Australian sharemarket down following tariff threats from Donald Trump to Japan, South Korea

Key gold stocks rallied after the price of gold edged higher overnight, with Evolution Mining rising 2.6 per cent and Newmont Corporation gaining 2.4 per cent.

Three of the four major banks closed in the green. Commonwealth Bank was up 0.8 per cent, ANZ Bank rose 0.3 per cent and National Australia Bank edged up 0.6 per cent. Westpac closed flat.

The laggards

Unlike the consumer discretionary sector, consumer staples dropped 1.4 per cent. Woolworths slipped 1.3 per cent, Coles 1.4 per cent, Treasury Wine 1.1 per cent, and A2 Milk dipped 3.4 per cent.

Mining giants, which are heavily exposed to global economic conditions, were generally weaker after a fall in the iron ore price. BHP fell 0.9 per cent and Rio Tinto lost 0.4 per cent. Iron ore miner Fortescue fell 0.7 per cent by the end of the trading day.

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The healthcare sector weakened, weighed down by industry giant CSL, which fell 0.8 per cent.

Several major energy stocks also lost ground. Woodside fell 0.1 per cent, Yancoal lost 1 per cent and Ampol slipped 1.5 per cent. Santos bucked the trend, moving 0.3 per cent higher.

The lowdown

After the Reserve Bank did not meet expectations to deliver rate cuts on Tuesday, market analyst Josh Gilbert said the decision took many by surprise.

“With inflation declining, April’s retail sales falling, and May’s jobs growth missing forecasts … the market will want some reassurance from the governor that a cut is still on the table in August,” he said.

“Holding too tight for too long could unnecessarily hurt the economy, and that will be the concern after today’s decision. The market sees a 75 per cent chance that the board will still deliver three rate cuts throughout the remainder of the year, but today’s decision is a clear reminder that the RBA is in no rush and that nothing is nailed on.”

Oxford Economics Australia’s head of economic research and global trade, Harry Murphy Cruise, said the tariff uncertainty and good news on inflation warranted a cut in July.

“Yes, the domestic economy has pockets of strength and unemployment is low, but we’d rather see momentum build in the economy ahead of a potential storm than risk being caught flat-footed if conditions sour,” he said.

“The RBA beats to its own drum, not the market’s.”

Markets were also reacting to Trump’s revived trade war after the US president sent letters threatening 14 countries – including Japan, South Korea and South Africa – with tariffs of at least 25 per cent if they don’t reach an agreement with the United States by August 1.

Stocks on Wall Street closed broadly lower on Monday. The S&P 500 fell 0.8 per cent for its biggest loss since mid-June. The benchmark index remains near its all-time high set last week.

The Dow Jones Industrial Average gave back 0.9 per cent. The Nasdaq composite also finished 0.9 per cent lower, not too far from its own record high.

The losses were widespread. Decliners outnumbered gainers by nearly four-to-one on the New York Stock Exchange.

Tesla tumbled 6.8 per cent for the biggest drop among S&P 500 stocks as the feud between chief executive Elon Musk and Trump reignited over the weekend. Musk, once a top donor and ally of Trump, said he would form a third political party in protest over the Republican spending bill that passed last week.

The selling accelerated after the Trump administration released letters informing Japan and South Korea that their goods will be taxed at 25 per cent starting on August 1, citing persistent trade imbalances with the two crucial US allies in Asia.

“If for any reason you decide to raise your Tariffs, then whatever the number you choose to raise them by will be added onto the 25 per cent that we charge,” Trump wrote in the letters to Japanese Prime Minister Shigeru Ishiba and South Korean President Lee Jae-myung.

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Trump said over the weekend that his administration would send letters to several foreign governments as early as Monday spelling out their tariff rates if they did not reach a deal before Wednesday – the culmination of a 90-day negotiating period set by the White House during which goods from most countries have been taxed at a baseline 10 per cent.

He also said on Sunday that he would impose an additional 10 per cent in tariffs against the BRICS bloc of developing nations, which had condemned tariff increases at its summit in Brazil. In addition to Brazil, the BRICS countries also include Russia, India, China and South Africa.

With the 90-day pause in US tariffs against a long list of nations set to expire, the threat of more severe tariffs hangs over the global economy once again.

“Just bringing back that meaty topic back into focus, after a strong week last week, has given a little bit of a pause in the market,” said Bill Northey, senior investment director at US Bank Asset Management.

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The near-term outlook will probably hinge on several key factors like the extent to which trading partners are included in Trump letters, the rate of tariffs, and the effective date of such tariffs, according to analysts at Nomura.

Last week, the Trump administration announced that it reached a deal with Vietnam that would allow US goods to enter the country duty-free, while Vietnamese exports to the US would face a 20 per cent levy. That was a decline from the 46 per cent tax on Vietnamese imports Trump proposed in April.

“The type of deal struck with Vietnam may be a blueprint for similar countries in the region with economies heavily reliant on large trade deficits with the US,” said Jason Pride, chief of investment strategy and research at Glenmede.

Bond yields mostly rose. The yield on the 10-year Treasury rose to 4.39 per cent from 4.34 per cent late on Thursday.

The downbeat start to the week follows a strong run for stocks, which pushed further into record heights last week after a better-than-expected US jobs report.

Stock indexes in Europe were mostly higher. Asian markets closed mostly lower.

Oil prices fluctuated after OPEC+ agreed on Saturday to raise production in August by 548,000 barrels per day.

With AP

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