Markets remain on edge after another rough week

Stocks fell for a fourth consecutive week, a selloff in tech giants accelerated and volatility spiked as the global trade war worsened, but ‘markets aren’t yet in panic mode’.

The escalation of the trade war has rattled global investors. Picture: Getty Images

Stocks dived for a fourth consecutive week, a selloff in tech giants accelerated and volatility spiked as the global trade war worsened with tit-for-tat tariffs as US President Donald Trump showed no sign of backing down despite sharp falls in markets since his inauguration.

Despite rising to 7789.70 points on Friday, Australia’s benchmark S&P/ASX 200 stock index lost 2 per cent over the week to be down 4.5 per cent for the year to date.

With government bond yields currently flat for the year to date, the average super fund in the balanced category now faces a small negative quarterly return after a solid gain in 2024, according to Chant West senior investment research manager Mano Mohankumar.

Reflecting growing concern about the global economic outlook and heightened volatility in markets as the trade war ramps up, the local bourse has fallen 15 of the past 20 trading days.

“Markets aren’t yet in panic mode, but the heightened risk of a material slowdown and possibly a recession in the US, is being discounted into asset markets,” said Capital.com senior market analyst Kyle Rodda. The VIX volatility index remained elevated near 25 per cent on Thursday, well above its long-term average of 19.3 per cent after spiking to a seven-month high of 29.57 per cent this week.

On Friday the ASX 200 rose 0.5 per cent, aided by strong gains in US stock index futures after US Senate minority leader Chuck Schumer dropped his threat to block a Republican spending bill, clearing the way for the US government to avoid a shutdown this weekend.

Friday’s rebound in Australian stocks was magnified by strong gains in the materials sector after iron ore and gold prices rose, with spot gold soaring to a record high of $US2990.22 per ounce.

BHP rose 1.1 per cent to $38.65, Rio Tinto rose 1 per cent to $117.10 and Fortescue gained 2.7 per cent to $16.27. Macquarie Equities lifted its rating on Fortescue to neutral.

Among gold miners Newmont rose 5.7 per cent to $77.43, Northern Star rose 2.8 per cent to $17.87 and Evolution jumped 4.6 per cent to $6.76 after Macquarie upgraded the stock to neutral.

Macquarie also upgraded lithium miners including Mineral Resources, Pilbara Minerals and Liontown Resources. Pilbara rose 4.3 per cent and Liontown added 4.9 per cent on Friday.

However, the major banks were mixed, with CBA down 1.1 per cent to a four-month low of $142.36.

CBA closed below its 200-day moving average for the first time since November 2023.

On Thursday Morgan Stanley downgraded its rating of Australian equities to underweight, highlighting concerns over Australia’s indirect exposure to trade war risks and elevated valuations.

US President Donald Trump’s tariffs have rattled markets. Picture: Getty Images

BofA, Citi and Goldman Sachs lowered their expectations for the US market in the past week.

“It could be time to reset your expectations on where markets could go over the next few weeks to months,” said Jessica Amir, market strategist at Moomoo Australia.

“The current magnitude of selling and shorting is just like it was in 2018 and 2022 and we’re yet to see company earnings expectations be materially lowered, as the world awaits further economic policy changes and additional tariffs to be brought in by April 2.”

The outcome of a comprehensive review of US trade policy is due to be completed by April and so-called “reciprocal tariffs”, taking account of VAT taxes, are due to start on April 2.

The US stock market fell 1.4 per cent on Thursday after President Donald Trump threatened a 200 per cent tariff on wine, champagne, and other alcoholic beverages from France and the European Union if a 50 per cent retaliatory tariff on US whiskey proposed by the EU wasn’t immediately removed.

The threat was triggered after the Eurozone said that it planned to tariff $28bn of US goods such as American whiskey, Harley Davidsons and a range of other products produced in Republican states, effective in April. The Eurozone tariff plan came in response to Mr Trump’s 25 per cent tariffs on imported steel and aluminium that took effect on Wednesday without any exemptions.

Mr Trump had threatened to hit Canada with 50 per cent tariffs before Ontario’s Premier Doug Ford backed down on his threat to slap a 25 per cent surcharge on electricity exports to the US.

US tech stocks were pummelled this week. The so-called “Magnificent 7” lost 5.2 per cent.

Nvidia was down 24 per cent and Tesla off 50 per cent from record highs in recent months.

As with the US stock market, the ASX 200 was on the cusp of a so-called “technical correction” defined as a fall of at least 10 per cent from a bull-market high. The ASX hit an intraday low of 7740.1 on Thursday, at which point it had fallen 9.6 per cent from its record high daily close of 8555.

It came as Australia’s Council of Financial Regulators including the Reserve Bank warned of an “increased likelihood of disorderly corrections in asset prices in the event of adverse shocks”.

At its meeting on Thursday, the main co-ordinating body for Australia’s financial regulators discussed “potential sources of systemic risk and key vulnerabilities facing the Australian financial system, in the context of a highly uncertain international outlook” where “geopolitical tensions and policy uncertainty were magnified and the intensity of cyber risks had increased”.

“Low risk premia in financial markets, coupled with the growing use of leverage in some areas of global markets, increased the likelihood of disorderly corrections in asset prices in the event of adverse shocks,” the CFR said. “Members agreed a high level of vigilance among banks and other financial institutions was appropriate in the circumstances, alongside robust contingency plans.”

Originally published as Markets remain on edge after another rough week