Market Key Points
- Global markets experienced further volatility in April.
- Local markets were one of the brighter spots, finishing the month 3.6% higher driven in part by Trump’s 90-day pause on tariffs.
- US markets finished the month slightly lower.
Australian equities
The ASX 200 Accumulation Index gained 3.6% in April, paring back some of the losses from February and March. The market experienced a sharp sell-off following the ‘Liberation Day’ US tariff announcements. However, a strong rally ensued, driven by the Trump administration’s subsequent 90-day pause on tariffs. Additionally, the local market welcomed inflation remaining within the target band, increasing the likelihood of a rate cut by the Reserve Bank of Australia (RBA) in May.
Ten of the eleven sectors were gainers, led by Communications (+6.5%), Information Technology (+6.4%), Property (+6.4%), and Consumer Discretionary (+6.1%). The lone laggard was Energy (-7.7%). Communications stocks were supported by investors seeking defensive positions. Telstra (ASX: TLS) and REA Group (ASX: REA), the largest companies in the sector, both performed strongly through April. Meanwhile, rate-sensitive sectors such as Property and Consumer Discretionary benefited from the greater chance of the RBA making a second cut in the cash rate target at its May meeting. The price of Brent oil fell in April and, subsequently, the Energy sector declined, with Woodside Energy (ASX: WDS) and Beach Energy (ASX: BPT) among the major losers.
Volatility was again a feature of the ASX 200 Index in April; however, the month finished strongly, ending a run of losses.
Global Equities
Global equities declined in April amid renewed US-China trade tensions, sharp swings in yields and a broader deterioration in investor sentiment. Developed Markets fell 1.84% (MSCI World Ex-Australia Index (AUD)), while Emerging Markets also declined 1.33% (MSCI Emerging Markets Index (AUD)). Markets swung sharply after sweeping ‘Liberation Day’ tariffs triggered a global sell-off, before sentiment stabilised on softer US rhetoric.
US markets underperformed, with the S&P 500 down 0.68%. Equities sold off sharply early in the month after President Trump announced blanket tariffs on all imports, triggering the worst two-day decline since 2020. A 90-day pause and selective exemptions helped markets rebound, including the S&P 500’s best single-day gain since 2008. Still, the economy contracted 0.3% in Q1, business activity softened, and inflation eased to 2.4%, while corporate earnings beat estimates despite margin and labour concerns.
European equities were mixed, with the FTSE Eurotop 100 Index falling 1.50%. The ECB cut rates to 2.25% and signalled more easing as tariff uncertainty weighed on exporters. Domestically oriented sectors and defensives fared better. Germany’s DAX rose 1.50% on fiscal optimism, while the UK’s FTSE 100 slipped 0.66%.
Japanese equities posted modest gains, with the Nikkei 225 up 1.21%. Despite headwinds from yen strength and trade disruptions, sentiment was lifted by a surge in corporate buyback announcements and resilient domestic flows. The Bank of Japan held rates steady while cutting its growth outlook.
Emerging Markets declined, led lower by China. The CSI 300 fell 2.86% and the Hang Seng dropped 4.02% amid escalating tariff retaliation. In contrast, Latin America outperformed, with the MSCI LatAm Index rising 6.5%, driven by strong performance in Mexico (+13.9%) which avoided new tariffs.
Property
The S&P/ASX 200 A-REIT Accumulation Index TR significantly reversed the negative trend seen in previous months, finishing April up 6.35%. The Index remains in negative territory YTD, although marginal, down 0.9%. Global real estate equities fell, decreasing by 0.73% (represented by the FTSE EPRA/NAREIT Developed Ex Australia Index (AUD Hedged)). Australian infrastructure continued to rise, with a return of 2.4%. The index has delivered a return of 4.7% YTD.
Against a global backdrop filled with uncertainty (and some cautious optimism), April saw a brief uptick in activity on the M&A front. National Storage REIT (NSR) confirmed that it had acquired a 4.78% interest in Abacus Storage King (ASK). NSR has stated it does not presently intend to make a competing proposal for ASK but rather considers it a compelling investment at the prevailing price. Region Group (RGN) announced its intention to undertake an on-market buy-back for up to $100 million securities, funded by the recently $76m disposal of a retail shopping centre. Stockland (SGP) announced it has finalised negotiations to undertake the development of the Waterloo Renewal Project alongside several consortium partners. The project is one of Australia’s largest inner city renewal initiatives.
The Australian residential property market experienced an increase of 0.2% Month on Month (as represented by CoreLogic’s five capital city aggregate). Growth was felt in all capitals for the first time in a significant period. Darwin continued to be the biggest riser (+1.1%), closely followed by Hobart (+1.0%). Melbourne continues to rise but remains in negative territory over the previous 12-month period (+0.2%, -2.2% YoY). Perth continued to moderate (+0.4%, 10.0% YoY), with most remaining capitals seeing monthly growth around the same.
Fixed Income
It’s no surprise that the bond market experienced another volatile month, as President Trump’s reciprocal tariffs—announced on what was dubbed “Liberation Day”—sent shockwaves through global markets. While equities fell sharply, bond markets were also rattled, with yields initially spiking due to heightened uncertainty. This raised concerns within the Trump Administration, prompting a 90-day pause on the tariffs shortly after the announcement. The pause led yields to fall, as investors sought safety in government bonds
Despite this move, market participants remain wary of ongoing U.S.–China trade tensions, with neither country showing signs of easing their tariff stance. Against this backdrop, U.S. 10-year Treasury yields fell 5 basis points from 4.21% to 4.16%, while 2-year yields dropped more sharply by 28 basis points, from 3.90% to 3.62%.
