Daily Economic Update

US: Trump said it is unlikely he would extend reciprocal tariff pause, seeks big concessions from China before dropping duties. President Trump mentioned that he didn’t expect to further delay the imposition of larger reciprocal tariffs once the existing pause ends in early July, keeping the uncertainty elevated. This could simply be a negotiation tactic given the ongoing negotiations with key trading partners. We think it is too early to give a lot of weight to such statements given still ample time before the reciprocal tariffs are re-instated and especially given the numerous policy reversals over the past few months. Unsurprisingly, he downplayed the role of heightened market volatility, especially in the bond markets, in his decision to pause the ‘Liberation Day’ tariffs. He said that trade talks with Japan were progressing well, and an agreement seemed “very close.” He also emphasized that he would seek “something substantial” from China before considering to lower tariffs on Chinese imports, dashing hopes for a swift resolution to the ongoing trade war between the two countries. Meanwhile, according to media reports, China lowered/paused its own duties on some critical US goods including healthcare equipment and on some raw materials as well as aircraft leases to mitigate the impact of higher levies. On the data front, durable goods orders climbed by 9.2% m/m (11.9% y/y) in March after an increase of 0.9% (3.3% y/y) in February, boosted by aircraft orders. However, core capital goods orders (non-defense, excluding aircraft) increased only slightly, by 0.1% m/m (1.8% y/y), indicating businesses’ cautious capital spending amid a lack of visibility on tariffs and other government policies.  

Chart 1: US durable goods orders (% y/y) Source: Haver * Non-defense excluding aircraft

UK: Retail sales surprisingly rise on good weather, but the momentum could falter soon. Retail sales volumes in March rose for a third straight month, increasing by 0.4% m/m (2.6% y/y) from February’s increase of 0.7% (1.8% y/y) and versus the market forecast of a drop of 0.4% m/m, helped by warmer weather conditions. However, the latest business activity and consumer confidence surveys, which showed the composite PMI dropping to a 29-month low of 48.2 and the Gfk index falling to its lowest since November 2023 at -23 in April, underscore the volatility and fragility of the UK’s economics performance. The rise in household utility charges, higher employee cost burdens, cuts in government spending and US tariff-related uncertainty could weigh on consumer spending and business investment, pressuring the economy as we enter the second quarter.

Japan: Tokyo inflation rises most in two years, backing central bank's hike path. Headline consumer inflation in Tokyo rose to its highest level in two years in April, hitting 3.5% y/y from 2.9% in March. Similarly, core inflation (excl. fresh food) also increased to 3.4%, while the core-core measure (excl. fresh food & energy) logged its highest growth since February 2024 of 3.1%, up from 2.2% in March. The surge was primarily driven by lower subsidies on electricity (13% y/y) and gas (4.8%) prices and came amid worsening domestic rice shortages (rice prices have more than doubled due to poor harvests), increased demand, and distribution challenges. The Bank of Japan (BoJ) is set to convene its next Monetary Policy Meeting on April 30 and May 1, with the market expecting the BoJ to hold the policy rate at 0.5%. However, Governor Kazuo Ueda has indicated a willingness to consider further hikes if underlying inflation continues to approach the 2% target, though uncertainties such as the US tariffs and heightened global trade risks could heavily influence the bank’s policy decisions. 

China: Government renews growth pledge to offset the impact of trade war with US. The government renewed its pledge to provide an “appropriately loose” monetary policy in 2025, stating that it intends to decrease policy interest rates and cut reserve requirements to help mitigate the impact of the trade war with US. Media reports also highlighted tariff exemptions on some US goods that could help de-escalate trade tensions. Meanwhile, the profits of China’s major industrial producers increased by a cumulative 0.8% y/y in the three months through March after falling 0.3% in Jan-Feb, buoyed by manufacturing output front-running US tariffs and Chinese government stimulus measures.

Egypt: Kuwait to convert $4bn CBE deposits into investments. Kuwait is in talks to convert its deposits at the Central Bank of Egypt (CBE), worth $4 billion, into direct investments in a range of sectors including real estate, tourism, pharma, and automotive, according to a Bloomberg report. Kuwait aims to covert at least $2bn by year-end, with EK Holding eyeing fresh investments. This follows the recent Egyptian-Kuwaiti Cooperation Council forum, which showcased 52 investment opportunities, including participation in Egypt’s privatization program, with Kuwait expressing its interest in the airport privatization plan. The move should boost Egypt’s FX position, reduce liabilities, and mirror similar plans from the UAE and Saudi, though only the investment from UAE’s ADQ has materialized so far.

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