NAB Morning Call

Wednesday 5th March 2025

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It has been an alarming 24 hours. The US has applied tariffs on Mexico and Canada, added to those already applied to China, and pulled funding for Ukraine’s war effort. Share markets have responded the world over, but not as much in the US as you might expect. NAB’s Ray Attrill says the response has been stronger in Europe, presumably on the realisation that Trump’s word should now be taken literally. The impact of a trade war -with China, Canada and Mexico all likely to retaliate, is obvious. Prices will rise and demand will fall. Markets have taken the inevitable economic slowdown as a reason for the Fed to cut more and sooner - but Ray thinks it’ll be hard to cut in such an inflationary environment. Meanwhile, the US President is forcing Europe to come together, with Germany announcing new defence spending and Europe allowing members to go beyond their fiscal limits for military spending.

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Tuesday 4th March 2025

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Ukraine is behind a world of difference between US and European markets today. European leaders are resigned to the need to spend more to defend Ukraine and Eastern Europe, pushing bond yields higher and equities also rising sharply, led by European defence stocks. In the US stocks are sharply down, led by the tech sector, with bond yields also falling. The ISM manufacturing index fell much more than expected, with concerns about tariff uncertainty, but rising prices also showing in the data. NAB’s Skye Masters wonders whether markets have fully responded to the price data, which could be a warning sign for further inflation against a slowing economy. Today, Australia’s focus will be on retail sales, and the extent to which we could be impacted by a new agricultural tariff just announced by President Trump.

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Monday 3rd March 2025

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There were two bits of news to drive markets on Friday, First, that press conference that left us wondering whether a peace deal in Ukraine could ever happen, But the gathering of European leaders on Sunday suggests peace could be brokered, at least between Zelensky and Trump. So. the dream has been kept alive. The other news was the signs of softness in the US economy, evidenced by lower spending, a massive increase the trade deficit and a complete turnaround in the Atlanta Fed’s GDPNow forecast. But, as NAB’S Tapas Strickland explains, a lot of this could be driven by pre-tariff behaviour, particularly for the import of machinery earlier than usual. There are concerns, though, that the economy might be slowing more than expected, which has nudged rate cut expectations slightly higher. Supposedly tariffs on Mexico and Canada kick off today, but we look at one way it might be avoided or at least delayed again. Plus, why this is a busy week for Australian data.

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Friday 28th February 2025

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The consequences of President Trump’s policies are being felt far and wide. The US now has a transactional based approach, even with its allies on areas such as defence which were considered shared values. So, what are the repercussions for Australia? Phil talks to Dr John Kunkel, senor economics adviser at the United States Studies Centre at the University of Sydney.   

He suggests that, whilst some of the approaches are questionable, Australia should continue to  engage and, more than most, is well placed to take advantage of US growth. And if Australia has to spend more, for example, on defence, it is simply a reflection on how ill-prepared we have been in the past.

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Friday 28th February 2025

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President Trump has made some more sharp moves on tariffs. The date for Mexico and Canada is now back to the middle of next week, and a further 10 percent is to be imposed on China at the same time. Phil asks NAB’s Gavin Friend about the market reaction and how much of this will actually come to fruition. UK Prime Minister Keir Starmer has been to the White House, but it seems Ukraine was off the agenda ahead of a ‘big deal’ supposedly being signed with Zelenskyy tomorrow. There’s also discussion on US PCE numbers and Australian capex. All very interesting, but clearly the focus is on which tariffs happen where and when (and by how much).

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Thursday 27th February 2025

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President Trump has his first cabinet meeting and announced delays on the introduction of tariffs for Mexico and Canada (now April 2nd) and revealed how much Europe will be paying (25%) although he was a bit nonspecific on some of the detail. Nab’S Ray Attrill says the US Houe of Reps has also passed the budget, which includes big spending cuts, but tax cuts see the deficit expanding. It did impact bond yields a little, but there’s not been much market reaction to the latest tariff talk. Locally, CPI came in a little weaker than expected, helped by a continued fall in housing costs which could help bring down the next quarterly CPI result and keep the RVBA on track for a May cut

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Wednesday 26th February 2025

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This morning the Aussie dollar is down whilst safe haven currencies have risen, as markets start to assess the risk of US tariffs. A lot of f the moves in the last 24 hours relate to Trump’s comments that Canada and Mexico are due to see their 25% import from 3rd March. Steel tariffs are then scheduled to follow on the 22nd, then broader reciprocal tariffs from April. NAB’s Tapas Strickland says Alcoa’s CEO has warned that 100kUS industry jobs could be at risk from tariffs on steel and aluminium. So, again, the question remains, is it bravado, given China’s 10% is the only tariff imposed so far?

Australia’s monthly CPI is out today, although it has a heavy goods bias, so the read won’t be particularly accurate. This time tomorrow (after the US close) NVIDIA reports their earnings results.

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Tuesday 25th February 2025

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There’s a bit of buying the dip, says Sally Auld, NAB’s Chief Economist in waiting, on today’s podcast. The S&P tested 6,000 before rising sharply back and finishing well up on the day. Markets seem to be largely ignoring a spate of softer data, to which we can add the latest Dallas Fed Manufacturing Survey, which showed a sharp rise in business uncertainty.

Germany’s Chancellor in waiting, Fredriech Merz has indicated he wants to move quickly to increase Germany’s defence spending, ahead of the new government, as Europe continues to scramble to forge its own path in the future for Ukraine, and the region’s defence strategy.

New Zealand provides the best news of the week so far. Retail sales are well up, signalling that the economy could be on the road to recovery. Whilst there’s corporate earnings this week, and a sprinkling of data today, the focus will be on peace talks, with Macron in Washington right now to give the European perspective and avoid a deal that’s too favourable for Russia.

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Monday 24th February 2025

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Friedrich Merz is likely to be the new Chancellor in Germany, but the exit polls show his CDU/CSU alliance will need to negotiate with other parties to form government and stave off the influence of the far right AfD. NAB’s Rodrigo says that could take some time. Meanwhile, a string of less optimistic data releases for the US. Friday’s Services PMI was a big downside surprise, falling into contractionary territory. The Michigan consumer sentiment survey also recorded a big fall, whilst there was a uptick in inflation expectations. And there’s a move down in US shares. Rodrigo wonders whether this could all encourage Present Trump to move faster on tariffs. 

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Friday 21st February 2025

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Germans will head to the polls on Friday. It seems highly likely that the centre-right CDU/CSU will gather the most votes, but over the last few months the right win populist AfD have been closing the gap. Dr Simon Toubeau, Associate Professor of Politics and International Relations at Nottingham University says it’ll be the CDU picking coalition partners in the centre and on the left, with the AfD left out in the cold. But how long will it take to arrive at a new workable government at a time when Europe is in discussions about increasing defence spending to protect Ukraine? How can Germany spend more on defence without undoing it’s self-inflicted debt-break? And where will the government stand on the idea of Eurobonds?  

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