Tariffs
Financial markets continued to experience difficulties as geopolitical tensions and the fluctuating status of the Trump administration’s tariffs contributed to market unease and heightened uncertainty. While tariffs on Canadian and Mexican goods have been temporarily delayed, the ongoing trade war is expected to escalate further. China is anticipated to impose retaliatory tariffs on U.S. agricultural exports, while the United States is set to implement 25% tariffs on European Union steel and aluminum imports. This is likely to prompt retaliatory measures from the EU.
Additionally, the U.S. government is still considering the implementation of 25% tariffs on imports from Canada and Mexico, with the possibility of imposing tariffs as high as 250% on Canadian lumber and dairy products. Canada, in turn, faces the prospect of tariffs reaching up to 100% on exports of rapeseed oil, seafood, and pork.
The US
This week, the release of U.S. Consumer Price Index (CPI) figures (forecasted at 0.3% month-over-month and 2.9% year-over-year) marks the first such data under the new administration. Last week’s non-farm payroll data was weaker than expected, with actual figures at 145,100 compared to the forecasted 160,000. However, the Federal Reserve reaffirmed its confidence in the strength of the U.S. economy and indicated that it is not in a rush to make decisions regarding interest rate adjustments until there is greater clarity on the Trump administration’s policy framework.
Moreover, the U.S. Congress must pass a spending bill by the end of the week to prevent a government shutdown, which adds further complexity to the political situation. Given the challenging economic and policy environment, we anticipate that financial markets will remain fragile in the near term. However, our focus remains on a broader and longer-term perspective.
Australia & China
Domestically, attention this week will be on the release of consumer and business confidence surveys, along with consumer inflation expectations. In China, policymakers continue to face difficulties in stimulating domestic demand, as indicated by data showing that the Chinese economy has returned to a state of deflation, with a year-over-year decline of 0.7%. Factory prices have now fallen for the 29th consecutive month. While the Chinese government has set a target of 5% GDP growth for 2025, deflationary pressures will persist unless additional monetary and fiscal stimulus measures are introduced.
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