Financial Markets
Financial markets struggled over the week as geopolitical tensions and the potential implications of Trump’s tariffs continued to cause market concerns. While the recent inflation data for both the United States and Australia came in as expected, U.S. home sales declined by 5.2% year-over-year, and weekly jobless claims were weaker than anticipated. When combined with weaker Purchasing Managers’ Index (PMI) figures and an uncertain global macroeconomic environment, markets have become increasingly volatile. That said, the U.S. Institute for Supply Management (ISM) data and employment figures remained solid. While the global growth and geopolitical outlook have become progressively unclear, we do not forecast that the United States is heading toward a recession.
Inflation
The challenging macroeconomic backdrop led to a decline in equity markets over the week, marking the end of a weak month for risk assets. Bond markets rallied, with global yields falling across the yield curve. Given that inflation remains above central bank expectations and there is little likelihood of further cash rate cuts in the near term, we do not expect yields to decline further unless there is a broader disruption in the economic and geopolitical landscape.
Tariffs & China
This week, U.S. tariff policy takes center stage, with tariffs on Canadian, Mexican, and Chinese goods all set to be implemented on March 4th. While these tariffs may be delayed again, we believe any postponement will be temporary, as a range of other U.S. trade measures are scheduled to take effect in April. The planned doubling of tariffs on Chinese goods, raising them to 20%, is likely to prompt a stronger response from China. However, given the domestic economic challenges that China is currently facing, its response may be more measured in the short term. The upcoming meeting of China’s Politburo is expected to set a gross domestic product (GDP) growth target of 5% for calendar year 2026, but given the ongoing difficulties in the property sector, the growth target could be revised higher.
Australia
Domestically, the release of fourth-quarter 2024 GDP data (forecasted at 1.2% year-over-year and 0.5% quarter-over-quarter), alongside the PMI report, as well as household spending and retail data, will be the main focus. With the national election approaching, economic data will gain greater significance.
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