11 Apr 2025
Markets yo-yo on tariff flux
Markets
- Local and global equity markets bucked the trend and rose this week, with investors buoyed by a pause in tariffs, weaker US inflation data than expected, and US lawmakers moving closer to giving President Trump the path to tax cuts.
- Included in this week’s incredible market moves was the US S&P 500 which had its best single day since 2008 and third best since WW2. The technology-heavy NASDAQ had its best day since 2001 and its second-best day ever.
- A key measure of the volatility, the VIX index, hit the highest levels seen since April 2020.
- Volatility was particularly noticeable in bond markets with US government 10-year bond yields yo-yoing sharply higher and lower daily and even intra-day, with bond market liquidity starting to dry up.
- In local stock news, US casino group Bally’s agreed to provide a US$180 million rescue package to struggling Australian casino group Star Entertainment.
- Private equity-controlled airline Virgin Australia is pushing ahead with plans for an IPO offering in June.
- Oil prices plunged to their lowest levels in over three years as Trump’s sweeping tariff plans, plus China’s retaliation, sparked recession fears. The US EIA also added to demand concerns lowering their 2025 demand forecast by 400,000 barrels per day from last month’s estimate of 900,000 barrels per day.
- China allowed its currency to weaken past a key level spurring rumours a significant currency devaluation might be on the cards.
- Aussie dollar mounted a recovery against the US dollar with a surprise announced pause in US tariffs buoying some investors, whilst the US dollar weakened on softer inflation data than expected.
Economics
- The Australian RBA governor Michele Bullock spoke at an event addressing recent market turmoil but gave little away, stressing current market volatility is not of the scale of previous crises and the Australian financial system is strong.
- An Australian monthly household spending indicator rose in February, after rising in January, with the annual pace now sitting at 3.3%. Spending measures for 2025 to date continue to show a muted consumer.
- Australian consumer sentiment fell sharply in April, down by 6%, weighed down by tariff uncertainty. Business conditions remain below the long-run average whilst business confidence inched lower in March.
- US inflation (CPI) unexpectedly fell by 0.1% in March, against expectations of a 0.1% rise. The annual growth rate eased from 2.8% to 2.4%. Core inflation was up 0.1% in March, with annual core inflation dipping from 3.1% to 2.8%, below expectations.
- US central bank chair Jerome Powell noted the inflation risks posed by tariffs and that the focus would be on anchoring long-term inflation expectations to make sure a one-off shift higher in the level of prices would not become an ongoing inflation problem.
- US jobs, as measured by nonfarm payrolls, rose by 228,000 in March, coming in well ahead of expectations. The unemployment rate rose to 4.2%.
- New Zealand’s central bank cut interest rates for the fifth consecutive meeting and said it stands ready to provide further relief if US tariffs cause downside risks for economic growth and inflation.
Politics
- China’s finance ministry said it would impose additional tariffs of 34% on all US goods from April 10, taking them to 84%. Beijing also discussed measures to stabilise their economy and markets in the face of Trump’s tariffs, including whether to accelerate plans to unleash stimulus to bolster consumption.
- US President Donald Trump subsequently threatened and delivered with China receiving another 50% tariff, taking tariffs to 145%, and warned all talks would be terminated unless Beijing withdraws the retaliatory levy on US goods.
- Later in the week, US President Trump announced a 90-day reprieve on reciprocal tariffs for most trading partners. Countries that face higher reciprocal tariffs which had just gone into effect will now face the baseline 10% rate applied to all other countries.
- US Treasury Secretary Scott Bessent rejected the idea that tariffs will cause a US recession and said any negotiations will take time, whilst confirming everything is negotiable. Trump’s commerce secretary and trade czar both gave no indication that he will back to down.
- Iran will start high-level talks with the US this weekend to resolve a standoff over Tehran’s nuclear program. Sanction relief is Iran’s main goal. Iran’s President said it will provide any necessary guarantees that it doesn’t want to develop nuclear weapons.
- Republican senators expressed anxiety over the potential economic toll of Trump’s global tariffs and pressed his trade representative for more clarity on the president’s objectives.
- The Trump administration and congressional leaders successfully convinced House Republican lawmakers to approve a Senate-passed budget outline. The move paves way for Trump to get his tax cuts through and raise the federal debt ceiling.
- The German centre-right leader Friedrich Merz and the Social Democrats formed a coalition to govern Europe’s biggest economy, paving the way for Merz to take over as Chancellor.
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