Global Market Volatility & Economic Conditions
Increased volatility due to a combination of:
- Slower economic data in the US.
- Moderate growth in China and the eurozone.
- Heightened geopolitical instability.
Impact of US Tariff Policies:
- President Trump’s tariff announcements caused sharp swings in global bond and share markets.
- Initial delays, followed by reaffirmation of tariffs, led to uncertainty.
- Higher tariffs expected to increase inflation and slow growth, potentially causing stagflation or a US recession.
Investor Confidence Decline:
- Fading confidence due to stagflation risks and impending retaliatory tariffs in April.
- S&P/ASX 200 Accumulation Index fell -3.8% in February, with further declines in March.
- Global equities (MSCI World Index) dropped -1.0% in February and continued to decline in March.
- S&P 500 peaked at 6150 before falling to 5509.
US Economic Data & Market Trends
Signs of weakness:
- Declining personal consumption and consumer confidence.
- Rising inflation expectations.
- Year-over-year inflation (Core PCE) slowed to +2.6%, but monthly trends remain above target.
Europe Economic Update
- Eurozone shows signs of bottoming out, narrowly avoiding contraction in Q4 2024.
- Industrial sector improved from very weak to still weak; services remain above historical inflation averages.
- Inflation remains high but not worsening.
- European Central Bank (ECB) expected to cut interest rates on 6 March due to economic weakness.
China & US Trade War Developments
- US imposed an additional 10% tariff on 4 March, triggering Chinese retaliation.
- China’s countermeasures:
- New tariffs on agricultural products (15% of US exports to China, worth $25 billion in 2024).
- Retaliation remains relatively measured but escalation risks remain high.
Australia’s Market Reaction & Economic Outlook
- Australian share market affected by US tariff policies.
- RBA revised inflation forecast higher due to strong labour market.
- Employment Data:
- Unemployment ticked up to 4.1%.
- Wages growth slowed to 3.2% (lowest since Q2 2022).
- Retail trade growth rose 4.6% YoY, better than expected.
- Housing Market:
- National house prices rose 0.3% in February.
- Auction clearance rates increased as expectations of lower interest rates boosted sentiment.
Outlook for 2025
- Higher US tariffs will push inflation up, making the Fed less likely to cut rates.
- Share markets adjusting to slower GDP growth from trade policies.
- US market remains above fair value, while Australian market is closer to fair value.
- Markets will continue to be driven by trade policy, economic data, geopolitical risks, and investor sentiment.
