Ahead of the game: 17 March 2025

US 500 enters correction as Australia 200 slides on trade worries

United States (US) stock markets fell this week, with the bears firmly in control as the US 500 confirmed its entry into correction territory. Concerns over the escalating US trade war, which could reignite inflation and push the economy into recession, drove the declines. Additionally, Russia’s weak support for a 30-day ceasefire proposal with Ukraine has dampened confidence in an imminent resolution.

Locally, the Australia 200 dropped for a fourth straight week. Notably, a major US investment bank downgraded its rating of Australian equities to 'underweight' citing concerns over Australia's exposure to trade war risks and elevated valuations.

The week that was: highlights

• In the US, Job Openings and Labor Turnover Survey (JOLTS) figures showed an increase by 232,000 to 7,740,000 in January, surpassing expectations of 7,630,000
• US headline consumer price index (CPI) rose by 0.2% month-on-month (MoM) in February, easing the annual rate to 2.8% year-on-year (YoY) from 3%
• Core inflation also rose by 0.2% MoM, reducing the annual rate to 3.1% from 3.3%
• US headline producer price index (PPI) rose by 3.2% YoY in February, down from a revised 3.7% in January
• Core PPI rose by 3.4% YoY, easing from a revised 3.8%
• Initial jobless claims fell by 2000 to 220,000, below market expectations of 225,000
• The Japanese economy expanded by 2.2% annualised in the fourth quarter (Q4) 2024, short of the 2.8% estimate but higher than third quarter’s (Q3) 1.4% growth
• The Westpac consumer sentiment index rose 4% in March to 95.9 - its highest in three years
• The National Australia Bank (NAB) business confidence index fell to -1 in February from a revised 5, marking its first negative reading of the year
• Retail sales in Australia (AU) rose by 0.3% in January from a previous decline of -0.1%
• Crude oil fell for an eighth consecutive week, losing 0.40% to $66.77
• Gold gained 2.70% this week, reaching a record high of $2989
• Bitcoin traded flat for the week at $81,000
• Wall Street's volatility index (VIX) rose to 24.65% from 23.38.

Key dates for the week ahead

Australia & New Zealand

• AU: Reserve Bank of Australia (RBA) Hunter Speech (Tuesday, 18 March at 10.20am AEDT)
• NZ: Gross domestic product (GDP) Q4 (Thursday, 20 March at 11.30am AEDT)
• AU: Employment (Thursday, 20 March at 11.30am AEDT)

China & Japan

• China (CN): Industrial production and retail sales (Monday, 17 March at 1.00pm AEDT)
• Japan (JP): Bank of Japan (BoJ) interest rate decision (Wednesday, 19 March at 2.00pm AEDT)
• JP: Inflation (Friday, 21 March at 10.30am AEDT)

United States

• US: Retail sales (Monday, 17 March at 11.30pm AEDT)
• US: Federal Open Market Committee (FOMC) (Thursday, 20 March at 5.00am AEDT)

Europe & United Kingdom

• United Kingdom (UK): Employment (Thursday, 20 March at 6.00pm AEDT)
• UK: Bank of England (BoE) interest rate decision (Thursday, 20 March at 11.00pm AEDT)

Key events for the week ahead

• CN

Industrial production and retail sales

Monday, 17 March at 1.00pm AEDT

At the recent 'Two Sessions,' Chinese authorities maintained a GDP growth target of around 5%. They pledged to increase the fiscal deficit target and keep monetary policies accommodative to stimulate domestic demand and address structural issues. To conclude the week, the People's Bank of China (PBoC) also reaffirmed its commitment to supporting growth through interest rate cuts and reductions in the reserve requirement ratio (RRR) for commercial banks 'at a proper time.'

While policy specifics and timelines remain unclear - likely as authorities assess potential US tariff actions - the overall tone has reassured market participants that any economic slowdown will be met with policy easing. Weakness in next week's data may intensify calls for policy support to commence sooner, alongside the looming threat of US reciprocal tariffs on 2 April.

China’s February retail sales are projected to firm slightly to 3.8% from the previous 3.7%, while industrial production is expected to slow to 5.3% from 6.2%. Fixed asset investment is anticipated to hold steady at 3.2%.

