21 Feb 2025
New US tariffs unsettle investors
Markets
- Local and global equity markets were weaker this week as investors took notice of new US tariffs on a range of key industries.
- US company reporting season has fared better than expected, with earnings growth currently standing at almost 17% versus almost 12% expected previously. Of the 77% of companies that have reported, 76% have beaten expectations.
- The rotation back into Chinese stocks, from Indian stocks, continued with Chinese technology companies receiving plenty of attention following DeepSeek’s breakthrough in A.I.
- European share markets continued their strong run, boosted by defence stocks as investors priced the likelihood of increased military spending in Europe as the US threatens to step back from significantly funding European defence.
- In local stock news, disappointing earnings from Westpac, National Australia Bank, and Bendigo & Adelaide saw bank stocks come under pressure following their strong rally over the last twelve months.
- The share prices of insurance companies fell after opposition leader Peter Dutton accused them of price gouging and threatened to break them up if the Coalition wins power. Suncorp was hit harder than IAG.
- Mineral Resources shares fell sharply after the company posted an underlying half-year loss after turning a profit a year ago. A poor result, though management still upbeat regarding a turnaround.
- Rio Tinto shares fell after the company reported a 27% drop in free cash flow in 2024, to US$5.5 billion. Other iron ore miners also fell.
- Telstra shares rose to a one-and-half-year high as the mobile operator hiked its dividend and announced a $750 million share buyback after posting a $1.1 billion profit in the first half, up 7.1% from a year ago.
- Oil prices rose as investors increasingly don’t see a Ukraine ceasefire as boosting Russian output.
- The Aussie dollar rose whilst the US dollar fell with Australian employment data applying upward pressure on the Aussie whilst weak US retail sales put downward pressure on the US.
Economics
- The RBA cut the cash rate by 0.25% to 4.10% as expected, their first cut in this cycle. The statement warned off expectations of future rate cuts and revised higher their 2026 inflation estimates and their wage growth forecast for 2025.
- Australian wage growth eased to 0.7% in the December quarter, below the RBA and market expectations and down from an upwardly revised 0.9% September quarter. Growth in the private sector and for jobs on individual arrangements moderated in the December quarter.
- Australian employment rose 44,000 in January after a lift of 60,000 in December, which was revised higher. The unemployment rate lifted to 4.1% as the participation rate rose to a record high. Full-time employment rose strongly whilst part-time employment fell.
- US retail sales slumped in January by the most in almost two years, coming in below expectations.
- British inflation sped up by more than expected, hitting a ten-month high of 3% in January, and could rise further. This will test the Bank of England’s resolve.
- Japan’s economy expanded at a better-than-expected rate with business spending and trade helping to fuel a third straight quarter of growth. The Yen strengthened as a result.
- The Reserve Bank of New Zealand slashed interest rates by 0.5% to 3.75%, as expected, as their economy remains under pressure. The level of future rate cuts may be slower.
- Lending in China has hit a new record, coming in well above consensus, with the main driver being corporate loans. Household loans also picked up moderately.
Politics
- The Australian government has banned foreign investors from buying established houses for the next two years. The ban will be introduced on 1 April.
- US President Donald Trump provided a bit more clarity on upcoming tariffs saying levies of about 25% will likely be imposed on imports of autos, chips, and pharmaceuticals.
- UK Prime Minister Keir Starmer reaffirmed Britain’s support for Ukraine, including being ready to put their own troops on the ground if necessary. The sabre rattling came as talks begun to try and end the war.
- Top US and Russian officials met in Saudi Arabia as US President Trump forges ahead with plans for a deal to end the war in Ukraine. Ukraine and Europe weren’t invited.
- Chinese President Xi held a rare meeting with some of the largest technology companies in China in what looks like an effort to boost private business sentiment.
- India plans to cut import taxes as the government looks to work around US President Trump’s plan to impose reciprocal tariffs. Effectively, some countries have benefited from tariffing the US for years, so the US is proposing applying the same tariffs back.
- Israel and Hamas will start negotiations on the second phase of their ceasefire as early as this week after the two sides agreed to a ceasefire in January.
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