Bassanese Bites: Cause to pause – April 14 2025
Global markets
Global stocks staged a solid bounce back last week from deeply oversold levels (at least in the short term), following US President Trump’s decision to pause the impost of high reciprocal tariffs for 90 days. Instead, all countries would face a minimum tariff of 10%, although China would still be slugged by 145% and there are still extra tariffs on steel, aluminium and car imports. China has retaliated, imposing a 125% tariff on US imports.
Why the U-turn? While Trump seemed to accept the slump in stocks, the backup in bond yields was perhaps more unnerving – suggesting potential systemic financial risks if this represented the beginning of global capital flight. Either way, it does hold out hope that Trump may find face-saving ways and means to pull back from the abyss if it appears the economy is heading that way!
Indeed, in another stunning backdown, late on Friday the US Administration also announced that a range of electronic equipment – from smartphones and computers to TVs – would also be exempt from the hefty 145% tariff on Chinese imports. The reason? It would give the tech companies more time to move the production of these items to the US! The reality is likely that Trump finally appreciated the ‘sticker shock’ consumers would face as the price of iPhones, computers and TVs went through the roof.
Such is the shambolic state of the US tariff policy at present! It appears companies can and may get exemptions if they lobby hard enough. All this just adds to the massive business uncertainty that is now descending on the US economy, and which is likely to see a lot of investment and employment plans mothballed for some time.
Of course, this is a crying shame because recent US inflation reports have been benign, with both core consumer and producer prices reported last week for March notably lower than expected. Were it not for the tariff mayhem, markets would now likely be celebrating a Goldilocks/soft landing scenario for the US and impending further Fed rate cuts. Instead, there is now a heightened risk of short-run stagflationary conditions – both inflation higher and activity lower.
As an early taste of what may be ahead, the University of Michigan US consumer sentiment survey slumped further in April, reflecting heightened fears of higher inflation ahead.
Note that while stocks bounced back last week, US bond yields moved higher and the $US sunk – likely reflecting a general exodus of global capital from the now high-risk US market. US 10-year bond yield rose a lazy 0.5% to 4.5%, while the broad $US index sank 3%.
Global week ahead
Key US economic data this week include retail sales, industrial production and import prices – all of which may yet reflect April’s tariff mayhem. Indeed, retail spending could be firm, reflecting a rush to buy goods ahead of expected tariff increases.
Fed chair Powell will also give another speech on the economy, though the degree of reassurance he can give markets about future rate cuts (given the near-term likely surge in inflation) remains unclear. At this stage, the market doesn’t think the Fed will cut as early as the May 6-7 policy meeting, although it sees a 75% chance of a June rate cut and two further rate cuts later this year.
Reflecting tariff/growth concerns, both the European Central Bank and the Bank of Canada are expected to cut interest rates at their respective policy meetings this week.
In China, Q1 GDP is expected to remain fairly solid, with annual growth holding at just over 5%.
Australian markets
Key local highlights last week included a sharp 6% drop in the Westpac survey of consumer sentiment for April – likely reflecting recent equity market declines and all the negative headlines around US tariffs.
