Ahead of the game: 10 February 2025
United States stock markets gain from delayed tariffs on Canada and Mexico, while the ASX 200 rebounds amid eased trade tensions with China.
US stocks rise as tariff tensions ease; ASX 200 rebounds
United States (US) stock markets gained this week as tariffs on Canada and Mexico were delayed. Meanwhile, China’s restrained response to new US tariffs suggests a willingness to accept a 10% tariff rate to prevent escalating tensions and avoid higher tariffs of 40 - 60%, which could further strain its already fragile economy.
Locally, the ASX 200 bounced back from a sharp sell-off on Monday as China’s measured response to the new US tariffs eased trade tensions, providing a much-needed boost for the heavyweight materials sector.
The week that was: highlights
- In the US, the ISM manufacturing purchasing managers' index (PMI) rose to 50.9 in January from a downwardly revised 49.8 in December
- ISM services PMI fell to 52.8 in January 2025 from a downwardly revised 54 in December 2024
- Job Openings and Labour Turnover Survey (JOLTS) in the US declined by 556,000 to 7.6 million in December 2024, falling short of the market expectation of 8 million
- The ADP Employment Report showed private businesses in the US added 183,000 workers to their payrolls in January 2025, exceeding forecasts of 150,000
- Initial jobless claims increased by 11,000 to 219,000 last week, above market expectations of 213,000
- In the United Kingdom (UK), the Bank of England (BoE) cut its Official Cash interest rate by 25 basis points (bp) to 4.50%
- In the European Union (EU), annual inflation edged up to 2.5% in January from 2.4% prior The core inflation rate remained unchanged at 2.7% for a fifth consecutive month
- In China (CN), the Caixin manufacturing PMI rose to 50.1 in January, below the 50.5 expected
- In Australia (AU), retail sales fell by 0.1% in December, less than the 0.7% forecast
- In New Zealand (NZ), the unemployment rate climbed to 5.1% in the fourth quarter (Q4), marking the highest level since September 2020
- Crude oil fell 2.18% this week to $70.50
- Gold hit a fresh record high of $2882
- Bitcoin eased 0.93% this week to $96,746
- Wall Street's gauge of fear, the volatility index (VIX), eased to 15.49 from 16.42.
Key dates for the week ahead
Australia & New Zealand
- AU: Westpac consumer confidence (Tuesday, 11 February at 10.30am AEDT)
- AU: National Australia Bank (NAB) business confidence (Tuesday, 11 February at 11.30am AEDT)
- AU: Home loans and investment lending (Wednesday, 12 February at 11.30am AEDT)
- NZ: Business NZ PMI (Friday, 14 February at 8.30am AEDT)
China & Japan
- Japan (JP): Current account (Monday, 10 February at 10.50am AEDT)
United States
- US: Consumer price index (CPI) (Thursday, 13 February at 12.30am AEDT)
- US: Federal Reserve (Fed) Chair Powell's testimony (Thursday, 13 February at 2.00am AEDT)
- US: Producer price index (PPI) (Friday, 14 February at 12.30am AEDT)
- US: Retail sales (Saturday, 15 February at 12.30am AEDT)
Europe & United Kingdom
- UK: Gross domestic product (GDP) Q4 (Thursday, 13 February at 6.00pm AEDT)
Key events for the week ahead
-
AU
Westpac consumer confidence
Tuesday, 11 February at 10.30am AEDT
In January, consumer confidence fell by 0.7% to 92.1, marking its second consecutive monthly decrease. In addition to the ongoing unsettled global environment, consumers may have been influenced by reports of the Australian dollar's sharp drop against the US dollar, leading to negative headlines about interest rate prospects and the broader economy.
This week’s headlines on tariffs and trade wars are likely to counteract some of the positive news following last week's lower-than-expected Q4 inflation numbers, which have opened the way for the Reserve Bank of Australia (RBA) to cut rates later this month. As such, a flat to modestly higher reading may be seen next week.
AU consumer sentiment index chart
-
US
CPI
Thursday, 13 February at 12.30am AEDT
At its January meeting, the Fed decided to keep the policy rate steady at 4.25% - 4.50%, which was widely anticipated. Fed Chair Jerome Powell indicated there is no rush to cut rates, stressing that any further easing would depend on future inflation and labour market data.
With inflation still above the target, policymakers seek more evidence of disinflation before considering rate cuts. However, tariff, tax, and spending policies under the Trump administration add some uncertainty to inflation risks. Currently, the market expects the next Fed rate cut to occur in June this year.
In December, US headline CPI increased by 0.4% month-over-month (MoM), while core CPI rose by 0.2% MoM, suggesting that underlying pricing pressures remain under control. Shelter inflation continued to slow, and healthcare services costs eased. Looking ahead, both headline and core inflation are projected to rise by 0.3% MoM in January, which should support the expectation that the Fed will maintain rates at its March meeting.
US core and headline CPI chart
-
UK
GDP Q4
Thursday, 13 February at 6.00pm AEDT
The UK economy grew by 0.1% in November, showing some improvement from the 0.1% contraction in both September and October, although it fell short of the 0.2% consensus estimate. Growth conditions still face stagnation risks, with the BoE halving its 2025 growth estimate to 0.75% from the previous 1.5% estimate and implementing a 25 bp rate cut this week in response.
Looking ahead, BoE Governor Andrew Bailey anticipates GDP growth to be 'notably weaker in the near term before picking up from the middle of the year.' If GDP returns to contraction, it will likely increase calls for further easing, with markets currently anticipating another 25 bp rate cut at the BoE’s May meeting.
UK monthly GDP chart
-
US
Retail sales
Saturday, 15 February at 12.30am AEDT
In December 2024, headline retail sales in the US rose by 0.4%, marking the smallest increase in four months. This followed an upwardly revised 0.8% gain in November and a 0.6% rise in October.
The all-important retail control group, which feeds into GDP, increased by 0.7% in December after a 0.4% rise in November. Overall, consumer spending remains resilient, supported by the Fed's 100 bp rate cuts at the back end of 2024 and a solid jobs market. This trend is expected to continue into the opening months of 2025.
The rates market is pricing in two Fed rate cuts for 2025, in line with updated Fed projections.
US retail sales chart
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