Week in review
- Australia retail sales -0.1% m/m for December
- China manufacturing PMI falls to 50.1
- Bank of England cuts policy rate 25bps to 4.50%
Week ahead
- NAB business conditions
- Westpac consumer confidence
- U.S. CPI inflation
Thought of the week
Tariff talk dominated the headlines last week. While there has been a reprieve for markets regarding tariffs, the challenge for investors is to differentiate the underlying motivations behind their use. Are tariffs simply a quick way to create leverage and gain early concessions on a non-economic positions, or are there more strategic aims behind tariff policy? With Mexico and Canada, it appears to be the former; however, with China and potentially Europe, it’s likely the latter. This can be troubling for markets if it leads to escalation. Currencies may feel the brunt of this as they act as a pressure valve for tariffs, as depreciation can fully or partially offset the cost increase associated with tariffs. During the trade war in President Trump’s first term China’s currency fell 16% as tariffs rose. This time around, the currency is at a lower starting point, and further depreciation could alarm international investors potentially creating capital flight.
There is less room for China to devalue the currency to offset tariffs
U.S. tariffs hikes (on select products) and CNY depreciations (2018 – 2020)
Source: FactSet, J.P. Morgan Securities. Data reflect most recently available as of 07/02/25.
All returns in local currency unless otherwise stated.
Equity price levels and returns: Levels are prices and returns represent total returns for stated period.
Bond yields and returns: Yields are yield to maturity for government bonds and yield to worst for corporate bonds. All returns represent total returns. AusBond Comp is the AusBond Composite 0+ Yr, AusBond IG is the AusBond Credit 0+ Yr both provided by Bloomberg.
Currencies: All cross rates are against the Australian dollar. An appreciation of the foreign currency against the Australian dollar would be positive and a depreciation of the foreign currency against the Australian dollar would be negative.
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