Local Australian markets were also impacted by the reciprocal tariffs. However, the RBA noted that it was well positioned to handle any uncertainty surrounding monetary policy. Although inflation was gradually easing, the RBA held firm in its decision to keep the cash rate unchanged. The broader influence of overseas market volatility led to a drop in Australian bond yields, with the 10-year yield falling 22 basis points from 4.38% to 4.16%, and the 2-year yield falling 40 basis points from 3.69% to 3.29%.
Currencies
The Australian dollar (AUD) appreciated over the month of April, closing 0.5% higher in trade weighted terms to 59.90, appreciating against the US Dollar (USD), whilst depreciating against the Japanese Yen (JPY) Pound Sterling (GBP) and the Euro (EUR).
The AUD had a volatile month, beginning with early losses driven by US tariff announcements, but finished the month stronger against the USD. A delayed tariff implementation and a sharp fall in the US Dollar Index supported the AUD’s recovery. Capital shifted from the US amid escalating trade tensions towards other major currencies offering relative economic stability, including the EUR. Domestically, the cash rate target at 4.10% remained unchanged on 1 April, though markets now expect a cut in May amid global uncertainty.
Relative to the AUD, the Euro was the highest performer of the month, appreciating in relative terms by 2.5% against the AUD. Year-on-year, the AUD remains behind the USD, EUR, GBP and the JPY by 1.4%, 7.3%, 7.6% and 10.7% respectively, in relative terms.
Economic key points
- RBA kept interest rates on hold at 4.10%.
- Trump administration released details of proposed “Liberation Day” tariffs.
Australia
The RBA kept rates on hold at 4.10% in its April meeting with minutes from the meeting indicating that an interest rate cut could occur as early as May. Policymakers expect the next set of trimmed mean inflation figures to dip below 3% to be within their target range. The meeting took place before the major announcements of US tariffs on 2nd April, so investors are inferring from these minutes an even greater willingness to cut rates once the economic impact of trade disruptions is taken into account. Financial markets are now pricing in at least four 0.25% interest rate cuts by the end of 2025, compared to only two expected at the end of February.
Headline CPI rate held at +2.4% for the 12 months to March, but the RBA’s preferred trimmed mean index eased to +2.9%. This was within the bank’s 2-3% target range for the first time since 2021 and is expected to allow for a local 0.25% interest rate cut later in May.
The unemployment rate came in at 4.1% in March, above the revised 4.0% in February but below the market estimate of 4.2%. Retail sales increased 0.3% in March, softer than the expected 0.4%, while annual sales increased 4.3% in March, up from the 3.7% increase in February.
The Westpac Consumer Confidence Index came dropped to 90.1 in April, the lowest rate in six months as the tariff war and share market slide impacted outlook. Composite PMI dropped to 51.0 in April from 51.6 in March with business sentiment remaining muted . The trade surplus widened to $6.9bn in March, well above the anticipated $3.90bn.
US
April 2 was billed as ‘Liberation Day’ as the White House released a list of tariff rates claimed to be imposed by other countries on the USA’s exports, along with retaliatory tariffs to be charged on imports from those countries, effective 9th April. These would be incremental to a base tariff of 10% on US imports from all countries, which would take effect on 5th April. However, the tariffs alleged for specific trading partners differ widely from the level of actual levies and other trade barriers in force, for example the White House documents claim that the European Union charges 39%, Japan 46% and South Korea 50% (despite the latter having a comprehensive free trade agreement with the US).
By the end of the month, many of these tariffs had been reduced or delayed, the baseline 10% on all imports into the USA remains. One major goal of the US trade levies is to encourage “onshoring” of manufacturing activity, but the frequent changes to policy are likely to frustrate the plans of businesses which are weighing up the long-term economics of investing in US production.
Fed Governor Christopher Waller noted in a speech on Monday that net impact of the new tariffs would be negative for economic growth, but inflation effects should be transitory. The implication that the Fed sees recession as a greater threat than runaway inflation was taken by many as a dovish signal of willingness to cut interest rates, although Fed Chair Jerome Powell later said that the bank would “wait for greater clarity” before changing its policy stance. The latest consumer surveys by the New York Fed and the University of Michigan both showed a sharp drop in confidence, as well as short-term inflation expectations rising to their highest level in several years.
GDP contracted for the first time since 2022, shrinking 0.3% in the March quarter as consumers and businesses prioritised imported purchases before higher tariffs took effect. Many economists expect an unwind of this specific impact in the subsequent data, but the tariffs and general policy uncertainty are still likely to dampen economic growth. Some reassurance came on the inflation front, however, with the Core PCE index decelerating to +2.3% for the 12 months to March. As the preferred metric of the US Federal Reserve, this result is now close enough to the Fed’s target inflation level of 2% to support hopes for more interest rate cuts in the near future.
Non-farm payroll added 177,000 in April, below the revised 185,000 in March but significantly higher than the expected 130,000. The unemployment rate was steady at 4.2% in April, in line with market expectations. Composite PMI fell to 50.6 in April, signally the weakest expansion in the private sector in 16 months with demand growth constrained by policy uncertainty, especially around trade.
The trade deficit widened to $140.5bn in March, above the expected $137bn shortfall.
This article contains information first published by Lonsec. Voted Australia’s #1 Research House for 2019.
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