Interest rates decision, Trump trade war to weigh on stockmarkets

The Australian stockmarket is expected to start the week in the red as nervous investors wonder whether the Reserve Bank will cut interest rates for the first time since 2020.

Global trade tensions are weighing on Australian stocks. Picture: Getty Images

The Australian stockmarket is expected to kick off the week in the red as investors await the RBA rate cut decision and take profits after a better-than-expected start to reporting season.

AMP chief economist Shane Oliver said that while most economists were expecting a 25 basis point cut on Tuesday, continued strength in the employment market and fears of a global trade war sparked by Donald Trump would affect the pace of further reductions. Money markets put the probability of a cut in the official cash rate from the current 4.35 per cent at more than 85 per cent, with traders and economists buoyed by data showing that inflation is cooling faster than the RBA had expected, while wage growth remains modest.

A cut of 25 basis points would bring the cash rate back to 4.1 per cent. But Dr Oliver said if the RBA did reduce rates, as expected, it might be a “cautious” cut, given global economic uncertainties about trade.

Futures indicate ASX will open 0.6 per cent lower on Monday. The benchmark S&P/ASX 200 closed on Friday at 8555.8, a gain of 0.5 per cent for the week.

“The market is at record highs and there will be a degree of profit-taking this week,” said Dr Oliver. He said concern about Donald Trump imposing reciprocal trade tariffs on the international flow of goods was weighing on global markets.

Markets will also be closely watching the busiest week of the current reporting season, with BHP, Rio Tinto, Westpac, Seek and Telstra among the heavyweights announcing their results.

“There has been two years of falling profits and the expectations are they will remain flat,” Dr Oliver said.

“Investors will be looking for whether things are bottoming out and starting to improve.”

Trump is taking on US allies in a trade war.

Dr Oliver said the signs so far were positive, with a quarter of companies reporting better-than-expected profit results.

The market is trading at historically expensive multiples of 20 times earnings, and Dr Oliver warns that a correction of up to 15 per cent could be on cards at some stage.

“The big concern is that Trump will spark some sort of global recession,” said Dr Oliver, adding that he still expected the ASX 200 to achieve reasonable returns this year.

Mr Trump on Thursday said he had decided to impose reciprocal duties, ramping up an international trade war that could affect Australia. The European Union on Friday vowed to respond “firmly and immediately” to trade barriers after Trump unveiled tariffs that could hit US allies and competitors.

The Albanese government has tried to convince Mr Trump to grant an exception to the tariffs for Australia’s exports of steel and aluminium to the US. For 2023-24, Australia exported approximately $430m worth of aluminium to the US. For the 2024 calendar year, $639.5m of steel and iron was shipped to the US.

Despite rising trade tensions, investor sentiment has largely held up in the hope that many of the tariffs can be removed through negotiation, while Mr Trump’s announcement of plans to hold Ukraine peace talks with Russian counterpart Vladimir Putin has increased optimism.

“Tariff ambiguity still reigns but markets are currently drawing some comfort from the news” of the delay, said National Australia Bank head of currencies research and markets Ray Attrill.

Wall Street indices were mixed overnight on Friday, with the S&P 500 near flat following lacklustre retail sales data as cold weather hit the US, alongside wildfires in California last month.

Retail sales fell 0.9 per cent between December and January to $US723.9bn ($1.14bn), partly due to falling car sales, the Commerce Department said.

Additional reporting: AFP

Originally published as Interest rates decision, Trump trade war to weigh on stockmarkets