Key Takeaways
- Equity Markets across the world wobble as tariff terrors escalate.
- Interest rates normalise but some central banks maintain a 'wait and see' approach.
- Property holding up, despite more stock leading to higher days on market.
April 2025: Rate Decision, Property & Economy
Welcome to April - yes already. The RBA announced its second decision for 2025, leaving the official cash rate at 4.10%.
Money markets were not expecting a second interest rate cut, with the Federal election called and the RBA waiting for more evidence that inflation is sustainably returning to its 2 to 3% target. So this result was not a surprise, though we know the RBA have a history of unpredictability.
Fears of a weakening in the US economy are starting to rise in markets, amid concerns about the President Trump’s trade tariffs and abrupt slashing of government spending.
The world waits a little to see what direction that gives.
Budget Comes & Goes
The budget was announced last month without too much fanfare, the tax cuts are delayed but will be on the RBA's mind. The predicted years of growth are heavily supported by Government spending. The concern is the outlook for business investment growth in Australia, rising to only 1.5% in the next two financial years.
Many of looking for some policy to stimulate productivity rather than relying on Government deficits.
Looking into Employment Data
Leaning in from above, analysis from AI Group shows that of the 484,000 new jobs created in 2024, only 20% (99,000) were in the private sector.
So 80% of all job creation was in either the public sector or non-market sectors. Employment generation was mainly driven by increases in government funding, not underlying market conditions.
Public sector jobs continued to surge in 2024, growing by 164,000 (an annual record, and nearly three times the increase of 2023). While growth in the non-market sector moderated slightly, it still accounted for nearly half of all new jobs in Australia.
RBA Positioning
With the first rate drop at the February 2025 meeting, the RBA commentary talked about subdued growth in private demand and the easing of wage pressures.
There was mention of both inflation and caution ahead: "Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance". However, While today’s policy decision recognises the welcome progress on inflation, the Board remains cautious on prospects for further policy easing."
Shares & Markets
The All Ordinaries market showed red ink, and was in part expected given the anticipation of future interest rate cuts.
It is not a great time in equity markets. Investors are sensitive to the upcoming Australian election, US tariffs and policies, the low level of US consumer confidence and fears of further inflation. These issues are shaking markets.
Equity Markets Worldwide
The local equity market was largely reflective of tougher international sentiment in recent months. It has been building, the fresh round of tariffs is the lever with yesterday a tough day in particular. Red ink everywhere as a result.
|
Country |
Mark |
1 Month |
6 Months |
1 Year |
5 Years |
|
Australia |
All Ords |
-4.2% |
-5.6% | -1.1% | 57.7% |
|
Germany |
Dax |
-1.6% |
14.7% | 22.8% | 133.1% |
|
Japan |
Nikkei Dow |
-4.1% |
-6.1% | -10.5% | 99.8% |
|
UK |
FTSE |
-2.5% |
4.1% | 8.1% | 57.1% |
|
USA |
Dow Jones |
-5.5% | -1.8% | 5.1% | 92.2% |
|
Average |
-3.7% | 1.2% | 6.2% | 90.2% |
Concerns around trade conditions started to impact results. In the US, this policy has been a part of limiting growth expectations, inflation expectations and impacting consumer sentiment.
The 5 year comparisons show great growth, due to the fact we are now 5 years from the Covid-19 troughs of 2020. Time flies.
Direction for Local Interest Rates?
Some subtle changes in the period regarding future rate trends. There are lower expectations for rate falls in the short term, but more material falls expected over the next 12 months with the view that the RBA will need to take stronger action.
As a result, the graph shows later falls priced in for the ASX Cash Rate Futures.
Of course, this will continue to change if expectations are not met.
Interest Rates Worldwide
The story of central banks worldwide is still mainly on easing rates. This was led by NZ, Canada and the UK with the US now being the potential outlier.
New Zealand's central bank meets next week. Already down to 3.75%, with inflation now at the midpoint of their target band, combined with weak growth and employment data. Expect more cuts.
The U.S. Federal Reserve held interest rates at their current level of 4.25%. The Fed also released its quarterly "dot plot" forecast, which estimates a 0.50% reduction by the end of 2025, and a further half-point drop in 2026. Fed Chair Jerome Powell was cautious though. “I think we are not going to be in any hurry to move," he said. "I think we are well positioned to wait for further clarity and not in any hurry.”
In the UK, The Bank of England held the base rate at 4.50% in March against a backdrop of rising inflation, persistent wage growth, and an escalating global tariff war. Markets expect that cuts are coming but BoE are being cautious.
