Australian shares climbed strongly on Tuesday, tracking a broader rally across Asian markets, as investors reacted to China’s strong stance against the renewed US tariff threats and signs of diplomatic engagement from Japan. The benchmark ASX 200 index rose by 1.8% to reach 7,477 points by midday, with banks and miners leading the gains.
The recovery comes after days of volatility driven by escalating trade tensions, particularly following US President Donald Trump’s renewed commitment to tariffs on Chinese imports. Markets were whipsawed overnight, with the Dow Jones Industrial Average seeing significant intraday swings, while the S&P 500 closed marginally lower and the Nasdaq inched higher.
China Responds, Japan Engages
In a statement that injected renewed energy into markets across Asia, the Chinese government vowed to “fight to the end” against Trump’s tariffs. Beijing confirmed it had begun strategic buying of domestic equities via state-owned firms to stabilise its markets and curb panic selling.
Meanwhile, Japan has initiated plans for trade negotiations with US Treasury Secretary Janet Yellen, a move welcomed by investors as a potential sign of de-escalation. Tokyo’s Nikkei index surged more than 3% on hopes of diplomatic breakthroughs and resilient corporate earnings.
The developments lifted investor sentiment across the region, helping reverse some of the losses triggered by what analysts have dubbed “Monday Mayhem” – a steep sell-off across global equities triggered by fears of a prolonged trade war.
Australian Market Snapshot
On the ASX, financials and resources were the strongest sectors in early trade. The “big four” banks posted gains, with Commonwealth Bank and NAB rising more than 2%. Mining giants BHP and Rio Tinto also saw solid increases, buoyed by firmer commodity prices and easing global recession fears.
Energy stocks rose in tandem with global oil prices. Brent crude rebounded by 1.1% to US$64.91 per barrel, supported by easing concerns over demand destruction. Gold also rallied, nearing the psychological US$3,000/oz mark, as investors sought safe-haven assets in a climate of persistent geopolitical uncertainty.
Australian Dollar and Broader Markets
The Australian dollar strengthened by 0.7% to 60.23 US cents, helped by the improved risk appetite and rising commodity prices. However, the currency remains under pressure due to soft domestic economic data and expectations of a cautious Reserve Bank of Australia (RBA).
Business confidence remains in negative territory, with surveys showing a slump even before the latest tariff announcements. Consumer sentiment also dropped to a six-month low, indicating ongoing nervousness among households amid cost-of-living pressures and uncertainty over interest rates.
Despite the upbeat trading session, analysts cautioned that volatility is likely to persist. Goldman Sachs estimates the chance of a US recession is now nearly 50-50, even if some of the proposed tariffs are rolled back. The investment bank pointed to weakening global demand, policy uncertainty, and the potential for retaliatory measures by China, the EU, and other major economies.
RBA Watching Closely
The Reserve Bank of Australia signalled it is “watching developments closely,” particularly the impact of global trade tensions on the Australian economy and currency. The RBA is widely expected to hold interest rates steady in the near term but may consider further easing if inflation remains below target and external risks intensify.
Bond markets continue to reflect investor caution, with yields remaining subdued. Traders are pricing in the potential for more dovish central bank policies globally, particularly if trade disruptions lead to slower growth or supply chain challenges.
What Lies Ahead
Investors are now turning their attention to upcoming US inflation data and earnings reports from major companies, which could offer fresh insight into the health of the world’s largest economy. Meanwhile, geopolitical developments around the Trump administration’s trade policies are likely to remain the dominant theme for markets in the short term.
The rebound on Tuesday, while welcome, is not yet seen as a definitive recovery. Some analysts warned it could represent a “dead cat bounce” – a temporary reprieve in a longer-term downtrend – especially if diplomatic efforts falter or retaliatory trade actions escalate.
Still, for today at least, optimism returned to the Australian share market, with renewed investor interest in key sectors and hopes that the worst of the panic selling may be over – at least for now.
