The week ahead...
Overview
The commentary outlines a turbulent week in global markets, driven largely by policy announcements and political events that are beginning to affect economic sentiment and market performance worldwide.
US Market Developments
Tariff Announcements:
US President Trump introduced several new tariffs—25% on cars, pharmaceuticals, and computer chips—adding to his previous plans. While tariffs on Canada and Mexico have been postponed, measures against China, as well as steel and aluminum (with possible exemptions), remain in play. These successive announcements have stirred confusion and contributed to market declines.Economic Impact:
There are early indications that Trump’s aggressive trade measures might be negatively impacting the economy. This is supported by the University of Michigan consumer sentiment survey, which noted a decline partly driven by heightened inflation fears.Political Rhetoric:
Trump’s remarks, such as calling Ukrainian President Zelenskyy a “dictator,” have also unnerved markets, adding a layer of geopolitical risk.
European Landscape
US Vice President’s Call for European Defence:
In a notable speech, Vice President JD Vance urged European leaders to strengthen their defense capabilities. This comment has spurred a rally in defense stocks—a sector now emerging as a “Trump trade.”German Election Results:
Germany’s recent election resulted in:The conservative CDU securing 29% of the vote.
The Greens and the SPD trailing at 12% and 16% respectively.
The far-right AfD achieving 20%, though they are expected to be excluded from the coalition.
With Friedrich Merz poised to lead as Chancellor pending coalition talks, a critical focus will be whether his government will relax the “debt brake” – a fiscal rule limiting new borrowing to 0.35% of GDP. Market participants are watching closely for any signs of fiscal stimulus, especially given Germany’s relatively low public debt and sluggish economic growth.
Market Trends:
European equities have been outperforming other global markets this year, bolstered by expectations of potential fiscal stimulus, ECB rate cuts, and progress towards resolving the Ukraine conflict. Additionally, emerging markets have shown signs of recovery, and global quality stocks are beginning to stabilize.
Australian Market Insights
Market Performance:
Local Australian shares fell, influenced by weaker global stocks, a cautious (though “hawkish”) rate cut by the Reserve Bank of Australia (RBA), and disappointing earnings from major banks and mining companies.RBA Policy & Domestic Data:
The RBA’s modest 0.25% rate cut reflects a conservative stance, yet there is speculation that if trimmed mean inflation continues to ease (projected to drop to 2.7% by the June quarter), further cuts in May and August could be on the horizon. Key domestic indicators such as the monthly CPI, Q4 business investment, construction figures, and GDP updates will be critical for future market direction.Labour Market & Earnings:
Despite softer wage growth—highlighted by a 0.7% Q4 Wage Cost Index increase—the labour market remains robust with strong employment numbers and record-high workforce participation. However, squeezed margins in the banking sector and weaker earnings in mining underscore ongoing challenges.
Key issues…
Global market under pressure from policy-driven uncertainty, with the US at the forefront of triggering volatility through aggressive tariff measures and contentious rhetoric.
In Europe, political changes and fiscal policy debates add further complexity, while central banks across regions are navigating a delicate balance between stimulating growth and managing inflation.
For Australia, the interplay of global trends and domestic economic signals will be key to shaping market performance in the coming weeks.
Rick Maggi CFP, Financial Advisor (Perth), Westmount Financial