Ahead of the game: 3 March 2025

Australia 200 falls amid US market and Nvidia woes

United States (US) stock markets fell this week as investors reacted negatively to chip maker Nvidia's earnings. Adding to the pressure, President Trump confirmed that 25% tariffs on imports from Mexico and Canada would start next week, along with an additional 10% tariff on Chinese goods. Furthermore, a spike higher in initial jobless claims data heightened concerns about an economic slowdown.

Locally, the Australia 200 fell for a second week, and after a promising start to February, the index is down 3.86% month-to-date, set to wipe out much of January's 4.57% gain. This month's decline is mainly due to a weak lead from offshore combined with earnings disappointment within the heavyweight Australian 200 financial sector, which has dropped by more than 5% this month. It has also been a tough month for the health care sector (-7.63%) and the information technology sector (-10.60%).

The week that was: highlights

• In the US, the Conference Board (CB) consumer confidence index fell to 98.3 in January, well below consensus expectations of 102.5, falling further from the November high of 111.7
• Durable goods orders for January rose by 3.1% versus 2% expected
• Initial jobless claims increased by 22,000 to 242,000 last week, the highest in two months
• In Australia (AU), the monthly consumer price index (CPI) indicator rose 2.5% year-over-year (YoY) in January, unchanged from the prior month but below market expectations of 2.6% The annual trimmed mean increased to 2.8% from 2.7% in December
• The Australian economy added 44,000 new jobs in January, while the unemployment rate rose to 4.1% from 4% as the participation rate reached a record high of 67.3%
• Crude oil fell for a fifth week, losing 0.44% to $70.08
• Gold snapped its eight-week winning streak, losing 2.06% to $2875
• Bitcoin dived 12% last week to $84,700
• Wall Street's gauge of fear, the volatility index (VIX), rose to 21.12 from 18.22.

Key dates for the week ahead

Australia & New Zealand

• AU: Reserve Bank of Australia (RBA) meeting minutes (Tuesday, 4 March at 11:30am AEDT)
• AU: Gross domestic product (GDP) Q4 (Wednesday, 5 March at 11:30am AEDT)
• AU: Balance of trade (Thursday, 6 March at 11:30am AEDT)

China & Japan

• China (CN): Caixin manufacturing purchasing managers' index (PMI) (3 March at 12:45pm AEDT)
• Japan (JP): Consumer confidence (Tuesday, 4 March at 4pm AEDT)
• CN: Balance of trade (Friday, 7 March at 2pm AEDT)
• CN: CPI (Sunday, 9 March at 12:30pm AEDT)

United States

• US: Institute for Supply Management (ISM) manufacturing PMI (Tuesday, 4 March at 2am AEDT)
• US: ISM services PMI (Thursday, 6 March at 12:30am AEDT)
• US: Employment (Saturday, 8 March at 12:30am AEDT)

Europe & United Kingdom

• EU: Inflation (Monday, 3 March at 9pm AEDT)
• EU: European Central Bank (ECB) interest rate decision (Friday, 7 March at 12:45am AEDT)

Key events for the week ahead

• AU

Q4 GDP

Wednesday, 5 March at 11:30am AEDT

Australian GDP increased by 0.3% in the September quarter of 2024 for an annual rate of 0.8%.

Katherine Keenan, head of national accounts at the Australian Bureau of Statistics (ABS), said: 'The Australian economy grew for the twelfth quarter in a row, but has continued to slow since September 2023.'

The primary drivers of GDP growth were government spending and public capital investment. Per capita GDP growth decreased by 0.3% quarter-on-quarter (QoQ), marking the seventh straight quarterly decline and the longest recorded stretch of negative growth, deepening the 'per capita recession.'

In the RBA’s February statement of monetary policy, released alongside its decision to lower the cash rate, GDP forecasts for the Australian economy were revised downward.

December 2024 GDP was lowered to 1.1% from 1.5%, followed by forecasts showing it to rise to 2.4% by December 2025, driven by lower interest rates, increased household consumption, and strong public spending.

As we await the final partial components for next week’s GDP print, the preliminary forecast is for a rise of 0.7% QoQ, lifting the annual growth rate to 1.3%.

Ahead of the data, the Australian interest rate market is pricing in a full 25 basis points (bp) RBA rate cut by July and a total of 53 bp of RBA rate cuts for the remainder of 2025.

Australian annual GDP growth rate chart

• EU

ECB interest rate decision

Friday, 7 March at 12:15pm AEDT

At its previous meeting, the European Central Bank (ECB) signalled a clear intent for lower rates, expressing confidence in the disinflation process, acknowledging near-term economic weakness and maintaining that monetary policy remains restrictive.

As a result, a 25 bp rate cut from the ECB is widely seen as a done deal next week, with its deposit facility rate likely to be reduced to 2.5% from the current 2.75%. This would mark the fifth consecutive rate cut, with headline inflation holding just above 2% and core inflation stabilising at its lowest level since early 2022 (2.7%). A further 25 bp cut is being priced at the April meeting as well, with the rationale rooted in policymakers’ shifting focus towards fostering growth, given short-term economic risks.

That said, market expectations are still split regarding the pace and extent of future rates for the latter half of the year, making the upcoming press conference crucial in guiding future expectations. Policymakers may have to address the prospects of increased defence spending as a potential boost to growth, which may reduce the urgency for aggressive easing ahead.

ECB interest rate chart

• US

Employment

Saturday, 8 March at 12:30am AEDT

January's non-farm payrolls report was mixed. Non-farm payrolls increased by just 143,000 in January, falling short of the 175,000 expected. The Bureau of Labor Statistics (BLS) indicated that weather and wildfires 'had no discernible effect on national payroll employment, hours, and earnings.'

Despite the headline miss, other parts of the report highlighted a strong labour market, with 100,000 of upward revisions over the past two months and an unexpected drop in the unemployment rate to 4% from 4.1%.

After rising steadily in the first quarter (Q1) of 2024, the US unemployment rate has remained between 4% and 4.2% for the past nine months, supporting the Federal Reserve's (Fed) recent observation.

'The unemployment rate has stabilised at a low level in recent months, and labour market conditions remain solid.'

The preliminary expectation for February is that the US economy will add 180,000 jobs and that the unemployment rate will remain at 4%. This outcome would help reinforce current market pricing that the Fed will keep rates on hold until mid-year, before delivering two 25 bp rate cuts in the second half (H2) of 2025.

US unemployment rate chart

• CN

CPI

Sunday, 9 March at 12:30pm AEDT

In January, China’s consumer inflation rose to a five-month high of 0.5% year-on-year (YoY), surpassing the 0.4% consensus, while producer prices remained flat at a 2.4% YoY contraction. Seasonal factors, including the Lunar New Year, likely contributed to the short-term demand boost, which will leave eyes on the upcoming inflation data to provide a clearer picture of the underlying consumer price trend.

Some cooling off in price momentum is expected following the festive period, with low consumer confidence and ongoing concerns about employment and wages within the Chinese economy potentially still a drag on domestic demand.

Expectations are for China’s CPI to soften to 0.1%, while producer prices are anticipated to stay in contraction at -2.0%, underscoring ongoing deflationary pressures and the need for further accommodative policy measures. Focus will be on the upcoming ‘Two Sessions’ meeting, where authorities are expected to maintain this year’s GDP growth target of “around 5%,” with prospects for additional reserve requirement ratio (RRR) and interest rate cuts.

CN CPI and PPI chart