The Australian stock market bounced back on Tuesday, with the benchmark S&P/ASX 200 index closing up more than 2%, marking its biggest one-day gain in over two years. This rebound came despite looming threats of increased tariffs between the US and China, which have raised concerns about a potential global trade war. Investors piled back into Australian shares, erasing some of the steep losses suffered on Monday when the market fell by more than 4%.
The recovery was influenced by gains in the US futures market, despite President Donald Trump’s fresh threat to raise tariffs on China by an additional 50% if Beijing doesn’t withdraw its own tariffs. China’s commerce ministry has vowed to fight US tariffs “to the end.”
Chris Weston, head of research at Pepperstone, stated that Trump’s new tariff threat poses a significant risk for traders. There is growing concern that a full-blown trade war could lead to a recession and a liquidity crunch similar to what was seen during the early pandemic.
The Australian dollar was trading at US60.5c late on Tuesday afternoon, representing a robust rebound for the day.
Australian market sees significant gain
A weaker currency generally impacts Australian travelers and consumers buying overseas goods negatively but benefits exporters.
The Australian economy’s strong link to commodity prices, particularly iron ore, means that any slowdown in global economic activity, especially in China, could be detrimental. Long-term institutional investors had already begun reducing their exposure to shares last month in anticipation of the “liberation day” tariff announcement, according to data from State Street Global Advisors. Investors typically limit risk by allocating more of their portfolio to cash and fixed income while reducing exposure to more volatile assets like equities.
The market’s response highlights the delicate balance traders face amid escalating trade tensions and the ongoing search for stability in an unpredictable global economic landscape. All 11 sectors on the ASX finished higher, with energy, mining, and technology stocks rebounding from heavy losses in the previous session. However, some experts caution that this might be a temporary relief rally, as macro data and economic indicators do not suggest that the sell-off is over.
