Fin-X Weekly Update 31st March 2025

Investors were buyers of stocks early last week as President Trump suggested that he may be responding to tariff concerns. However, the imposition of 25% tariffs on cars and automotive parts caught markets off guard. The next round of “reciprocal” tariff announcements is expected on Wednesday. 

The Prime Minister followed Tuesday’s Budget by calling an election on 3rd May, a few days after Canada votes on 28th April. 

The RBA is unlikely to cut the cash rate tomorrow. Retail Sales, Chinese PMIs, Eurozone inflation, the ISM surveys, and the US labour report are all due out. However, the tariff announcements are likely to have the most significant impact on markets.

Last week began with an improvement in sentiment as President Trump suggested that the tariffs set to be announced on this Wednesday might not be as severe as previously feared.  

By the end of the week, however, the S&P500 had plunged back below the 200-day moving average after high automotive tariffs and a disappointing inflation report undermined investor optimism. The US 10yr Treasury yield dropped by -0.11% on Friday, and gold rallied to finish the week up +2.1% as safe haven demand increased.   

Australian shares finished the week up +0.6% but are expected to follow the American indices down -1.1% at today’s open.  

According to Bloomberg, the president twice signalled on Monday that trading partners would receive possible exemptions or reductions. “I may give a lot of countries breaks,” he said. “They’ve charged us so much that I’m embarrassed to charge them what they’ve charged us, but it’ll be substantial, and you’ll be hearing about that on April 2nd”. 

However, he also stated that tariffs on lumber, semiconductors, and pharmaceuticals would be imposed before announcing a 25% tariff on cars and automotive parts imported into the United States. The share prices of General Motors (-6.3%), Stellantis (-6.1%), and Ford (-2.8%) all fell in US dollar terms, while Tesla added +6.0%. 

Headline PCE inflation was in line with estimates in February, rising +2.5% yoy for the second consecutive month, while core PCE increased from an upwardly revised +2.7% yoy in January to +2.8%, exceeding the consensus forecasts.  

Inflation concerns continued to weigh on the relatively inflation-sensitive University of Michigan consumer sentiment survey, which saw inflation expectations rise to +5% yoy over the next 12 months and +4.1% yoy over the next 5 to 10 years.

March Consumer Confidence fell to the lowest level since the pandemic, according to the Conference Board. The 92.9 reading was consistent with the levels observed during the 2015/16 slowdown, but not yet at recessionary levels.  

Personal Spending (+0.4%) undershot expectations, supporting corporate reports that consumers were being more cautious, even as Personal Incomes grew at twice the expected rate (+0.8%). 

Q4 GDP was revised higher from an annualised 2.3% to 2.4% in the third BEA estimate. Nevertheless, the flash PMIs indicated that the strength had likely waned in Q1 of 2025.  

Commenting on the US PMI, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said: 

“A welcome upturn in service sector activity in March has helped propel stronger economic growth at the end of the first quarter. However, the survey data are indicative of the economy growing at an annualized 1.9% rate in March and just 1.5% over the quarter as a whole, pointing to a slowing of GDP growth compared to the end of 2024. 

"Near-term risks also seem tilted to the downside. Growth is concentrated in the service sector as manufacturing fell back into decline after the front-running of tariffs had temporarily boosted factory output in the first two months of the year. Similarly, some of the March upturn in services was reportedly due to business picking up after adverse weather conditions had dampened activity across many states in January and February, which could prove a temporary bounce. 

"Business confidence in the outlook has also darkened, souring further from the buoyant mood seen at the start of the year to one of the gloomiest readings seen over the past three years, largely caused by growing worries over negative impacts from recent policy initiatives from the new administration. Most widely cited were concerns about the impact of Federal spending cuts and tariffs”. 

Eurozone PMI readings were more positive, particularly outside France and Germany, while rising cost pressures restrained Japanese business confidence.  

The Australian PMI echoed the American report. Commenting on the flash PMI data, Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, said: 

“March’s S&P Global Flash Australia PMI data outlined improvements in Australia’s private sector growth at the end of the first quarter of 2025. While modest, the rate of output growth accelerated to the fastest in seven months and was notably supported by broad-based expansions across both the manufacturing and service sectors. Although export orders declined amidst weather disruptions and subdued external conditions, the improvements in domestic demand more than made up for it, contributing to the most pronounced increase in new orders in almost three years. 

“That said, the data also suggested that Australian businesses were less confident about business activity growth in the next 12 months, with the latest rise in new orders also partially supported by firms suppressing price increases. Comments from businesses further indicated that tariff uncertainty may continue to cast a shadow on output growth in the year ahead despite the latest acceleration in growth”. 

Both the Australian monthly headline (+2.4% yoy) and trimmed mean CPI readings (+2.7% yoy) decreased by -0.1% compared to last month. Economists had expected the series to remain flat. However, steady growth and relatively low and stable unemployment make a rate cut tomorrow extremely unlikely, despite both measures now being back within the target 2% -3% range.  

It will also be the RBA’s first chance to respond to last week’s Budget, which included $17 billion in new tax cuts from the next financial year. There were additional measures aimed at lowering the cost of living for Australians, including the extension of electricity rebates through to the end of 2025. The government also announced over the weekend that it intends to combat price-gouging by supermarkets. 

The opposition has surprisingly vowed to repeal those tax cuts if elected on 3rd May. Instead, the Coalition is proposing to halve the fuel excise from 50.8c to 25.4c per litre for 12 months and establish a national gas plan to reduce energy prices. Spending cuts include reducing the number of civil servants by roughly 41,000. 

An early poll by YouGov showed that Labor has closed the gap to the opposition and is very marginally more likely to remain in government, albeit without an outright majority. 

Canada has also called a general election and will vote on 28th April. Mark Carney’s Liberal Party is the current favourite to win.  

Besides the RBA meeting and tariff announcements expected this week, Australian retail sales figures, Chinese PMI data, Eurozone inflation, the ISM surveys, and the US labour report are all due out. US unemployment is expected to hold steady at 4.1% on Friday night. 

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