Global sharemarkets fell in March, with the spillover of Trump 2.0 policy uncertainty acting as the biggest headwind on risk sentiment. Major indices in the US, Europe, Japan and Australia declined by around 4% during the month. Technology companies were hit the hardest, with the Nasdaq down around 8%, while markets in China and Hong Kong finished flat and India rose by 6%.
Consequently, given the heightened level of uncertainty, volatility increased by 10-11%, as did the gold price, with investors looking for safe haven assets ahead of what President Trump has called Liberation Day on 2 April.
At the risk of stating the obvious, much of the focus was on trade during the month. Trump announced additional 25% tariffs on all cars not made in the US and deemed the levies, which will include auto parts, as “permanent”. While he noted that the widely anticipated 2 April reciprocal tariffs would be “very lenient”, subsequent reports at the end of the month highlighted his preference for more onerous measures, including the renewed potential for a universal tariff.
Those reports came to fruition on 2 April, when Trump unveiled a sweeping new tariff plan at a Rose Garden ceremony. Under this plan, a 10% baseline tariff on all imports takes effect on 5 April, while certain nations will face even higher tariffs, such as 24% on Japan and 20% on the European Union, starting 9 April. A 34% tariff on China will add to previous duties, making the base rate on Chinese imports 54%.
All of these developments contributed to the continued deterioration in soft sentiment data over the month, with the tariff issue also behind the pickup in inflation expectations reported in consumer surveys. Despite the pullback in equity markets, it was not all bad news. There were signs of resilience in some of the February hard data released during the month. Retail sales, industrial production, housing starts, and existing home sales all surprised to the upside, while underlying inflation came in cooler than expected and featured a deceleration in both rent and owners’ equivalent rent. Perhaps most importantly, weekly initial claims data continued to highlight a solid labour market.
The Citi Economic Surprise Index proves this point, measuring whether economic data is better, in line or worse than expected. Currently, economies such as the US and China are performing in line with expectations, while Australia deteriorated during March, and the Eurozone has been exceeding expectations since January.
The encouraging results for the Eurozone seen in the Citi Economic Surprise Index can largely be attributed to developments in Germany since its federal election in February. The outgoing German parliament approved a reform of the constitutional debt break, establishing a €500 billion infrastructure fund and facilitating increased defence spending. While financial markets have been upbeat about large-scale German spending, economists caution against expecting immediate benefits. Chronic labour shortages, bureaucratic procedures and complex tendering requirements are expected to delay positive effects until 2026-27.
Closer to home, the Reserve Bank of Australia (RBA) left the cash rate unchanged at 4.10% as anticipated. Its statement noted that underlying inflation was easing in line with February forecasts, though the Board needs confidence this trend will continue, given lingering inflation risks. The Board also highlighted that escalating tariffs and geopolitical tensions could negatively impact global activity. Despite an employment drop in February, the RBA also maintained its view of a tight labour market. Economists still predict a May rate cut once the Board gains a clearer picture of inflation and employment trends, post-election fiscal settings, and US tariff composition.
Looking ahead, the increased volatility we anticipated this year has now materialised. Following the historic gamble of Trump’s new tariff plan announced on 2 April, market volatility may persist in the short term as intense trade negotiations unfold in the coming weeks. Rest assured, we will continue to monitor both domestic and global developments closely during this period.
The duration of these negotiations will ultimately shape how global financial markets respond. Should the tariffs remain in place for an extended period, economic conditions may begin to weaken, prompting central banks to consider interest rate cuts. Conversely, if a resolution is reached within weeks, markets could rebound swiftly. Either way, our Investment Committee believes our portfolios are well positioned and we remain ready to act if conditions warrant.