Cheaper fuel? Five ways the market meltdown affects you

Donald Trump’s trade war has unleashed market mayhem not seen since the worst economic shocks of the past two decades: the 2020 pandemic and the 2008 global financial crisis.

Records have tumbled everywhere. This week Australia’s sharemarket had both its worst one-day fall since 2020 (on Monday) and its biggest one-day rise over the same period (on Thursday). The Aussie dollar had its sharpest plunge since 2008 last week, before soaring more than 3 per cent as Trump paused his tariff plan this week.

Donald Trump’s tariff policies have sent markets on a rollercoaster ride.Credit: Bloomberg

The fallout has extended to the oil price, which feeds into petrol costs, and investors are betting it will affect interest rates too.

As well as playing out on the trading floors of financial institutions, these wild swings can have big effects on Australian households. Here are five ways in which the recent market carnage could affect us all.

Super balances down

Australia’s $4.2 trillion compulsory retirement saving system means households feel sharemarket shocks through their super balances.

The impact varies from fund to fund and between investment options, but the overarching picture is negative: a typical balanced super fund has fallen about 2.8 per cent this month and 5 per cent since the start of February, research house SuperRatings says. Returns are up 2 to 2.5 per cent since the start of July.

Super funds have urged members not to make rash decisions in response to the plunges. The executive general manager of strategy and insights at industry body the Super Members Council, Matthew Linden, said recent market moves will have little impact in 20 years’ time when many current members retire. Even for retirees or those retiring soon, money that stays in super can allow losses to be recouped, he said.

But Andrew Heaven, practice principal of Wealth Partners Financial Solutions, said a market shock can present a dilemma for people nearing or in retirement if their super balance is lower than what they had planned for, or if returns from safe assets such as bank deposits are lower than expected.

Heaven said people have response options, including a delay to retirement, working part-time, changing lifestyle expectations (and spending patterns) or delaying large expenses such as a renovation if that were to be paid for by selling assets that have plunged in value. He said the key message is to avoid emotional decisions and stick to a plan that reflects your risk appetite.

“Most damage is done in portfolios by crystallising losses,” Heaven said. “Reacting to a situation, on the balance of probabilities, does the worst damage to a portfolio. So, the old outage of stay the course typically does the least damage.”

More expensive overseas trips

Trump’s tariff turmoil also sent the Australian dollar tumbling – briefly – to a five-year low. While much of the fall in the dollar against the greenback had been reversed by week’s end, the Aussie is still weaker against other big currencies.

The Aussie has lost 7.6 per cent against the euro this year, 2.9 per cent against the British pound, and 8.1 per cent against the Japanese yen.

As well as raising the cost of overseas trips, such falls raise the price of imports, including most electronic equipment and clothing sold in Australian shops.

Our dollar tends to suffer in times of global uncertainty, partly because it’s viewed as being heavily exposed to international trade, while our economy also has heavy exposure to China, which is bearing the brunt of Trump’s tariffs.

“In periods of risk aversion the Aussie tends to underperform more than others,” said National Australia Bank (NAB) senior FX strategist Rodrigo Catril. “It’s always been the whipping boy.”

Interest rate cuts

The wild conditions on global markets could have a silver lining for borrowers: more interest rate cuts than otherwise.

Most banks expect the Reserve will cut official interest rates next month, with some predicting the RBA could give borrowers a super-sized 0.5 percentage point cut.

This week NAB predicted the Reserve would deliver a 0.5 percentage point cut in May, and three more cuts to take the cash rate to 2.6 per cent by February, compared with 4.1 per cent now.

While such cuts are welcome for borrowers, the reverse is true for savers. Canstar said on Thursday the number of term deposit rates being cut by banks was rising in anticipation of future RBA interest rate cuts.

The weaker oil prices should lead to cheaper petrol, economists say.Credit: Steven Siewert

Cheaper petrol

Global oil prices have dropped sharply in response to Trump’s tariffs and their potential impact on global growth, and if they stay at these levels analysts say it should ultimately flow through to lower bowser prices.

Chief CommSec economist Ryan Felsman said the price of Singapore unleaded 95 – which flows into the wholesale price in Australia – fell sharply last week, by 8 per cent to $US77.35.

The bowser price doesn’t automatically move in line with global prices, due to variables such as the exchange rate and retailers’ pricing tactics, which often result in prices going higher over holiday periods such as Easter.

Felsman said there’s typically a 14- to 21-day lag between international crude oil prices falling and lower bowser prices in Australia. He said the national average retail price last week was $1.79, and it could fall towards levels last seen in September, when average retail prices were $1.72 a litre.

“There’s every chance we could see it back at that level by May if we see this fall in the oil price continue,” he said.

AMP chief economist Shane Oliver estimated the fall in oil prices so far could translate to roughly a 10¢-a-litre fall in the price of petrol, though he said these moves get caught up in the fuel discounting cycle.

Hit to confidence

The barrage of scary headlines about market chaos is also having a powerful effect on something that’s important for economies but harder to measure than the price of oil: confidence.

Westpac’s closely watched measure of consumer sentiment plunged 6 per cent this week in response to the tariff turmoil, and the survey found pessimists outnumbered optimists.

Economists say weaker confidence doesn’t directly translate to softer spending by households because consumers are also benefiting from a slowdown in inflation and lower interest rates.

But Westpac’s head of Australian macro-forecasting Matthew Hassan said there’s a “growing sense of unease” among households about the global economy. “With the situation still deteriorating, there is a clear risk of more significant sentiment declines in the months ahead,” Hassan said.

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