Weekly wrap: volatility rules as tariff chaos unfolds
WEEKLY MARKET REPORT
After one of the most eventful and volatile weeks since the GFC, the Australian share market limped home to record a 0.8% loss on Friday.
Such a 63.1-point fall to 7646.5 points would normally be regarded as a volatile day but it was nothing compared to the massive falls of last week and the incredible jump on Thursday of this week.
Those events tracked on from US President Donald Trump “liberating” his country with hefty global tariffs against most of the rest of the world, only to backtrack after the US bond market took a turn for the worse.
That backdown to delay the start of the highest tariffs for 90 days led to one of the biggest one day rises in five years, coming straight after some of the biggest falls since the GFC.
Friday’s fall meant the Australian market fell by 0.9% for the week – a number which does not reflect in any way the extraordinary volatility traders have experienced.
Chinese tariff war continues to worry investors
It seems there is little chance of much of a reprieve given that massive 145% tariffs are still in place against China, which has shown little sign of reversing its own hefty retaliatory tariffs.
Trump admitted as much in a cabinet meeting, confirming that there would be “transition problems” with his tariffs, which left investors fearful that there was no solution in prospect to the poisonous relations between the US and China.
The lengthy process of various nations now entering into negotiations with US trade representatives to win cuts in their tariff rates – a process Trump crudely described as “kissing my ass” – foreshadows a period of continuing volatility as markets continue to oscillate between perceived good and bad news.
On Friday, ten of the main index’s 11 sectors were lower, with energy stocks once again bringing the largest losses.
The consumer discretionary sector was the only one to rise, helped mainly by a rise in retailer Wesfarmers’ (ASX: WES) shares.
Oil reversed an earlier loss amid the flight from risk assets while gold reset a record as investors fled stocks and flocked to safe havens.
Indebted players selling out
One of the key features behind the massive market swings we have witnessed over the past two weeks is the removal of lots of leveraged players from the market.
Heavily indebted hedge funds and investors with large margin loans have been forced sellers while many investors sat on their hands waiting to see what will happen next, with little sign of solid, long term buying.
The Australian share market echoed Wall Street’s muted reversal of massive gains as relief about the tariff backdown morphed into knowledge that the recovery would not be fast or simple.
Technology, energy and bank stocks all fell with shares in NAB (ASX: NAB), Westpac (ASX: WBC) and ANZ (ASX: ANZ) all falling by more than 1%, while sector leader Commonwealth Bank (ASX: CBA) chipped out a lonely share price rise of 0.1% to $154.68.
The rising oil price did nothing to boost the price of energy stocks, with shares in Woodside (ASX: WDS) down 2.1% to $19.63 while Santos (ASX: STO) shed 1.1% to $5.50.
Gold stocks rise in uncertain times
It was a markedly different story for gold miners which jumped alongside demand for the safe haven metal.
Emerald Resources (ASX: EMR) shares jumped 8.4% to $4.12 while Newmont (ASX: NEM) added 5.4% to $83.31, Northern Star (ASX: NST) jumped 5.5% to $21.40 and Evolution Mining (ASX: EVN) added 7.8% to $7.70.
Following a damaging Australia first bungle in which the wrong embryo was successfully implanted into a different mother, shares in Monash IVF (ASX: MVF) dropped 35.8% to 69c from the previous day’s close of $1.07.
Mineral Resources (ASX: MIN) fell 2% to $16.67, after Jarden Securities upgraded the stock from “sell” to “underweight”.
Small cap stock action
The Small Ords Index jumped 1.83% for the week to close at 2919.1 points.
ASX 200 vs Small Ords
The week ahead
Tariff negotiations will continue to dominate trade it in the coming week but there are some economic announcements of interest both locally and offshore.
In Australia, consumer and business confidence surveys are both released on Tuesday which will give some indication of the business and consumer responses to the March 25 Federal Budget, which included the government’s tax cuts and spending initiatives.
The following day the Reserve Bank of New Zealand is widely expected to cut official interest rates by 0.25% to 3.5%.
A series of inflation reports in the US will be carefully watched there but without doubt there will be much more attention on what is happening with tariffs.