The ASX is set to rise after US President Donald put a one month pause on auto tariffs from Mexico and Canada. ASX 200 futures are up 17pts (+0.21%) as of 8:30 am AEDT.
The ASX200 closed 79 points lower (-0.97%) at 8,118 yesterday, weighed down by losses in Consumer Staples (-3.56%), Energy (-1.68%), and Consumer Discretionary (-1.09%). Meanwhile, Real Estate (+0.19%), Utilities (+0.11%), and Materials (-0.03%) outperformed the broader market.
The index initially dropped 102 points in early trade, reaching a fresh seven-week low of 8,096 before dip buyers stepped in, helping it pare losses by the close. The recovery was supported by Australia’s fourth-quarter GDP data, which showed a 0.6% rise for the December quarter of 2024, bringing annual growth to 1.3%. This marked the economy’s thirteenth consecutive quarter of expansion and its strongest reading since Q4 2023. Notably, GDP per capita edged up 0.1% quarter-on-quarter, breaking a seven-quarter streak of declines.
“The rise in GDP supports the idea that growth in the Australian economy troughed at 0.8% YoY in Q3 and may reach the RBA’s forecast of 2.4% by year-end, driven by less restrictive monetary policy, increased household consumption, and strong public spending. It is good news the Australian economy is on a firmer footing as the risks of a global trade war deepen, embroiling the Australian economy,” IG markets analyst Tony Sycamore noted.
In the small cap space, the S&P/ASX Small Ordinaries (XSO) took a 0.75% dip yesterday to finish at 3,078.90. The index has lost 2.34% over the last five days.
US rallies
US stocks rallied overnight after President Trump announced a one-month exemption on auto tariffs for Mexico and Canada, while economic data presented a mixed outlook on recession concerns.
The ISM Services Purchasing Managers' Index (PMI) unexpectedly rose to 53.5 in February from 52.8, surpassing forecasts of 52.6. Among the sub-indices, new orders (52.2 vs. 51.3), employment (53.9 vs. 52.3), and supplier deliveries (53.4 vs. 53) all expanded for a third consecutive month— a streak last seen in May 2022.
Steve Miller, chair of the ISM, stated, "Slightly slower growth in the Business Activity Index was more than offset by growth in the other three subindexes. Anxiety continues; however, over the potential impact of tariffs. Some respondents indicated that federal spending cuts are having negative impacts on their business forecasts.”
“Meanwhile, the ADP employment report showed the US added 77,000 workers to their payrolls in February 2025, the smallest increase in seven months, and below forecasts of 140,000. The ADP data is the first in a series of labour market reports this week, culminating in Friday night's all-important non farm payrolls release. The market is anticipating the US economy to add 150,000 jobs, with the unemployment rate holding at 4%. A non farm payrolls print in line with expectations is crucial to ease fears around a potential "Trumpcession” and to bring some stability to rattled US stock markets,” Sycamore wrote.
“The US rates market is pricing a 25bp Fed rate cut in June and a cumulative 70bp of Fed rate cuts this year, up from 31bp after the warmer CPI print in mid-February.”
Rebound in Europe
European shares rebounded on Wednesday following sharp losses in the previous session, with German stocks leading gains after the country's leaders agreed to reform borrowing rules to bolster defence spending and stimulate economic growth.
The pan-European STOXX 600 index (.STOXX) climbed 0.9%, recovering from its steepest decline since August 2024, triggered by the implementation of new 25% tariffs on imports from Mexico and Canada by U.S. President Donald Trump.
Currencies and commodities
Currencies
AUD/USD is trading higher at 0.6338 (+1.07%), buoyed by solid Australian fourth-quarter GDP data and concerns over the impact of new tariffs on an already slowing US economy. The pair appears poised to extend gains towards the 200-day moving average at 0.6500/50 cents. A sustained break above this level would indicate a potential end to the broader downtrend.
EUR/USD has climbed to 1.0792 (+1.27%), driven by reports that Germany plans to establish a €500 billion defence fund, a move that could significantly bolster European economic growth and resilience to US tariffs. The market reaction suggests investors were unprepared for the scale of this initiative. With the pair now above the 200-day moving average at 1.0726, we expect buying interest on dips, with potential upside towards 1.1000.
GBP/USD is trading higher at 1.2897 (+0.80%), supported by expectations of increased European and UK defence expenditure. The pair remains above the key 200-day moving average at 1.2788, which is likely to provide short-term support on pullbacks.
USD/JPY has declined to 148.84 (-0.64%) amid concerns over a weakening US economy and strong Japanese economic data. We remain bullish on the yen, anticipating a 25 basis point rate hike by the Bank of Japan by mid-year, with a second hike possible by year-end. A sustained break below 148.60/50 would signal a move lower towards the 145/144.00 support zone.
Commodities
WTI crude oil is trading at $66.27 (-2.75%), rebounding modestly after hitting a 21-month low of $65.22 earlier in the session. The decline followed a larger-than-expected US inventory build (+3.614 million barrels vs. 0.9 million expected) and ongoing trade war concerns. We expect strong support around $65/$63 before a potential recovery towards $72. However, a sustained break below this range could signal a deeper decline towards the mid-to-low $50s.
Gold is trading higher at $2,922 (+0.18%), supported by expectations that a slowing US economy could prompt a more aggressive rate-cutting cycle by the Federal Reserve. The metal remains within a bullish trend channel, with resistance near $3,020 and support around $2,725.
Iron ore futures on the Singapore exchange closed below $US100 per ton.