NEWS + VIEWS – 24/04/2025
MARKETS
Markets have bounced nicely since President Trump announced a pause on tariffs to allow negotiation between the US and other countries. The chart below shows share market rises from recent lows.
Despite the rises, the recent volatility is unlikely to be over. The bounce off the lows seemed like a capitulation that is often a signal that selling has been exhausted. The rises were on very large volumes suggesting strength in the recovery. Nevertheless, it is not unusual in bear markets that lows are retested for the next few months and trade within a range.
The main concern for investors, apart from the unpredictability of the Trump Administration, is the trajectory of economic growth. It is unlikely that a recession has been fully priced in to shares and valuations are still not ‘cheap’. Economists have a 50-60% probability of a US recession. On the other hand, analysts in the US are still predicting earnings growth of around 7% for companies. You can’t have a recession and 7% earnings growth since those results are mutually exclusive.
In the recent past, government fiscal and monetary intervention has been swift and significant. Currently, however, due to concerns around inflation, the US Federal Reserve is unlikely to flood the economy with liquidity or rapidly cut rates should economic conditions deteriorate. The Fed Chair Jerome Powell has already referred to his caution around the risk of tariffs to inflation.
The other factor pointing to further volatility is that the current bear market has only been underway for two months, whereas the average bear market duration is nine months. This suggests a period of sideways range trading or further volatility rather than a significant short-term run upward.
While the Volatility Index (VIX) has declined significantly since mid-April, it remains elevated. Sometimes called the fear index, the VIX measures the expected volatility over the next 30 days.
Investors are likely to remain skittish. As usual, we stress that no-one knows where the market will go. What we do know is that bear markets eventually end, and positive share market trends resume.
COMPANY NEWS
BHP last week released a solid third quarter update. The performance of the Chilean Escondida copper mine improved and the Jansen potash project is progressing well. Iron ore was on target despite weather challenges. The company’s full year financial guidance is on track.
Rio Tinto (RIO) had a more challenging three month start to the year. Bad weather in the Pilbara was cited as the main cause of the soft results. However, on the positive side, the Simandou project in Guinea and the Oyu Tolgoi project in Mongolia are progressing to revised targets.
On a positive note for both BHP and RIO, the approval for the huge Resolution copper mine in Arizona has been fast-tracked by the US government as copper is deemed a critical mineral. The mine will be the biggest in North America and is owned 55% by RIO and 45% by BHP. In comparison to the US, the Australia regulatory landscape is looking unfit for purpose in attracting capital.
Santos’ (STO) production and sales met forecasts. Domestic gas sales were strong, compensating for lower crude oil prices. Management said that future guidance was in line with forecasts and that the major Barossa and Pikka projects are on, if not ahead of, target.
MINIMUM PENSION REMINDER
It’s that time of year to ensure that, if you are in pension phase, you are on track to meet the minimum requirements. If you are unsure of what your minimum pension is, please contact your accountant.
Gerard O’Shaughnessy
P 0423 771 330
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