The Australian sharemarket ended the week at a three month high, thanks to strong economic data, along with boosted global sentiment. Locally, consumer spending lifted 0.6% in April, while the unemployment rate remained steady at 4.1%, indicating a resilient economy, further increasing expectations of a rate cut this month to 96%. The Materials (2.6%) sector enjoyed gains, thanks to a rally in the price of iron ore (1.9%), supported by easing global trade tensions. Standout on the market last week was family location sharing app, Life360, which surged 27.6%, after reporting its quarterly earnings. The report showed a 39% increase in average earnings per paying user, along with a 26% increase in paid users.
US sharemarkets ended the week in positive territory last week, buoyed by a de-escalation in the US-China tariff tensions. Markets welcomed the 90 day truce, with the S&P 500 now just 3% off its February record close, and back in the green for the Financial Year to date. The Technology sector benefitted the most, lifting 8.1%, which was also attributed to positive AI sentiment. As a result, Tesla added 17.3% and NVIDIA advanced 16.1%. On the other hand, defensive areas on the market were softer, including Health Care (0.3%), which only edged up slightly, while the price of gold lost 2.6%. Interest rate markets also pulled back as treasury prices fell, signalling the expectation of falling interest rates.
European sharemarkets also advanced last week, which is the fifth straight week of gains, as the STOXX Europe 600 reached its highest level since March. Optimism was sparked after the US’s announcement on Monday that a deal had been made with China over tariffs. Fears of a global recession subsided off the back of the better than expected news, which saw the cyclical sectors advance, as Retail added 4.6%, while Technology and Travel & Leisure, both rose 4.3%. In economic news, the Eurozone showed continued resilience, growing 0.3% quarter on quarter, while employment data was also positive, showing a 0.3% uptick in the first quarter of this year.
We got some reprieve in markets last week, after learning the US and China agreed to significantly rollback tariffs. The development instantly improved both investor and economist sentiment, as it signalled a clear sign of de-escalation and that perhaps US President Donald Trump wasn’t completely out of control.
The 90-day truce slashes the effective tariff rate on Chinese goods from a punishing 145% to around 35%. That’s a sharp U-turn from the ‘Liberation Day’ tariff surge announced in April, which many considered to be an economic embargo. An embargo as goods were physically not put on ships in response to the tariffs.
From an economic standpoint, this signal is real and significant. Evidenced as Oxford Economics promptly reduced their US recession probability forecast down from more than 50% to 35%. Meanwhile, economists at UBS believe the rollback could add as much as 0.4% to US GDP this year.
The US S&P 500 celebrated the news finishing the week up +5.3%, while the price of gold fell -2.6%, a clear sign of restored market confidence. Meanwhile, investors seem relieved that Treasury Secretary Scott Bessent, not Trump’s impulsiveness, is seemingly now steering the ship on trade policy.
Still, it’s not business as usual in our eyes. Tariffs, even at 35%, are still high by historical standards. And the ‘pause’ nature of this deal, in addition to the other reciprocal tariffs, leaves people wary.
The tariff rollback also included a quiet but impactful reduction on ‘de minimis’ parcels. These are small, sub-US$800 shipments from online retail giants like Shein and Temu. The rate on these was cut from 120% to 54%, offering relief to e-commerce firms and their US customers.
Interestingly, some have argued this rollback is somewhat of an admission of overreach from the Trump Administration. It does feel as though after months of pushing America toward this costly experiment in protectionism, that Trump, or at least his supporters, may be finding that tariffs are a blunt tool that can backfire.
In the end, the continued de-escalation of the tariff war may not mark the start of an economic boom or bull sharemarket, but it does suggest that pragmatism could still prevail, which we welcome.
Locally, all attention will be on the Reserve Bank of Australia this week, who are set to release their latest monetary policy decision on Tuesday, where economists expect to see a 0.25% cut.
Overseas, China will release their retail sales, production and investment data for the month of April. While in the US, housing and manufacturing data will be main data points.
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