'The bond market now is beautiful'

By Carmel Crimmins

April 10 (Reuters) - Hello there,

Has everyone caught their breath? That surge in Treasury yields was getting mighty uncomfortable. President Trump was clearly feeling it too. His tariff U-turn seems to prove the point that you upset the bond market at your peril.

Trump told reporters after the reversal that, “The bond market now is beautiful.” But is it? This week’s turmoil has left some participants questioning if the harm to U.S. assets could persist in the long term. Higher tariffs have gone away for 90 days, but has the unpredictability in policy? If you want to hear more about government debt markets and the bond vigilantes who patrol them, check out a recent episode of Reuters Econ World. Listen here.

On currency markets, the confidence shock to the dollar remains. Investors are favouring other currencies such as the yen, the Swiss franc, and the euro. Indeed, as U.S. Treasuries sold off violently this week, Europe's traditional safe haven - Germany's government bunds - rallied sharply. As my colleague Mike Dolan points out in a column this week, much of the additional foreign money that flooded into America's megacap stocks and relatively high-yielding bonds over the past decade was from Europe. And scared money tends to go home.

As Trump backs away from an all-out global trade war, he is doubling down on tariffs against China, hiking the rate to 125%. Beijing may again respond in kind after imposing 84% tariffs on U.S. imports on Wednesday. The intensifying tensions are bad news for Australia. The country is caught in the middle of this face-off between the world’s two largest economies just weeks ahead of a national election.

Diversification appears to be the name of the game for Canberra. Its government has declined Beijing's proposal to work together to counter U.S. tariffs, saying instead it would continue to lower its reliance on China and build ties in Europe and Asia. To hear more about the country’s delicate balancing act, check out this week’s episode of Reuters Econ World. Listenhere.

The U.S.-China trade war is already forcing companies to take extreme measures. Apple has chartered cargo flights to ferry 600 tons of iPhones, or as many as 1.5 million, to the United States from India, after it stepped up production there. And Chinese companies that sell products on Amazon are preparing to hike prices for the U.S. or quit that market.

Chinese exporters will be on the hunt for alternatives to the United States, but nowhere comes close to U.S. consumption power, raising the risk of intensifying price wars among Chinese exporters. China’s deflationary pressures are persisting as the trade gloom worsens, and Goldman Sachs cut its forecast for China’s GDP growth over the tariff hit.

The European Central Bank is also bracing for a bigger-than-expected growth hit from tariffs, sources are telling Reuters. Markets are fully pricing in a rate cut when the ECB meets next week. India’s central bank has already cut, the second central bank after the Reserve Bank of New Zealand to cut interest rates since Trump’s “Liberation Day” announcement on April 2.

Before you go, I have a favour to ask. The pod has been nominated for a Webby Award in two categories, and I would really appreciate your vote. It’s for the pod’s "Swiftonomics" episode. If you like what you hear, please vote here and here.

Wish us luck!

Carmel

The headlines

• EU pauses countermeasures after Trump's tariff reprieve; U.S. weighing deals

• Beijing bites back at US tariffs by curbing Hollywood imports

• Intel CEO invested in hundreds of Chinese companies, some with military ties

• Russia and U.S. bring spa worker and tech smuggler back home in prisoner swap

The chart

The market turmoil has raised questions about the dollar's "safe-haven" status. Investors are flocking to other assets such as gold, the yen, and the Swiss franc instead.

The podcast

“  The sense that Australia's closest security ally could tariff Australia, that's what's hurt the Australian public, the indignity of it."

Reuters correspondent Kirsty Needham on the political fallout from Trump's tariff war in the latest episode of Reuters Econ World.

On this week's show, we look at Australia, caught in the middle of Trump's trade war, just weeks ahead of a national election.

The real world

• Texas: LVMH finds making Louis Vuitton bags messy in Texas

• Greenland: Rich donors push Trump for a tech hub up north

• Paris: From France to Mali, a deportee’s struggle far from home

The week ahead

• April 16: U.S. retail sales

• April 16: Bank of Canada rate meeting

• April 17: ECB rate meeting