Ignore the market's embrace of the US/China 90-day de-escalation of the tariff war and the recent announcement of the US/UK trade deal. These are little more than window dressing of what will soon become apparent as a severe misstep by the US administration on tariffs. Damage has already been inflicted on the US economy, which will continue to be plagued by uncertainty of the new 90-day negotiating period with China. What business looks for is a stable operating environment and the US economy has had anything but since Trump took office.
The market is still trading April statistics that mask the true cost to the US consumer of tariffs. Pre tariff buying increased the US trade deficit in March and increased inventories as companies stocked up before tariffs came into effect. Most of the goods arriving in the US now will be subject to the tariff which will see markets reset.
Steiner is saying that the US imported beef market has slowed noticeably in recent weeks as new beef contracts are written under the new tariff arrangements. Expect this to be a common theme across all US markets that rely on imported goods.
The International Monetary Fund (IMF) has slashed global growth forecasts for this year by 0.5% to 2.8%, well below the long-term average of 3.7%. Soon you will see US inflation begin to rise and investment and growth indicators slow.
Our own Reserve Bank of Australia (RBA) is expected to lower the cash rate at its next meeting on May 20 by 0.25% to counter to impacts on the Australian economy that is heavily exposed to a slowing in global growth. The RBA’s focus will shift from managing inflation to maintaining growth. It expects that the trend of lower inflation will be reinforced with the redirection of Chinese goods away from the US economy. The market expects the RBA to reduce rates by up to three times before year’s end to protect the Australian economy from the fallout of US tariffs.
In recent weeks, China has been signalling to the US that it doesn’t need its goods, possibly to prove a point for upcoming trade negotiations. Last week it signed a letter of intent to purchase $900m of Argentine soybeans and has continued to diversify grain purchases away from the US to Europe, Australia and Canada. Last week’s purchase of Australian wheat was the first in more than a year, while they also recently approved another 10 Australian sheepmeat plants and extended the licenses of seven more for export to China. These moves could be seen as a quasi-nod to non-US exporters that China wants to expand trade.
There remains a great deal of uncertainty about whether US/China can strike a long-term deal and the longer this uncertain environment drags on the greater the impact on the real economy. We should soon see some of the impact of the tariffs come through in US economic data. This week we have US CPI, retail sales and US producer price index, which may give some indication of the tariff impact but the data still has a lag so it won’t reveal the full tariff impact.
While Australian beef and sheepmeat markets have strong underlying fundamental support signs that the global economy is about to soften may prove a headwind for prices.
Elders Business Intelligence Analyst Richard Koch combines a deep understanding of global market dynamics with regular insights from Elders staff on the ground, providing informed analysis shaped by both data and real-world observations.