The US
Financial markets continued to gyrate over the week as geopolitics, tariffs, and moderating economic data continued to dominate the headlines. The United States S&P 500 Index officially went into correction territory (falling more than 10%), its fifth-fastest decline in the last seventy-five years. While not our base case, the sharp downward move combined with moderating economic conditions does increase the probability of a United States recession through the second half of 2025.
The lack of clarity, speed, and scale around the Trump administration’s tariffs is clearly impacting business investment and confidence, as well as levels of consumer behavior. The ability for markets to continue to push to the downside in the near term remains. While the United States administration has sought to avoid direct commentary around a potential United States recession, ‘protection’ for financial markets is unlikely to come in the near term as the White House reshapes the economic agenda.
Australia
Australian equities were particularly hard hit, with all sectors (other than Utilities, which gained 2.9% week-over-week) weaker, led by Information Technology (down 4.4%) and Consumer Discretionary (down 3.5%). In the United States, the release of the February Consumer Price Index and Producer Price Index figures was slightly better than forecasted, although the sharp drop in sentiment indicators (down 5.1 points to 57.9 month-over-month) highlights how quickly the forward outlook has changed. This week sees the meeting of the United States Federal Open Market Committee, although we expect no changes to the Federal Funds Rate (currently at 4.50%).
Tariffs
Locally, the release of labor data figures for February (forecasted unemployment rate at 4.1%, no change) will be the major focus for the week. After the White House announced tariffs on Australian steel and aluminum, the outlook for trade will be a major political focus as we head towards the federal election.
China
In China, industrial production along with property investment and residential sales (February) will provide further details on the deflationary challenges and consumer confidence in China. The ongoing declines in the property market continue to hamper the economy. And while Chinese equities have outperformed the S&P 500 on a quarterly basis, domestic demand remains anaemic.
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