Weekly recap
What happened in markets
The Australian sharemarket started the week off 2.0% lower last week, after Donald Trump imposed a 10% tariff on all Chinese imports, creating concern over a potential trade war. However, later in the week, some losses were recovered, before closing down just 0.2% for the week. A rally in commodity prices on Tuesday softened losses, after Beijing announced retaliatory tariffs on US goods, including a 15% tariff on coal and natural gas and 10% on oil. This led to expectations of higher prices, lifting Australian coal miners, such as Whitehaven Coal (2.5%).
US sharemarkets continued their downward trend last week, with all major indices losing between 0.2-0.5%. In addition to the China tariffs, Trump announced a 25% tariff on Canada and Mexico, however, after negotiations, Trump has agreed to postpone the tariffs for one month, on the condition that border security is increased. In economic news, 143,000 jobs were in January, while the unemployment rate dropped to 4.0%, down from 4.1%. In sector performance Consumer Staples (1.6%) and Energy (1.0%) outperformed, while Consumer Discretionary (-3.6%) and Communication Services (-2.1%) dragged on the market.
European sharemarkets closed higher last week, with the STOXX Europe 600, FTSE 100 and the DAX all reaching new record highs. In economic news, the Bank of England cut rates by 0.25% to 4.5%, meanwhile wage growth in the Eurozone declined and core inflation remained unchanged at 2.7%. The Banks and Basic Resources sectors were the standouts, both advancing 3.5%, followed by Construction & Materials (2.4%). Stock specific performers across the market included BNP Paribas (5.5%), Anglo American (5.7%) and Veolia Environnement (2.9%).
Stock & sector movements
What caught our eye
After focusing on international developments in recent thought pieces, we’re turning our attention closer to home this week. Specifically, the next Reserve Bank of Australia (RBA) meeting on 17-18 February.
The upcoming meeting is one of the most anticipated in some time, economically, politically, and for mortgage holders. Markets expect the RBA to cut rates by 0.25%, its first reduction since November 2020, bringing the cash rate from 4.35% to 4.10%.
At its 9-10 December meeting, the RBA kept the cash rate at 4.35%, but Governor Michele Bullock struck a more dovish tone, reflecting growing confidence that inflation was returning to the 2-3% target range. This shift followed softer-than-expected November data, including easing wage pressures.
Then, on 29 January, the Australian Bureau of Statistics (ABS) reported lower-than-expected inflation for the December quarter. Underlying CPI rose 0.5% for the quarter and 3.2% for the year. Crucially, headline inflation has now stayed within the RBA’s 2-3% target for six months, averaging an annualised 2.7%. Markets responded by pricing in a 0.25% rate cut for February, with another cut expected by June.
Economists at ANZ, CBA, NAB and Westpac also expect a 0.25% cut in February. The question now is whether Michele Bullock takes the free pass or waits until the next meeting on 31 March-1 April.
Either way, mortgage holders will welcome the relief, along with Prime Minister Anthony Albanese and Treasurer Jim Chalmers, with the federal election expected in early May.
The week ahead
Locally, this week we will get a look at consumer confidence for the month of February, along with an insight into household spending.
Overseas, the US has a slew of economic data being released, including inflation expectations, the federal budget balance, retail sales, producer price index and importantly, the Consumer Price Index, which is tipped to decrease by 0.1%.
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Wade is the head of the Investment Services division at Cutcher & Neale and has over 10 years of industry experience in accounting and investment advisory roles.
Ryan is our Portfolio Manager, bringing over 15 years of experience in managing multi-asset investment portfolios with a specialisation in fundamental equity analysis.