CN retail sales, fixed asset investment & industrial production chart

• JP

BoJ interest rate decision

Wednesday, 19 March at 2.00pm AEDT

The Bank of Japan (BoJ) is widely expected to keep its short-term interest rate unchanged at 0.50% next week, following a 25 basis point (bp) hike in January. Holding rates steady could allow Japanese policymakers to assess the impact of its January hike, while providing more time to evaluate potential effects of US reciprocal tariffs set to kick in on 2 April.

Additionally, policymakers may also want to seek further reassurances on wage growth during the spring wage negotiations to confirm that inflationary pressures are demand-driven and therefore sustainable.

For now, declining real wages, Japanese yen strength, and a recent downward revision to Q4 GDP – driven by weaker-than-expected private consumption – could lead the BoJ to favour a gradual pace of tightening. Market expectations currently point to a 25 bp rate hike in July, followed by a pause for the remainder of the year.

JP interest rate chart

• US

FOMC

Thursday, 20 March at 5.00am AEDT

At the last FOMC meeting in late January, the Federal Reserve (Fed) held the Fed Funds rate at 4.25% – 4.50%. The Fed noted steady economic growth and a stable labour market but did not mention progress on reducing inflation.

The Fed hinted it was in no rush to cut rates again as it assesses the impact of President Donald Trump's trade and immigration policies. Fed Chair Jerome Powell emphasised the cautious approach, stating the Fed is 'well-positioned to wait for greater clarity.'

Softer-than-expected February CPI and PPI reports do not challenge the Fed's cautious stance on rate cuts, particularly as some softer CPI components, like airfares, are not part of the Fed’s preferred inflation measure, the core personal consumption expenditures (PCE) price index. Some CPI and PPI components were hotter than headlines suggest, increasing the risk of a hotter core PCE inflation report when released in two weeks.

The Fed is widely expected to keep its Fed Funds rate unchanged next week at 4.25% – 4.50%. Projections may still indicate two more 25 bp rate cuts in 2025. The rates market is currently pricing in an initial 25 bp Fed rate cut in June, with a total of 70 bp of rate cuts expected this year.

Fed Funds rate chart

• AU

Employment

Thursday, 20 March at 11.30am AEDT

In January, the Australian economy added 44,000 jobs, exceeding forecasts of a 20,000 gain. The unemployment rate rose to 4.1% from 4% as the participation rate hit a record high of 67.3%.
Bjorn Jarvis, head of labour statistics at the Australian Bureau of Statistics (ABS), said:
'With employment rising by 44,000 people and the number of unemployed increasing by 23,000 people, the unemployment rate rose to 4.1 per cent.'

The strong jobs report came two days after the RBA cut rates for the first time since November 2020. The RBA statement noted: 'Labour market conditions remain tight and tightened further in late 2024. Measures of labour underutilisation have declined, and business surveys suggest labour availability remains a constraint for many employers.'

Next week’s jobs report is key, with stronger-than-expected results likely ensuring the RBA will keep rates on hold at its April meeting, waiting for softer Q4 inflation and labour market data as potential triggers for a rate cut in May.

For February, the preliminary expectation is for the Australian economy to add 20,000 jobs, with the unemployment rate holding at 4.1%. The interest rate market is pricing in an 18 bp RBA rate cut in May, with a cumulative 62 bp cut expected for the rest of 2025.

AU unemployment rate chart

• UK

BoE interest rate decision

Thursday, 20 March at 11.00pm AEDT

In February, the BoE cut its Official Bank rate by 25 bp to 4.50% by a majority of seven to two votes. Two members preferred a 50 bp reduction to 4.25%. The BoE stated that further monetary easing would be gradual, balancing growth concerns against persistent inflation.

The latest CPI report showed headline inflation spiking to 3% in January from 2.5%, the highest rate since March 2024. Core inflation rose to 3.7% YoY from 3.2%. These factors are expected to keep the BoE's rates on hold next week at 4.50%, with the market pricing in a 25 bp cut in June and another in November.

BoE Official bank rate chart