Fin-X Weekly Update 17th March 2025

Stock markets staged a relief rally on Friday after a difficult week dominated by American tariffs, retaliatory measures, and threats of escalation. The Gold price touched US$ 3,000 per oz for the first time. 

Backward-looking data was relatively benign. However, tariffs are feeding through to higher inflation expectations and limiting the ability of the Federal Reserve to respond to the prospect of weaker growth. The FOMC will update its economic forecasts this week but is not expected to cut the Fed Funds rate. 

There will be more central bank meetings this week, with a cut expected only in Switzerland. Australian unemployment figures, US retail sales and industrial production data, the European ZEW survey, and Japanese inflation numbers are all due to be released.  

Equities began on a downward note last week after President Trump said in a Fox interview on Sunday that the economy is facing a transition period, but avoided saying outright that a recession would occur.  

Treasury Secretary Scott Bessent had earlier said on CNBC that the economy needs to “detox” from the high government spending of the last few years. He has repeatedly suggested that the administration would be targeting the 10yr yield rather than the equity market, reminding his hosts that the stock market did very well under Joe Biden but that he still lost the election. 

As it became clear that the “Trump put” of his first term may have been removed, the S&P500 and Nasdaq indices fell by more than -10%, the margin typically used to signify a correction. The S&P/ASX 300 and MSCI AC World indices also approached a correction, falling by -9.4% and -7.4%, respectively, from their recent peaks.  

In contrast, gold made a new record high of US$3,000 per oz as sentiment troughed on Thursday.  

25% tariffs on American steel and aluminium imports had come into effect Wednesday, and retaliatory measures duly followed.  

The European Union said it would impose counter-tariffs on 26 billion euros ($28.33 billion) worth of US goods, ahead of further American “reciprocal” tariffs likely to commence on 2nd April. Following the announcement, President Trump threatened to add a 200% tariff on wine, champagne and other alcoholic products from the EU if the bloc’s proposed 50% levy on American whiskey wasn’t immediately removed.  

The president also sparred with Canadian politicians. Premier Doug Ford of Ontario agreed to suspend a 25% surcharge on electricity exports to the US after the White House threatened to double the steel and aluminium tariffs to 50%.  

The Canadian government continued its dollar-for-dollar response to US tariffs and added to the CAD 30 billion (US$ 20 billion) in counter-tariffs Canada imposed on March 4th. Mélanie Joly, Canada's Minister of Foreign Affairs, announced an additional C$ 29.8 billion of tariffs from 13th March. 

The Bank of Canada cut the policy rate by -0.25% to 2.75% on Wednesday as growth concerns outweighed any inflationary impact. 

Mark Carney, former governor of the Bank of Canada and Bank of England, was sworn in as prime minister on Friday, succeeding Justin Trudeau. He emphasised the importance of protecting Canadian workers and jobs while recognising President Trump's aims for American jobs. Mr Carney indicated a willingness to find ways for both countries to meet their objectives.  

Over the weekend, he commissioned a review of Canada’s US$ 13 billion order of 88 F35s as part of a defence strategy reassessment in the light of recent American hostility. 

The Australian government declined to impose retaliatory tariffs. At the same time, Mexican President Claudia Sheinbaum paused any measures after securing an agreement with US President Donald Trump to postpone tariffs on Mexican imports covered by the USMCA until April 2nd. 

In Saudi Arabia, the US secured an agreement from the Ukrainians to a 30-day ceasefire. However, a deal with Russia has proven to be more elusive.  

President Vladimir Putin expressed cautious support for the proposed 30-day ceasefire in Ukraine but attached several stringent conditions that complicate its implementation. Richard Betts, professor emeritus of war and peace studies at Columbia University, reportedly told the Kyiv Independent: "This is consistent with his previous demands that Ukraine must agree to concessions before Russia negotiates with it. In short, Putin appears to view negotiations for a peace agreement not as a bargaining process but as a process for arranging the conditions of Ukraine's surrender." 

Risk-sensitive assets recovered globally on Friday after some relatively benign American data. The US government also averted a shutdown after Senate Democrats decided not to block a continuing resolution to keep the government funded through to the end of September. Futures indicate that the Australian market is expected to recover by roughly +1% at today’s open. 

Last week’s JOLTS data showed some signs of levelling off but remained characteristic of a low hiring environment.  

February’s American CPI (+2.8% yoy) and PPI (+3.2%) inflation undershot consensus forecasts, with CPI rising at the slowest pace in four months. However, inflation remains some way above the Federal Reserve’s 2% target.  

On Friday, the University of Michigan consumer sentiment survey showed weaker sentiment compared to the president’s first term, regardless of political affiliation. 48% of the survey's respondents mentioned tariffs, and 1yr inflation expectations surged from +4.3% yoy to +4.9% yoy. 

With tariffs contributing to rising inflation expectations across a range of surveys, the FOMC is constrained in how much it can respond to weaken growth and labour markets. Rates are expected to remain on hold this week, with the focus likely to be on the updated Summary of Economic Projections (“dot plots”) and responses to questions at the press conference.   

The US 10yr moved back to the 200-day moving average as bond investors are still looking for a clear direction. Most sell-side economists don’t see a recession as their base case this year. But the chances are generally perceived to be rising. 

UK monthly economic performance undershot forecasts of modest expansion in January, contracting unexpectedly by -0.1%. Chancellor Rachel Reeves responded by emphasising the government's commitment to economic growth, higher defence spending, and structural reforms. The Bank of England is expected to hold rates at 4.5% on Thursday as unemployment will likely remain at 4.4%. 

Australian data remains upbeat in comparison to global peers. The February NAB business survey results were steady, while Westpac consumer confidence improved in March. February unemployment is expected to remain at 4.1% when released on Thursday. 

The Melbourne Institute's survey of consumer inflation expectations also revealed a significant drop from 4.6% to 3.6%. Although this is still above the RBA's 2%-3% target range, it provides a little more scope for the new Board to consider earlier rate cuts. Market pricing indicates that the next cut is anticipated to be in May. 

After the devastation caused by tropical cyclone Alfred last weekend, Prime Minister Albanese quelled speculation about a potential 12th April election. The latest possible date for the election is 17th May 2025. Despite a third consecutive landslide victory for the Labor government in WA labour last week, the Coalition is still the favourite to win the general election, according to Oddschecker. However, it appears unlikely to secure an outright majority. 

This week, the Swiss National Bank is expected to lower its policy rate from 0.50% to 0.25%. The central banks of China, Japan, and Sweden are expected to join the Federal Reserve and the Bank of England in leaving rates unchanged. 

Besides Australian labour market figures, American retail sales and industrial production figures are due out this week. The European ZEW survey will be published tomorrow, and Japanese inflation is expected to ease when published on Friday. 

In equities news, Nvidia will hold its annual technology conference “Nvidia GTC”. Commencing on Monday 17th March the conference runs for a week. Nvidia showcases its new innovations and developments at this event. The link will take you to the event.  https://www.nvidia.com/gtc/ 

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