Rudi’s View: Share Market Scenarios & Dilemmas

Rudi's View | Apr 09 2025

By Rudi Filapek-Vandyck, Editor

Monday's session on the ASX was expected to be brutal as the US administration shows no signs of backing down from its "reciprocal" import tariffs (note the " ").

China's response has been equally forceful, while the European Union seems in no mood to acquiesce either.

Just as the local market was seemingly on the brink of breaking down, capitulating maybe, buy orders started coming in, just like in the old John Wayne movies.

All of a sudden, stocks that were down -10% and more reduced their losses and some --like WiseTech Global ((WTC)) and Car Group ((CAR))-- even brought some green back on the market's screen.

At its low point around 11am, with forced selling and margin calls hitting the market hard, the ASX200 was down nearly -7%, which would mirror the type of days experienced during the covid crisis in 2020. By the closing bell, those losses had been reduced to -4.23%, still the heaviest one-day loss since 2020.

Is this it? Has the local share market now seen its low for the year?

That would be an incredibly bold prediction to make. But we won't know until we look back with hindsight at some stage later in the year.

What we do know is the US administration is willing to gamble the US economy on getting a "better deal" from the rest of the world and this involves "pain now" for gains later.

I think there are, roughly assessed, three key reasons as to why markets have responded with extreme moves following the April 2 tariff announcements:

-Firstly, the tariffs itself are seemingly put together by a group of mad men, based on illogical calculations, covered by spurious spin and explanations. They don't seem to offer, at face value, a lot of room to negotiate. Unless one believes this is Trump's Art of the Deal strategy whereby the first gambit is to go overboard in order to confuse and bedazzle the opposition.

The good news is if this is the strategy, there's a lot of wiggle room.

-The second reason is closely correlated as many investors, hedge funds included, have been painfully wrong-footed on April 2. Hence, serious portfolio re-adjustments needed to be made. With share prices falling rapidly, margin calls came in and forced selling has taken place.

This is also why gold took a step back whereas its status as a safe haven would suggest otherwise. Sometimes gold is being sold because it's the only asset that is not de-rating in a hurry.

The not so good news here is this opens up the risk for financial contagion and corporate failures. Underneath the surface of today's market moves hides a lot of potential for more negative events, in particular since currencies and commodities have equally been on a gigantic rollercoaster.

-The third reason is that tariffs and share market turmoil significantly increase the odds for economic recession, in the US and elsewhere. Global supply chain disruption and extreme uncertainty caused by these tariffs are likely to weigh on sentiment among both consumers and businesses and this makes a loss of economic momentum all but plausible.

Whether it will cause negative economic growth is something we are going to find out from, say, mid-year onwards, so there's still time. The longer tariffs and uncertainty remain in place, the more likely we will see recessions.