A regime change in global trade following the liberation day announcements of higher-than-expected tariffs sent shockwaves through markets this week. Equities were down 8-10% across the US, Europe and Japan - a near 4% fall in Australia looking small in comparison - as investors read the announcements as an impending shock to growth. The expectation is that this will require a response from central banks - the Fed outlook was repriced to 4 cuts by year-end - although that will be complicated by the upward adjustment to prices in the US tariffs will likely drive. In a speech on Friday, Fed Chair Powell stuck with the line that time will be needed to assess the appropriate course of action. Very rarely would a global growth scare lead to EUR appreciation vs the USD but that was the move that occurred this week, while global growth proxy AUD was hit hard.
The Trump administration's liberation day announcements look set to raise the tariff impost levied by the US to its highest in a century. A 10% across-the-board tariff on nations (including Australia) will come into effect from April 5, while major trading partners have been dealt larger 'reciprocal' tariffs - China 34% (applied on top of earlier tariffs), Japan 24% and EU 20% - commencing April 9, with those rates based on a calculation of a country's trade surplus with the US as a share of imports from that nation, halved to get the tariff rate. Comments from the administration have indicated otherwise, but the scope to negotiate lower tariffs could be limited as the administration is thought to be planning on using revenue raised by the tariffs to fund tax cuts.
While the March payrolls report was robust, the tariff situation means markets have little confidence in the outlook for the US labour market. Employment on nonfarm payrolls increased by 228k, well above the 140k consensus but with a -48k backward revision going through the numbers over January-February. The unemployment rate was broadly flat, but after rounding was reported to have lifted from 4.1% to 4.2%, which came alongside an uptick in labour force participation from 62.4% to 62.5%. Average hourly earnings at an annual rate softened from 4% to 3.8%.
The RBA was firmly in wait-and-see mode at this week's policy meeting as the cash rate was left at an unchanged 4.1% (reviewed here). With the economy and inflation tracking broadly in line with the central forecasts published in February, a follow-up rate cut was not considered by the newly-formed Board. Governor Bullock said at the media conference that further confidence in the outlook for inflation to return to the midpoint of the 2-3% target band was key. In other news domestically this week, retail sales lifted 0.2% in February (see here); dwelling approvals flatlined from recent gains (see here); and the trade surplus narrowed sharply to lows since 2020 (see here).
