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Risk aversion was acute across the different asset classes as each time zone took turns to digest tariff implications. Notably, it was US assets that bore the brunt of investors wrath with the S&P 500 down by almost 5% overnight. UST yields continued to leak lower as growth concerns drove investors into the front to belly tenors. Almost 100bps are now priced for 2025 as it is assumed that the Fed will prioritise growth over inflation concerns. The standout (as flagged previously as well) was the USD refused to strengthen despite risk aversion.
Today's set of labour market data bears unusual significance given how much US yields have fallen. Between the surge in challenger job cuts (275k in March) and the decline in ISM services employment (46.2 vs consensus of 53), there are some warning signs that the job market is weakening. However, at current levels, US yields are factoring in a slowdown in the US economy and there will likely be some lingering concerns heading into the weekend. Our sense is that if labour market data proves to be not as bad, there is a tactical pathway to a yield bounce next week, assuming that headlines on tariff negotiations would be more risk positive.
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