Weekly recap
What happened in markets
The Australian sharemarket sold off last week, as markets braced for the ramifications of Trump’s newly imposed 10% reciprocal tariff. Concerns over the effects on global trade and the fear of a possible recession led to ten from eleven sectors finishing in the red over the course of the week. The Energy (-13.2%) sector was the hardest hit, along with Information Technology (-8.3%). The defensive Consumer Staples (2.5%) sector was the only one in the green. Off the back of global recession fears markets are now pricing in an 82% chance of a rate cut from the Reserve Bank of Australia in May.
US sharmarkets also sunk last week, after a large sell-off across the market, following Trump’s “Liberation Day” on Wednesday. Markets reacted strongly to Trump’s minimum 10% tariff. The possible fallout of these tariffs has led to global growth concerns, which resulted in markets increasing the probability that the Federal Reserve will cut interest rates in May from 18% to 31%, along with pricing in 100 basis points worth of cuts this year, from 65 basis points just a week prior. All eleven sectors closed in negative territory, with the Energy (-14.1%) and Information Technology (-11.4%) sectors down the most. In corporate news, Tesla (-9.2%), announced it delivered 337,000 vehicles in the first quarter, which was below estimates.
European sharemarkets ended sharply lower last week, recording its biggest weekly loss since February 2022. Sentiment was also focused on “Liberation Day”, sparking fears around a potential global trade war and the effects on future growth. The Automobiles & Parts sector dropped 3.3%, following a 25% tariff on all foreign made cars imported to the US. As a result, Stellantis and BMW dropped 15.4% and 9.7% respectively. In economic news, Eurozone inflation eased to 2.2%, supporting expectations of another rate cut this month.
Stock & sector movements
What caught our eye
Given the recent volatility in global financial markets, we wanted to offer some perspective and reassurance from our Investment Committee.
Update on Trump and Tariffs
Global sharemarkets have declined by 14% since mid-February, following the announcement of sweeping tariffs by Donald Trump on what he dubbed “Liberation Day”. These developments have significantly dampened investor sentiment. Within that decline, the S&P 500 has fallen 17%, the STOXX Europe 600 by 10%, the Nikkei 225 by 14%, and the ASX 200 by 14%. Volatility has increased by 89%, and gold has risen by 5% as investors sought safe havens amid concerns that higher tariffs could slow global trade, reduce business investment, and add to inflation.
Trump unveiled the new tariff policy at a Rose Garden ceremony on 2 April. The plan includes a 10% baseline tariff on all imports, including those from Australia, which took effect on 5 April. Some countries face even higher rates, including 24% on Japanese imports and 20% on European Union goods starting 9 April. An additional 34% tariff on China will compound previous duties, taking the total to 54%.
The objective appears twofold: revive domestic manufacturing and generate revenue to reduce the ballooning US budget deficit. CBA estimates the US Government’s annual tariff revenue could reach US$579 billion in 2025 and US$193 billion in 2026. These revenues, alongside cost-cutting efforts spearheaded by Elon Musk’s Department of Government Efficiency, aim to help rein in the deficit.
Investment Committee Insights and Actions
We’ve seen similar external shocks before. Whether from geopolitical events, interest rate surprises, or unexpected economic data, these disruptions can trigger sharp corrections, but markets often rebound once uncertainty fades.
From here, we see three plausible scenarios:
- Short-term “growth scare” (3–6 months): Market fears overstate the impact, and as policy clarity improves, supportive fiscal measures and a responsive Fed provides a backstop.
- Moderate slowdown (6–12 months): A reset in policy expectations weighs on global growth, consumer and business confidence, and corporate earnings, with stagflation (stagnant economic growth, high inflation, high unemployment) risks possible.
- Economic downturn: US policy missteps trigger a US and possibly global recession, as aggressive spending cuts and a hesitant Fed undermines confidence.
At this stage, we believe Scenario 2 is the most likely, although this could change quickly if Trump’s policies prove unsustainable amid market volatility and economic fragility.
In response, the Investment Committee has moved decisively to reduce exposure to companies most directly affected by the tariffs across our Australian Shares, International Shares, and Positive Impact portfolios.
These adjustments included reducing holdings in:
- Australian Shares portfolio: Brambles, Ansell, and James Hardie.
- International Shares portfolio: Walmart, GE Aerospace, Apple, and Amazon.
- Positive Impact portfolio: Siemens Energy, Schneider Electric, Westinghouse Air Brake Technologies, GE Vernova, and Brambles.
As a result, cash levels in each equity portfolio have increased to approximately 8–10%, giving us flexibility to take advantage of opportunities as they arise.
Summary and Outlook
Trump’s tariffs gamble, announced on 2 April, is likely to keep markets unsettled in the short term as intense trade negotiations play out.
The outcome of these negotiations will shape the path forward. If tariffs remain in place for an extended period, economic growth may weaken, prompting central banks to respond with interest rate cuts, of which they have plenty of capacity to do so. On the other hand, if a resolution is reached soon, markets could rebound swiftly.
Either way, we believe our portfolios are well positioned. The Investment Committee will continue to monitor developments closely and remains ready to act further should conditions change.
The week ahead
Locally, this week Westpac will release the Consumer Confidence Index for April where the Federal Budget and the upcoming election will both be in focus. We will also hear from RBA Governor Michele Bullock and get an insight into household spending.
Overseas, the focus this week will be on US Consumer Prices, with core inflation expected to increase by 0.3%. Additionally, Producer Prices are set to increase by 0.3%, while the US Budget deficit is expected to lift to US$315.6 billion. Elsewhere, China’s Consumer Price Index is forecasted to remain flat.
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.
