ASX to start 2025 with a hangover from Wall Street’s New Year’s Eve declines

Australian market watchers have raised concerns over what another Trump administration and an uncertain Chinese economy could mean for the local bourse in 2025 as markets come off a prosperous 2024.

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Analysts view Trump’s inauguration on January 20 as the first major test for the Australian sharemarket in 2025, which is likely to be followed by the Australian Reserve Bank’s interest rates decision on February 6.

Some of Trump’s policies – including new trade tariffs – spell trouble for global markets. IG market analyst Tony Sycamore said Trump’s immediate actions following his inauguration would be “very important” for the health of the Australian sharemarket.

“Most of the forecasts that I’ve seen say it’ll be a good year for the stock market if Trump does this or that,” Sycamore said in late December. “It depends on whether Trump prioritises tax cuts, regulation and cutting the fat off the US bureaucracy, or whether he goes for the tariffs.”

While the prospect of increased tariffs has accelerated inflationary fears, Trump’s agenda is also forecast to stimulate growth for big tech, industrial and mining stocks, and the banks, which are expected to enjoy increased borrowing demand as interest rates are lowered in 2025.

“Trump is quite supportive of the stock market in general,” Jessica Amir, a market strategist at Moomoo, said in an interview last week. “Cutting taxes, regulation and red tape is really good for tech stocks, especially the chip sector.”

AMP chief economist Shane Oliver has predicted the Australian dollar could face a “rough ride” under Trump, though he noted that lower spending in the US could also put upward pressure on the Aussie dollar.

“It wouldn’t surprise me if, as the US economy cools down into next year, that it leads to lower services inflation, which leads to lower inflation,” said Oliver, who expects constrained global growth in 2025.

“The Aussie dollar could turn less than 60¢ on the downside, or head towards high 60s if the US Federal Reserve turns dovish and the Chinese stimulus comes strong.”

The RBA is expected to cut interest rates as early as February, as underlying inflation falls further and unemployment rises. The federal election, slated for sometime between March and May, might prompt an increase in government spending, although it is unlikely to influence short-term economic policies.

With Bloomberg