The US dollar drifted a little lower in Asia to start the week while equities had a slightly heavier bias. The MSCI Asia Pacific Index slipped 0.1%. European bourses are mostly closed for the extended Easter holiday, while the S&P is set to start the new quarter about 0.3% lower. Although the subdued price action may not reflect it, there have been several new economic reports and developments.  

Japan’s quarterly Tankan survey was a touch softer than expected and left the market nonplussed. The results of the large manufacturers ticked down to 24 from 25, while the large non-manufacturer sentiment was unchanged at 23. The results for small business was similarly little changed. Given the more than 5% decline in Japanese stocks in Q1 and the fact that it is being targeted with US steel and aluminum tariffs, the fact that both readings remain near multiyear highs is notable.

Still business showed cautious investment plans. Capex is projected to growth 2.3% in the new fiscal year down from 7.4% the respondents expected in December for the fiscal year that just ended. Business expect the dollar to average JPY109.66 this fiscal year.  It averaged about JPY110.85 in the last fiscal year.

China announced duties on more than 100 US products. Some products, like scrap aluminum and frozen pork were hit with 25% tariffs on top of the current tariff schedule, while other goods, such as dozens of foods, fresh and dried fruit, nuts, and rolled steel bars were subject to new tariffs of 15%. These are not surprising and simply provide details on what Chinese officials already indicated.  This is in retaliation for the steel and aluminum tariffs. 

China’s action is less than the US action and seems mostly symbolic. However, it does not mean that China will not do more. Specifically, by the end of the week US Trade Representative Lighthizer will release the details of the US measures in retaliation for intellectual property rights violations that will include tariffs on $50-$60 bln of Chinese goods. China will likely make take fresh measures after the new US actions are announced.