Ahead of the game: 14 April 2025

US and Australian markets rattled by trade war fears

United States (US) stock and bond markets experienced significant volatility following President Trump's unexpectedly aggressive Liberation Day tariff announcements and subsequent increase of US tariffs on China to 145%.

The Australia 200 followed a similar pattern as US President Trump's tariffs on China and China's retaliatory 84% tariff sparked fears of a trade war, with Australia caught squarely in the middle. The Australian interest rate market remains fully priced for a 25 basis points (bp) rate cut from the Reserve Bank of Australia (RBA) in May. There is a cumulative 119 bp of RBA rate cuts priced into the market from now until the end of 2025, which would see the cash rate end the year at 2.85%.

The week that was: highlights

• In the US, headline consumer price index (CPI) fell to 2.4% year-on-year (YoY) in March from 2.8% prior
• The core measure of US inflation fell to 2.8% YoY from 3.1% prior and below the 3% expected
• Initial jobless claims increased by 4000 to 223,000 last week, slightly below the expected 226,000
• In China (CN), CPI fell by 0.1% YoY in March, missing the +0.1% rise expected, marking a second consecutive monthly fall
• In New Zealand (NZ), the Reserve Bank of New Zealand (RBNZ) cut rates by 25 bp to 3.50%
• In Australia (AU), the Westpac consumer confidence index fell 6% to 90.1 in April
• Crude oil fell 3.39% this week to $59.89
• Gold gained 5.66% this week to hit a fresh record high of $3218
• Bitcoin trades higher for the week at $79,220
• Wall Street's gauge of fear, the volatility index (VIX), hit a seven-month high of 60.13 before easing

Key dates for the week ahead

Australia & New Zealand

• AU: RBA meeting minutes (Tuesday, 15 April at 11.30am AEDT)
• NZ: First quarter (Q1) inflation (Thursday, 17 April at 8.45am AEDT)
• AU: Labour force report (Thursday, 17 April at 11.30am AEDT)

China & Japan

• CN: Q1 gross domestic product (GDP) (Wednesday, 16 April at 12.00pm AEDT)
• CN: Industrial production, retail sales, fixed asset investment (Wednesday, 16 April at 12.00pm AEDT)
• Japan (JP): CPI (Friday, 18 April at 9.30am AEDT)

United States

• US: Retail sales (Tuesday, 16 April at 10.30pm AEDT)
• US: Building permits and housing starts (Wednesday, 17 April at 10.30pm AEDT)

Europe & United Kingdom

• United Kingdom (UK): Unemployment rate (Tuesday, 15 April at 4.00pm AEDT)
• UK: Inflation (Wednesday, 16 April at 4.00pm AEDT)
• European Union (EU): European Central Bank (ECB) interest rate decision (Thursday, 17 April at 4.00pm AEDT)

Key events for the week ahead

• CN

Q1 GDP

Date: Wednesday, 16 April at 12.00pm AEDT

China's economic data for the January to February period showed signs of stability. Retail sales rose to 4.2% from 4.0% previously, while fixed asset investment held steady at 4.1%. Industrial production grew 5.9% YoY - above expectations, though slightly below the prior 6.2%.

However, as US–China trade tensions escalate, markets will be closely watching how the initial wave of 20% tariffs on all Chinese imports will begin to affect economic conditions, which may be reflected in the upcoming data. The effective tariff rate has been raised to 145% just this week - an exceptionally high level that will likely pose significant downside risks to China's export-reliant growth in the months ahead.

Attention will also be on China's upcoming Q1 2025 GDP figure, with expectations for a 5.2% YoY expansion, down slightly from 5.4% in the fourth quarter (Q4) 2024. With Beijing targeting around 5% growth for the year, any signs of economic softness may increase pressure on policymakers to respond more aggressively; through further rate cuts, stronger fiscal stimulus, or a gradual depreciation of the Chinese yuan.

CN retail sales, fixed asset investment, industrial production chart

• AU

Labour force report

Date: Thursday, 17 April at 11.30am AEDT

For February, employment fell by 52,800, contrary to expectations for a 30,000 rise, marking its first drop since March 2024. The unemployment rate remained unchanged at 4.1% due to a sharp fall in the participation rate to 66.8% from 67.2%.

The RBA noted at its Board meeting in April, where it kept rates on hold, that labour market conditions 'remain tight.' It also noted that it would continue to pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market' to guide its future decisions about monetary policy.

If next week's job report is weaker than expected, it will fuel expectations of an RBA rate cut in May, which is currently fully priced in after the recent market turmoil.

The preliminary expectation is that the Australian economy will add 30,000 jobs in March and that the unemployment rate will remain at 4.1%.

AU unemployment rate chart

• US

Retail sales

Date: Tuesday, 16 April at 10.30pm AEDT

For February, headline retail sales in the US increased 0.2% month-on-month (MoM), rebounding from a downwardly revised 1.2% fall in January but well below forecasts of a 0.6% rise.

The all-important retail control group, which flows through into GDP and excludes receipts from auto dealers, building-materials retailers, and gas stations, rose by 1.0% MoM in February 2025, following a revised 1.0% decline in January. The reading was much stronger than market expectations of a 0.2% increase.

The uncertainty caused by US President Trump's tariff and trade policies has led to a sharp fall in consumer confidence, and concerns are deepening about a potential US economic recession.

Consequently, next week's retail sales data will be closely watched as a key indicator of the consumer and the economy's health. Current expectations for March are for a 0.1% increase in headline retail sales and a 0.2% decline in the retail control group.

US retail sales control group chart

• JP

CPI

Date: Friday, 18 April at 9.30am AEDT

Japan's headline CPI eased to 3.7% in February 2025 from a two-year high of 4.0% in the previous month, largely due to the government's reinstatement of energy subsidies. However, core CPI rose more than expected to 3.0% YoY - slightly lower than January's 3.2% increase, but still marking the second straight month of upside surprises. Core inflation has now remained at or above the Bank of Japan's (BoJ) 2% target for nearly three years.

Looking ahead to March, core CPI is expected to rise to 3.2%, up from February's 3.0%, underscoring persistent underlying price pressures. This will likely complicate the BoJ's policy outlook, as it seeks to balance inflation control with external growth risks - particularly from US President Donald Trump's tariff measures.

For now, markets are pricing in no further rate hikes from the central bank, with the policy rate expected to remain steady at 0.50% through the rest of this year.

JP inflation rate chart

• US

Q1 2025 reporting season

US Q1 Earnings season picks up the speed with earnings reports scheduled from companies including Goldman Sachs, Bank of America and Netflix.

According to Refinitiv, Q1 earnings growth is projected at 7.8% - the slowest pace in five quarters. However, Q1 is expected to mark the low point for 2025, with earnings growth anticipated to rebound to 10–12% in the subsequent quarters.

US Q1 2025 reporting chart