Ahead of the game: 10 March 2025

Trade uncertainty takes a toll on US and Aussie markets

United States (US) stock markets fell this week as trade uncertainty and shifting tariff policies from the Trump administration heightened investor anxiety, coinciding with escalating fears of a US recession.

Locally, the Australia 200 dropped for a third straight week. The fall was driven by several factors, including US trade policy uncertainty, declines in the big banks, and after BHP, Rio Tinto, South32, and energy giant Woodside all traded ex-dividend.

The week that was: highlights

• In the US, the Institute for Supply Management (ISM) manufacturing purchasing managers’ index (PMI) fell to 50.3 in January from 50.9 prior
• The ISM services PMI unexpectedly jumped to 53.5 in February from 52.8 prior, beating forecasts of 52.6
• Challenger job cuts showed US employers cut 172,017 jobs in February 2025, the highest since July 2020, compared to 49,795 in January
• Initial jobless claims fell by 21,000 from the previous week to 221,000, significantly below market expectations of 235,000
• In Europe (EU), headline inflation eased to 2.4% in February from 2.5% prior. Core inflation eased to 2.6%, its lowest level since January 2022
• The European Central Bank (ECB) cut its key deposit rate by 25 basis points (bp) to 2.5%
• In China (CN), the Caixin manufacturing PMI increased to 50.8 in February from 50.1 prior
• Australian fourth quarter (Q4) 2024 gross domestic product (GDP) rose by 0.6% in the December quarter of 2024 for an annual rate of 1.3%. Notably, GDP per capita grew 0.1% quarter-on-quarter (QoQ), ending seven consecutive quarters of falls
• Retail sales in Australia (AU) rose by 0.3% in January from -0.1% prior
• Crude oil fell for a seventh consecutive week, losing 4.87% to $66.36
• Gold gained 1.85% to $2911
• Bitcoin is trading 4% lower this week at $90,416
• Wall Street's gauge of fear, the volatility index (VIX), rose to 24.86% from 19.62.

Key dates for the week ahead

Australia & New Zealand

• AU: Westpac consumer confidence (Tuesday, 11 March at 10:30am AEDT)
• AU: National Australia Bank (NAB) business confidence (Tuesday, 11 March at 11:30am AEDT)
• AU: Reserve Bank of Australia (RBA) Jones speech (Thursday, 13 March at 1:30am AEDT)
• New Zealand (NZ): Business NZ PMI (Friday, 14 March at 8:30am AEDT)

China & Japan

• Japan (JP): Current account (Monday, 10 March at 10:50am AEDT)
• JP: GDP Q4 final (Tuesday, 11 March at 10:50am AEDT)
• CN: New yuan loans (Friday, 14 March AEDT)

United States

• US: Consumer price index (CPI) (Wednesday, 12 March at 11:30pm AEDT)
• US: Producer price index (PPI) (Thursday, 13 March at 11:30pm AEDT)
• US: Michigan consumer sentiment (Saturday, 15 March at 1:00am AEDT)

Europe & United Kingdom

• UK: GDP month-on-month (MoM) January (Friday, 14 March at 6:00pm AEDT)

Key events for the week ahead

• AU

Westpac consumer confidence

Tuesday, 11 March at 10:30am AEDT

Australian consumer confidence increased by 0.1% in February to 92.2 from 92.1 in January. Over the second half (H2) of 2024, consumer mood improved significantly. However, the recovery has stalled in recent months as continued pressures on family finances and a more unsettled global backdrop have countered expectations of interest rate cuts from the Reserve Bank of Australia (RBA).

The ‘family finances vs a year ago’ sub-index slipped 3.4% lower in February to 75.1, down 10.6% from its December peak but still up 18.9% on the low in May last year. The fall may be due to a larger-than-usual ‘hangover’ from the Christmas–New Year period. It may also be a sign that the boost from tax cuts and fiscal support measures has begun to fade.

Recent headlines about tariffs and trade wars will likely counteract some of the positive news following the RBA’s rate cut in mid-February. As such, another flat to modestly higher reading for March may be viewed next week.

AU consumer sentiment index chart

• US

CPI

Wednesday, 12 March at 11:30pm AEDT

At the last Federal Open Market Committee (FOMC) meeting in late January, the Federal Reserve (Fed) kept the Federal Funds rate on hold at 4.25% – 4.50%. Fed Chair Jerome Powell offered a more optimistic view on the labour market while omitting a key reference from the December statement that inflation 'has made progress toward' the Fed’s 2% inflation goal.

The omission appeared well-timed as it preceded a hotter-than-expected inflation report for January released in mid-February. Headline CPI increased by 0.5% MoM, the most since August 2023, taking the annual rate to 3% year-on-year (YoY) from 2.9% prior. Core CPI increased by 0.4% MoM, seeing the annual rate of core inflation rise to 3.3% in January from 3.2% the prior month, exceeding expectations of 3.1%.

Looking ahead, the preliminary expectation is for both headline and core inflation to rise by 0.3% MoM in February, which will see the rate of headline inflation ease to 2.9% YoY and the pace of core inflation ease to 3.1% YoY.

US Core CPI chart

• UK

Monthly GDP

Friday, 14 March at 6:00pm AEDT

In December 2024, the UK economy expanded by 0.4% MoM, its strongest growth in nine months, following a 0.1% rise in November and surpassing forecasts of 0.1%. This resulted in a 0.1% GDP increase for the Q4 2024, allowing the UK to avoid a technical recession. Growth was mainly driven by the services sector, with output up 0.4%, while production saw a 0.5% rise, offsetting a 0.2% drop in construction.

Despite these gains, challenges remain, as business and consumer confidence indicators decline. In the past six months, the Bank of England (BoE) reduced rates by 75 bp, bringing the base rate to 4.5% amid disinflation progress. GDP growth is expected to remain modest until mid-2025, when a pick-up is anticipated, suggesting a continuation of the rate-cutting cycle. Markets expect the next BoE rate cut in May.

UK monthly GDP chart

• US

Michigan consumer sentiment

Saturday, 15 March at 1:00am AEDT

The University of Michigan’s consumer sentiment index for the US was revised down to 64.7 in February 2025 from an initial 67.8, the lowest since November 2023. The current economic conditions sub-index dropped to 65.7 from 68.7, and the expectations sub-index fell to 64 from 67.3. This reflects growing concerns over US tariffs and policy uncertainties, undermining consumer confidence.

A similar decline in sentiment is noted in other major surveys, like those by the Conference Board. As consumer spending makes up two-thirds of the US GDP, declining sentiment often signals an economic downturn. The upcoming data will provide another reality check for the US economy.

Further sentiment declines could heighten growth concerns, potentially impacting equities and the US dollar. Markets currently predict three rate cuts by the US Fed by year-end.

US consumer sentiment chart