Markets continued to grapple with global uncertainty through April, driven by trade tensions, policy shifts, and slowing economic momentum.
US Economy Falters
The US economy contracted by -0.3% in Q1, a sharp reversal from late 2024. This was largely due to companies stockpiling ahead of tariff hikes and a pullback in government spending. Despite strong headline job numbers, underlying weakness is emerging with stalling hiring intentions and contracting manufacturing orders. The Federal Reserve is maintaining interest rates at 4.25%–4.5%, citing inflation and employment concerns, limiting the scope for rate cuts.
China Responds
China’s economy is under pressure from both a property market downturn and the escalating trade war. In response, the government unveiled a stimulus package featuring interest rate cuts and liquidity injections aimed at boosting consumption and technology investment. These moves signal tactical flexibility ahead of key trade negotiations with the US.
Trade Talks & Tariffs
US-China trade talks have sparked some market optimism, with President Trump hinting at a reduction in tariffs from 145% to 80%—though this would still significantly curtail Chinese exports. A partial trade deal remains the goal.
Elsewhere, the newly signed US-UK trade agreement underwhelmed, offering minimal economic benefit. Other nations, including India, South Korea and Japan, are pushing for interim deals before the 31 July deadline.
Europe Holds Up – For Now
The eurozone economy grew 0.4% in Q1, buoyed by a spike in exports to the US ahead of tariffs. However, this surge is unlikely to continue, and domestic momentum remains weak. Tight financial conditions and softening confidence suggest headwinds ahead.
Australia: Cautious Optimism
Following a quiet federal election, economic data remains mixed. Consumer spending is soft, but net exports and easing inflation may support growth. The RBA now has room to cut interest rates at its May meeting.
Markets & Asset Class Wrap
- Australian shares rose +4% in April, recovering March losses.
- Strong sectors included Communication Services, IT, and Consumer Discretionary.
- Global shares were volatile but generally positive.
- Fixed income gained ground as economic concerns drove yields lower.
- US equities returned to early April levels, still priced for an optimistic outlook.
