Tariff Man impacts stock market, Decreasing inflation leads to potential rate cuts, Upcoming elections, Disappointing financial results
Global stock markets experienced a decline over the past week due to concerns surrounding the economic future. The United States saw a decrease in economic data and the implementation of new tariffs by what is colloquially known as “Tariff Man.” Additionally, there are growing worries that the AI share market boom may be coming to an end. With a 4.6% fall from recent peaks, American shares have taken a hit. Australian shares are also on track for a 1.6% drop this week, influenced by US tariffs and disappointing profit results, notably in the IT, mining, property, and retail sectors. Consequently, Australian shares find themselves down about 4.6% from their record highs just two weeks earlier.
Amid these market changes, bond yields have decreased due to apprehensions about economic growth. Prices for oil, metals, iron ore remain relatively stable, while gold has seen a decline. The fall in US shares was mirrored by a decrease in Bitcoin prices. Furthermore, the implementation of tariffs and concerns surrounding global economic growth have contributed to the strengthening of the US dollar and the weakening of the Australian dollar. Despite a temporary rally prompted by hopes that US tariffs might not be as severe as originally feared, it appears that the Australian dollar may soon retest its lows from February.
It has been historically anticipated that this year would yield positive albeit more constrained returns in the stock market. Factors influencing this prediction include the continued interest rate cuts by central banks, such as the RBA, aimed at boosting growth and profits. However, there is a looming possibility of a correction exceeding 15%, attributed to overvalued markets and the impact of negative policies by President Trump concerning trade and government spending.
Looking back to Trump’s 2016 administration appointments, there was concern over potentially unsuitable choices; however, there were individuals who acted as a moderating force. Presently, the situation appears less stable, with Trump appointing loyalists and showcasing better organization. While some of Trump’s economic platform, like tax cuts and deregulation, makes logical sense, recent actions point to a departure into more extreme measures. These include frequent tariff announcements, the suggestion of an External Revenue Service to collect tariffs instead of relying on income tax, and controversial decisions regarding public service cutbacks and international relations.
The flurry of announcements from the Trump administration has triggered a decline in US consumer confidence, business conditions, and an uptick in consumer inflation expectations. This increase in inflation expectations may lead to elevated interest rates. Despite the US House passing a budget deal that could potentially increase the budget deficit by $2.8 trillion over a decade, the impact of this stimulus may not be felt until later in the year and could contribute to higher bond yields. Consequently, there is a growing risk that negative policies, such as tariffs and public service cutbacks, might precipitate a recession in the US. This scenario could be a stark turn of events, especially considering the country’s previous success in navigating economic challenges.
