ASX set to retreat, Wall Street mixed

This past week featured a couple of disappointing reports that showed inflation unexpectedly accelerated last month. Besides squeezing tighter on US households’ budgets, such stubbornly high inflation is likely to keep the Federal Reserve on hold for a while when it comes to providing relief through lower interest rates.

Inflation may feel more upward pressure from tariffs that President Donald Trump has announced recently. So far, though, the US stock market has taken such threats in stride. The belief is that Trump is using tariffs as a tool for negotiation, and he may ultimately avoid triggering a punishing global trade war in order to prevent damage to the US stock market and economy.

His most recent tariff announcement, for example, won’t take full effect for at least several weeks. That leaves time for Washington and other countries to negotiate and hopefully lessen the ultimate shock.

“Tariffs on Chinese goods have gone into effect,” said Brian Jacobsen, chief economist at Annex Wealth Management. “All of the other things that have been discussed — reciprocal tariffs, steel and aluminum tariffs, and tariffs on Canada and Mexico — haven’t actually gone into effect, yet. That opens the door the negotiations.”

The market’s remarkable equanimity, of course, could be dangerous if things don’t go according to Wall Street’s expectations, or if it emboldens Trump to make even more forceful moves.

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In the bond market, the yield on the 10-year Treasury fell to 4.47 per cent from 4.54 per cent late Thursday. It’s been swinging sharply since the Federal Reserve began cutting its main interest rate sharply from September intending to make borrowing cheaper, help the economy and boost prices for stocks, bonds and other investments.

The 10-year yield has been mostly climbing since then, in the opposite direction the Fed has taken short-term rates, as the US economy has remained solid and as worries built about tariffs, increasing deficits and other potential policies that could goose inflation along with economic growth.

The Fed warned at the end of 2024 it may not cut rates by as much in 2025 because of worries about inflation staying stubbornly high. Its goal is to keep inflation at 2 per cent, and lower rates can give inflation more fuel.

In stock markets abroad, indexes were mixed across Europe and Asia.

Hong Kong’s Hang Seng surged 3.7 per cent for one of the biggest moves. Technology stocks were particularly strong, including big rallies for video games firm Tencent, smartphone maker Xiaomi and e-commerce firm Alibaba.

AP

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