Economic Update - March 2025

As we head towards the end of March 2025, it's time to take a closer look at how the financial markets have performed over the past month. This review will provide you with an overview of the market's overall performance, a sector-by-sector analysis, and insights into the key factors influencing the financial markets going forward.

Overall Market Performance

The last month has been a challenging month for the Australian equity market, which saw a decline of 3.8%. Growth and cyclical sectors were the main drag, while defensive sectors managed to perform well. The S&P 500 Index (USD) also finished lower, returning -1.3%. On the global stage, the Japanese market was one of the weakest, with the Nikkei 225 Index (JPY) down 6.1%. However, Chinese markets and some European regions provided a bright spot.

Sector Performance

1. Australian Equities:

• Positive Influences: Defensive sectors such as Utilities (+3.2%), Communications (+2.6%), and Consumer Staples (+1.5%) performed well. Utilities were buoyed by a strong earnings report from APA Group, which gained 9.8%.

• Negative Influences: Information Technology (-12.3%), Health Care (-7.7%), Property (-6.4%), and Energy (-5.2%) were the biggest laggards. The I.T. sector, in particular, was affected by the move into Chinese tech stocks and governance issues at Wisetech, which fell 25.5%.

2. Global Equities:

• Positive Influences: European equities led the global markets, with the MSCI Europe ex-UK Index rising 3.7% in local currency terms. Gains were driven by strong earnings reports and optimism around a potential Ukraine ceasefire.

• Negative Influences: US markets struggled due to trade tensions, weaker economic data, and persistent inflation concerns. The S&P 500 fell 1.3%, and mega-cap tech stocks had their worst month since December 2022.

3. Real Estate Investment Trusts (REITs):

• Positive Influences: Global real estate equities remained positive, increasing by 2.5%.

• Negative Influences: The S&P/ASX 300 A-REIT Accumulation Index TR continued to fall, finishing the month down 6.4%.

4. Fixed Interest:

• Positive Influences: The bond market witnessed a surge in investor activity due to uncertainty surrounding US policy and potential economic weakness. The Reserve Bank of Australia (RBA) began its rate-cutting cycle, reducing the cash rate by 25 basis points during their February meeting.

• Negative Influences: Despite the rate cut, there remains uncertainty, particularly with Governor Bullock cautioning against overly rapid rate cuts.

Focus of Financial Markets Going Forward

Looking ahead, the focus of financial markets will likely be on several key factors:

1. Inflation and Interest Rates: Central banks' decisions on interest rates will continue to be a significant driver of market sentiment. The RBA's recent rate cut and the Federal Reserve's cautious stance on inflation will be closely monitored.

2. Geopolitical Tensions: Trade tensions, particularly between the US and its key trading partners, will remain a critical factor. The recent tariffs imposed by the US on Canada, Mexico, and China have raised concerns about potential stagflation.

3. Economic Data: Investors will keep a close eye on economic indicators such as employment rates, consumer confidence, and retail sales. Any signs of economic weakness or strength will influence market movements.

4. Corporate Earnings: Strong earnings reports, particularly from defensive sectors, will provide support to the markets. Conversely, any negative surprises could lead to increased volatility.

In conclusion, while the last month presented several challenges, there were also pockets of strength in the markets. As we move forward, staying informed about the key factors impacting financial markets will be crucial for making well-informed investment decisions.

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