Economic Update May 2025

Global markets whipsawed following the “Liberation Day” tariff announcements on April 2, and subsequent developments throughout the month.

Global markets whipsawed following the “Liberation Day” tariff announcements on April 2, and subsequent developments throughout the month. Volatility was rife and trading volumes were robust. The Volatility Index (VIX) spiked to a 5-year high of 57.8 on April 9, though ended the month sub-25. This move came as markets responded to several significant rollbacks of Trump’s initially absolutist tariff agenda.

Investors sold out of US assets at the beginning of the month on concerns around deglobalisation and fears that “US exceptionalism” had come to an end. This saw demand for US Treasuries (USTs) and the US dollar weaken, breaching the conventional wisdom that Treasuries and the USD should behave as safe havens during risk events. While the US Dollar Index (DXY) ended April -4.5% lower, 10y USTs recovered, closing the month near unchanged.

Global equity indices fell substantially after the initial tariff announcements and recovered almost entirely on the 90-day pause and other concessions. Despite entering correction territory early in April, the MSCI World Index closed near flat.

Gold, now perhaps the pre-eminent safe haven asset, rallied nearly 10% in the first three weeks of April as investors sought an alternative to USTs. The bullion continued to create new all-time highs and briefly surpassed $3,500/oz before paring gains into month-end.

Further Information:

B&W Additions

Thomas Weir

(03) 9629 1433

tweir@bwadditions.com.au

US

The S&P 500 fell just shy of entering a bear market, down nearly 19% before the tariff pause resulted in a rebound. March quarter earnings were overshadowed by cautions from management regarding the dampened growth outlook for 2025. The S&P 500 closed the month down -0.76%.

US Treasury prices began to trade in line with equities, contrary to expectations. As equity markets rebounded in the back half of the month, so did Treasury prices.

US Manufacturing PMI came in at 50.7, while Services PMI dropped from 54.4 to 51.4 in March.

The US labour market added +228k jobs during March, ahead of expectations of +140k, with unemployment ticking up to 4.2%. Federal government employment declined.

JOLTS data showed a stable labour market with a hiring rate of 3.4% and a consistent layoff rate of 1.0%.

Core PCE increased +2.8% YoY in March. Retail sales rose +1.4%, primarily due to frontloaded auto sales ahead of expected tariff-related price increases.

Consumer and business sentiment weakened in April. Existing home sales dropped -5.9% in March to 4.02m.

Australia

The AUD fell below 0.60 USD post-April 2 amid risk-off sentiment and super funds rebalancing hedges. It later recovered, driven largely by USD weakness.

The ASX 200 followed global markets and closed April up +3.61%.

Q1 CPI came in at +0.9%, above expectations. Annual CPI held steady at +2.4%. Trimmed mean inflation rose to +2.9%.

The RBA kept the cash rate at 4.10%, opting for a “wait and see” approach given trade uncertainty. Markets are pricing in a 25bps cut in May.

Unemployment remained at 4.1%, with participation lower at 66.8%, largely due to Cyclone Alfred. Retail trade rose +0.2% in February, below the expected +0.3%.

New Zealand

The RBNZ cut rates by 25bps to 3.50% in early April, suggesting scope for further easing.

Q1 CPI rose +0.9%, slightly above expectations, driven by an 8.9% rise in education costs (notably +23% in tertiary/post-school education). Services inflation also rose +0.7%.

Europe

The ECB cut interest rates by 25bps for the second meeting in a row, bringing the cash rate to 2.25%. The ECB cited “exceptional uncertainty” and said further cuts would be evaluated on a meeting-by-meeting basis.

The STOXX 600 declined -1.21% for the month. Sterling rose +3.5% against the USD, while the Euro saw its strongest gain in 15 years, ending at 1.1328 USD. EU inflation slowed to +2.2% in March.

China

China announced retaliatory tariffs of up to 125%, before a mutual 90-day pause was agreed.

Q1 GDP grew +5.4% YoY, exceeding expectations. Manufacturing PMI dipped to 49.0, a 16-month low, and Non-Manufacturing PMI slipped to 50.4.

Australian Dollar

After early losses, the AUD finished April at 0.6402, up +2.5%. It dropped -5.8% during the first week of April before recovering post tariff-pause.

Against the Euro, AUD fell -2.15% with a more muted rebound.

Australian Equities

The ASX200 gained +3.6% in April. All sectors rose except Energy (-7.7%), following sharp oil price declines driven by Saudi production increases and weakened demand.

Key sector highlights:

Uranium: BOE +27.8%, PDN +14.7%, DYL +7.1%
Gold: EVN +10.1%, NEM +6.4%, NST +4.5%
Financials: CBA +10.4%, NAB +6.2%, WBC +4.0%, ANZ +2.7%
Macquarie: -1.6% (recovered 8% post asset sale announcement)

Global Equities

The S&P 500 fell -0.8%. The Dow dropped -3.2%, while NASDAQ rose +1.5%.

Markets recovered from early-April declines following tariff exclusions and a 90-day pause. Tech and consumer staples led gains, while Energy underperformed (WTI -18%, Brent -15%).

European markets initially dropped post-announcements but stabilised. FTSE100 and STOXX600 fell just over -1%. EPS downgrades continued to accelerate.

Asian markets were mixed: Singapore, Hong Kong, China, and Taiwan posted >2% losses, while Korea and Japan rose +3.0% and +1.2% respectively. The MSCI Asia Pacific Index finished +2.6%.