Weekly recap
What happened in markets
The Australian sharemarket finished the week stronger, led by a strong rebound in interest rate sensitive sectors like Technology (+9.6%), Consumer Discretionary (+4.9%) and Real Estate (+5.9%). Commodity related stocks were largely left behind last week, held back by lower prices in iron ore (-0.7%), gold (-0.9%) and oil (-7.2%). Importantly, we got the March quarter CPI print last week, which showed the trimmed mean inflation rate (the RBA’s preferred measure) fell from 3.3% to 2.9%, now within the central bank’s target band of 2-3%.
US sharemarkets rallied in the week, with the S&P 500 notching its first back-to-back weekly gain since January and closing on a nine-day win streak. Remarkably, equities have fully recovered from the tariff-related losses triggered by ‘Liberation Day’ in early April. Big tech names led the rally, supported by solid earnings reports, with Microsoft (+11.1%) and Meta (+9.1%) being the most notable. Alongside corporate resilience, easing trade tensions also underpinned the more positive tone last week. Temporary auto tariff relief and upbeat comments around progress on tariff deals from the US Treasury and Commerce departments were the main highlights. These developments seemed to more than offset weaker economic data released last week, as GDP, JOLTS Job Openings and Consumer Confidence all came in softer-than-expected.
European sharemarkets climbed for a third straight week, with the STOXX Europe 600 having also fully recovered from tariff-related weakness experienced in early April. Despite cautious company guidance, easing trade-war fears and better-than-expected first quarter corporate earnings results supported equities, Airbus (+10.2%) and Rheinmetall (+13.7%) in particular. Macro data showed resilience in Eurozone GDP, which rose +0.4% in the March quarter, ahead of the expected +0.2%. However, forward-looking PMIs and sentiment indicators weakened, which, in combination with a steady inflation rate of 2.2%, promoted the expectation for another rate cut from the European Central Bank in June.
Stock & sector movements
What caught our eye
The US Dollar has notably weakened through early 2025, marking a shift in global financial markets. This depreciation, driven largely by concerns around US President Donald Trump's aggressive tariff strategy and the health of the US Budget, has spurred investors to reconsider their currency and asset allocations.
Historically, the US Dollar has been a reliable safe haven in turbulent times. Yet, given the uncertainty around Trump’s tariffs, the opposite occurred this calendar year-to-date. Global investors this year have been net sellers of US assets, putting downward pressure on the US Dollar. Since Trump announced sweeping tariffs, the US Dollar Index has fallen significantly, reflecting concerns about the sustainability of American economic growth. Deutsche Bank highlighted the risk of a confidence crisis, suggesting that prolonged tariff uncertainty might continue to undermine investor sentiment towards the US Dollar.
Interestingly, despite heightened global risks that usually favour the US Dollar, investors are shifting toward other safe havens. The Yen and Swiss Franc have appreciated notably, reflecting this shift away from traditional dollar-denominated assets. Concurrently, gold prices have surged to new highs, underscoring the precious metal’s role as an alternative safe haven asset amid currency instability.
For Australians, these developments bring both opportunities and challenges. The Australian Dollar has strengthened considerably relative to the US Dollar, however, rising from historic lows. A stronger domestic currency is positive for importers and negative for exporters. Key winners we see are Australian consumers more broadly, as their international purchasing power increases, in addition to import-reliant businesses like domestic manufacturers and consumer goods retailers. It is also possible that a stronger domestic currency will temper domestic inflation, as the price of overseas products become relatively cheaper. On the other hand, export-led businesses in the mining, tourism and agriculture industries are likely to face headwinds, as our goods become more expensive for overseas buyers and profit earned is converted back into less AUD.
Broadly, while the currency is not the sole or most important economic indicator, a persistently stronger AUD is expected to dampen overall net GDP growth in our export-led country. This, together with the potential for lower inflation from imported goods, strengthens the case for the RBA to cut interest rates more deeply this year.
Despite the pessimism surrounding America and the US Dollar, the Investment Committee does not foresee a widespread or lasting abandonment of the US Dollar. The US Dollar remains dominant in global trade and finance, accounting for roughly 90% of international transactions. Global markets remain fundamentally structured around America’s currency. Rather than heralding in the ‘de-dollarisation’ of global markets, we believe the world will seek to gradually reduce its reliance on the US Dollar.
The week ahead
It will be a quiet week in Australia, with the only major release being Building Approval data.
Meanwhile, ongoing international corporate earnings season results will remain a key focus for investors. In particular, company guidance will continue to be important, given the elevated uncertainty around tariffs.
Key leading data coming from the US will include Consumer Credit and Jobless Claims, along with the all-important FOMC Meeting, where the Federal Reserve will decide whether to reduce its cash rate target. The market has a 97% probably attached to a hold at the current target rate of 4.25%-4.50%.
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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.
