7 Mar 2025
Investors fret on Trump trade wars
Markets
- Local and global equity markets continued to weaken this week with consumer confidence and business activity hurting on softer US economic data and growing trade tensions.
- European government bond yields surged (prices lower) as European countries pledged to significantly increase defence spending leading to a bond sell-off.
- German stocks rallied strongly after the country’s leaders agreed to overhaul their borrowing rules to boost defence spending and revive growth.
- In local stocks, insurers Suncorp and IAG saw some weakness as Cyclone Alfred nears landfall at Queensland’s highly populated southeast coast.
- BHP and Rio Tinto shares received some support after China announced new stimulus measures to help achieve its 5% growth target.
- Rio Tinto won approval for its $10.7 billion Arcadium Lithium acquisition. Rio also announced it will spend $1.8 billion to extend the life of the Brockman iron ore mine in the Pilbara.
- Global oil prices fell after OPEC+ confirmed it will proceed with a revival of some halted oil production amid pressure from US President Trump to lower oil prices. Concerns also rose regarding the demand outlook for oil.
- Iron ore prices in Singapore dropped after China confirmed it would cut its crude steel output to adjust to the downturn in its troubled property sector.
- The Aussie dollar rose this week after the US dollar saw a relatively strong decline with the Euro hitting a four-month high.
Economics
- The Australian economy grew by 0.6% in the December quarter with annual growth stepping up to 1.3%. Government spending lifted significantly. Household consumption rose modestly but continued to fall on a per-capita basis. Business investment increased, residential construction declined, and net exports and inventories made positive contributions.
- The RBA board minutes confirmed February’s rate cut was a hawkish one, citing the reason for lowering the cash rate was based on signals from recent trends in inflation and wages, whilst noting their decision to not commit them to further reductions. They also reconfirmed their commitment to hitting the mid-point of the 2-3% inflation target range.
- Australian retail trade rose by 0.3% in January which saw the annual rate fall to 3.8%, down from 4.6% in December. Other retailing rose the most in the month, followed by clothing and eating out. Household goods saw a large 4.4% fall, likely due to less discounting activity.
- Australian home prices rose across the eight capital cities by 0.3% in February, the first monthly gain since September and after a 0.8% fall in the capital cities. The lift in February was driven by a recovery in Sydney and Melbourne on improved sentiment (rate cut hopes).
- Australian company profits rose by 3.2% in the December quarter, led higher by the mining sector. Businesses’ wage bill rose by 1.4% in the quarter, taking the annual rate up to 4.7%.
- Australian building approvals lifted by 6.3% in January whilst December was revised higher. Private detached house approvals rose by 1.1% and private multi-units were 12.7% higher.
- US private payroll jobs rose by 77,000 in February, coming in well below expectations.
- US personal income rose by 0.9% in January, above expectations, with spending down 0.2% against expectations of a rise.
- The US central bank’s preferred inflation measure rose 0.3% in January, in line with expectations, with the annual growth rate easing to 2.6% from December’s 2.9%.
- The European central bank cut interest rates by 0.25% as expected, but European bond yields still rose. Interestingly, the central bank changed the wording in their statement which some traders read as an April rate cut may not be forthcoming.
- China announced a growth target of 5% for 2025 at its annual parliamentary session. The same goal has now been set for three years.
Politics
- Failed negotiations between the US and Ukraine have resulted in the US pausing military aid to Ukraine, forcing Europe to step up to the plate. A big contrast with hopes of peace last week to Europe ramping up rhetoric this week of sending European soldiers to the frontlines. Europe also pledged to significantly increase their defence spending.
- The Israel / Hamas ceasefire expired with no extension after disagreement at the 11th hour US proposal to extend the ceasefire. The US plan would prolong the ceasefire through mid-April and include the phased release of all remaining Hamas held hostages.
- US tariffs on Canada and Mexico went in effect early in the week, along with another 10% (20% in total) on Chinese goods. The tariffs on Mexico were subsequently deferred until April 2, whilst Trump also then exempted Mexican & Canadian goods covered by the North American trade agreement until April 2.
- US President Trump also discussed new tariffs on external agriculture products or subsidies for US agricultural companies. China hit back quickly with 10-15% retaliatory tariffs on US agriculture exports and a ban on imports of genetic sequencers.
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