Economic Update - May 2025

April 2025 was a month marked by volatility and mixed performances across global markets. While local markets showed resilience, global equities faced challenges due to renewed trade tensions and fluctuating yields. Whilst we are cautiously optimistic, we have provided our monthly update below to assist you in staying informed whilst considering both positive and negative factors impacting your investments.

Economic Key Points

The RBA kept interest rates on hold at 4.10% in its April meeting. The Trump administration released details of proposed "Liberation Day" tariffs. Financial markets are now pricing in three to four 0.25% interest rate cuts by the end of 2025.

Australian Equities

The Australian market was one of the brighter spots, with the ASX 200 Accumulation Index gaining 3.6% in April. This recovery was driven by a strong rally following the Trump administration's 90-day pause on tariffs and inflation remaining within the target band, increasing the likelihood of a rate cut by the Reserve Bank of Australia (RBA) in May. Ten of the eleven sectors were gainers, led by Communications (+6.5%), Information Technology (+6.4%), Property (+6.4%), and Consumer Discretionary (+6.1%). The lone laggard was Energy (-7.7%), impacted by a decline in Brent oil prices.

Global Equities

Global equities declined in April amid renewed US-China trade tensions and a broader deterioration in investor sentiment. Developed Markets fell 1.84%, while Emerging Markets also declined 1.33%. US markets underperformed, with the S&P 500 down 0.68%. European equities were mixed, with the FTSE Eurotop 100 Index falling 1.50%. Japanese equities posted modest gains, with the Nikkei 225 up 1.21%.  Emerging Markets were led lower by China, while Latin America outperformed.

Real Estate Investment Trusts (REITs)

The S&P/ASX 200 A-REIT Accumulation Index TR significantly reversed the negative trend seen in previous months, finishing April up 6.35%. Australian infrastructure continued to rise, with a return of 2.4%. The Australian residential property market experienced an increase of 0.2% Month on Month.

Fixed Income

Bond markets experienced another volatile month due to President Trump's reciprocal tariffs. US 10-year Treasury yields fell 5 basis points, while 2-year yields dropped more sharply by 28 basis points. Local Australian markets were also impacted, with the 10-year yield falling 22 basis points and the 2-year yield falling 40 basis points.

Focus of Financial Markets Going Forward

Looking ahead, financial markets are expected to focus on several key factors:

• US-China Trade Tensions: The ongoing trade war and tariff announcements will continue to impact global markets.

• Inflation and Interest Rates: Persistent inflationary pressures and the likelihood of interest rate cuts by central banks will shape market dynamics.

• US Fiscal Policy: The Trump administration's fiscal policies, including potential tax cuts and spending plans, will influence economic growth and inflation.

• Global Bond Market Volatility: Uncertainty surrounding US monetary and fiscal policy will lead to increased volatility in global bond markets.

Whilst Bonds and Cash may provide better risk-adjusted returns during this volatile period, Equity, Property and Infrastructure assets are still required to produce long-term growth and income. Focussing on your broader strategy remains important, rather than getting caught up in the noise of the news cycle.

Stay tuned for more updates and insights as we continue to monitor the financial markets and provide you with the latest information to help you make informed investment decisions.

Thanks to our research partners at Lonsec for assisting with the preparation of this Economic Update.