Canada delivered another 25-point rate cut last month to just 2.75%. The Bank of Canada has now cut by 225bps since the start of its easing cycle in June 2024.
Central Bank Cash Rates
Before posting any changes today, we compare central bank cash rates and their longer term 10-year bond yields.
We continue to see a return to more normal yield curves. This is due to short-term rates softening and their respective 10-year bonds holding ground.
|
Country |
Cash Rate | 10 Year Bond | Spread |
|
Australia
|
4.10% | 4.45% | 0.35% |
|
Canada
|
2.75% | 3.01% | 0.26% |
|
China
|
3.10% | 1.88% | -1.32% |
| Germany | 2.65% | 2.73% | 0.08% |
| India | 6.25% | 6.82% | 0.57% |
| Japan | 0.50% | 1.53% | 1.03% |
| New Zealand | 3.75% | 4.66% | 0.91% |
| UK | 4.50% | 4.70% | 0.20% |
| USA | 4.50% | 4.25% | -0.25% |
| Average | 3.57% | 3.78% | 0.21% |
Local Money Markets
Australia’s longer-term interest rates continue to move about but we are largely no where near we were from December. Short term rate drops are priced in and this means that Australia's yield curve will be more normal (for now).
This says that the markets overreacted post US election on fears of higher inflation monetary policy settings.
Residential Property Performance
The latest residential monthly property results from CoreLogic (see table below) rose by 0.4% in March, a decent uptick from previous periods. This was in part the result of the rate drop and perhaps part of the market recalibrating.
| Location | Month | Quarter | Annual |
|
Adelaide
|
0.8% |
1.0% |
11.0% |
|
Brisbane
|
0.4% |
0.9% |
8.6% |
|
Hobart
|
-0.4% |
0.2% |
-0.2% |
|
Melbourne
|
0.5% |
0.3% |
-2.6% |
|
Sydney
|
0.3% |
0.4% |
0.9% |
|
Perth
|
0.2% |
0.3% |
14.3% |
|
All Capitals
|
0.4% |
0.5% |
2.8% |
|
All Regionals
|
0.5% |
1.4% |
5.3% |
Property Trends
Melbourne & Sydney city values were pivotal to the overall result, while the pace of house price growth in Adelaide, Brisbane and Perth continues to level out. Forward indicators such as time on the market remains weak. A combination of vendors holding off and buyers looking for more borrowing capacity.
With property being Australia's highest value asset class, it is clear why any material movements have an impact of the psyche of individuals. Currently, Residential Property represents around 55% of the traditional asset classes.
RESIDENTIAL PROPERTY - $11.2 Trillion
AUSTRALIAN SUPERANNUATION - $4.2 Trillion
AUSTRALIAN LISTED EQUITIES - $3.3 Trillion
COMMERCIAL PROPERTY - $1.3 Trillion
Against the $11.2T value of Residential Property, there is currently $2.4T of Mortgage debt.
Anecdotally at least, we are seeing a bigger wave of people looking to get set for their property needs.
Business Balance Sheets
As we discussed last time, with income levels and productivity remaining stagnant, we are seeing the 'working capital days' of many businesses starting to stretch out.
This is coming through with longer collection days, and slower inventory turnover for example. This is also at a time when the ATO and other regulatory bodies are being tougher in their recovery regimes.
On the whole, banks have been supportive when challenging times arrive, and arrears level are at manageable levels currently.
Currency Wrap-Up
The Australian dollar has endured another challenging time, and we finally tested international markets with a drop in our local cash rate. The AUD is sensitive to that of course. We still wait to digest the ultimate impact of the US tariff changes too.
The Aussie dollar does have some underlying support, but more volatility should be expected in the near term.
| Country | Type | $1 AUD Buys | Period Change | Year Change |
| Canada | Dollar | 0.90 | -0.3% | 1.6% |
| China | Yuan | 4.57 | -1.0% | -1.7% |
| Eurozone | Euro | 0.58 | -3.4% | -3.7% |
| Japan | Yen | 94.2 | -2.2% | -4.5% |
| New Zealand | Dollar | 1.10 | -0.9% | 1.0% |
| UK | Dollar | 0.49 | -3.3% | -6.0% |
| United States | Dollar | 0.63 | -1.1% | -3.6% |
The second half of the year may be a better time for our dollar, especially when downside risks are fully understood and the next economic cycle kicks into gear.
2025 RBA Policy Announcement Dates
We hope you enjoyed our second Economy & Property Insights post for 2025, thanks for reading.
Monetary Policy Announcements will be made at 2.30pm on the following Tuesdays in 2025:
• 20 May
• 8 July
• 12 August
• 30 September
• 4 November
• 9 December
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