28 Feb 2025
Investors question strength of US economy
Markets
- Local and global equity markets fell this week on weaker US economic data and tariffs.
- US government bond yields fell sharply (prices higher) on concerns regarding the US economic outlook on weaker data prints. Cuts to government spending and employment on the nose.
- In local stock news, WiseTech Global faced more turmoil with four of their six board members stepping down, as founder and largest shareholder Richard White appears to have wrangled back control of the company following his misconduct and new claims. Shares fell sharply.
- APA Group shares rose strongly to a two-month high on the back of its half-year results. The pipeline operator said it had grown its underlying earnings by 9.1%.
- Block Inc. shares fell sharply to a four-month low after the Afterpay owner reported weak fourth-quarter earnings.
- Domino’s Pizza Enterprises shares fell to a one-month low after the fast-food giant posted its first loss in 20 years. The loss was a result of restructuring costs, including closing 205 struggling stores.
- Woolworths shares fell after the supermarket chain announced its first half profit had fallen 20% to $739 million.
- Coles shares rose after the supermarket giant reported a better than expected first-half profit and earnings.
- The Australian dollar weakened against the US dollar this week, with Australian economic data and US tariffs impacting trader sentiment.
Economics
- The Australian monthly inflation indicator was steady at 2.5% in January, against expectations for a rise. The annual trimmed mean measure lifted 2.8%, in line with our estimate.
- The volume of Australian construction work done rose by 0.5% in the December quarter. The pace of annual construction work done is moderating and was 1.8% to December.
- The total volume of Australian capital expenditure fell in the December quarter. Mining investment declined by 0.6% whilst non-mining investment recorded a small 0.1% fall.
- US House Republicans passed a budget blueprint calling for deep cuts to spending which would pave the way for US$4.5 trillion in tax cuts. The US debt limit would also be raised.
- A key measure of the US services sector fell in February, coming in well below expectations and contracting for the first time since January 2023.
- US consumer sentiment slid in February to a fifteen-month low, coming in below already weak expectations.
- US consumer confidence deteriorated at its fastest pace in three and half years in February. US Treasury Secretary Scott Bessent said the US economy is more fragile under the surface than economic metrics suggest.
- US existing home sales fell 4.9% in January to a 4.08 million annualised rate, coming in below expectations.
- European manufacturing data held steady in February, coming in slightly below expectations whilst remaining just above expansionary level readings.
- The German economy shrank by 0.2% in the December quarter, in line with expectations.
- China plans to inject billions of dollars into its banking system in the coming month as it ramps up efforts to kickstart its struggling economy.
Politics
- Germany’s centre-right opposition leader Friedrich Merz won the weekend’s federal election, finishing ahead of the AfD party and current Chancellor Olaf Scholz’s Social Democrats. Merz will need to form a coalition to rule, which he would like to do within two months. He has highlighted pro-growth policies and increased defence spending as his priorities.
- US President Trump told reporters that his 25% tariffs on Mexico and Canada would go into effect next week, following a one-month-long delay on their implementation. He also mentioned that US “reciprocal” tariffs were on schedule to begin as soon as April. Tariffs on European products were also confirmed at 25%, with details to come.
- UK Prime Minister Keir Starmer outlined plans for a dramatic increase in defence spending, rising to 3% of economic output over the next decade.
- Australia’s corporate watchdog is reviewing regulatory oversight of private markets (private debt in particular) as the country’s $4.1 trillion pension sector fuels an explosion of activity in the space.
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