Market Recap: Wall Street's Wild Reversal Drags ASX Down: Healthcare and Energy Hit Hardest

Good Evening,

Welcome to Equity Espresso’s Daily Market Recap. The last 24 hours of tariff ‘negotiations’ feel like watching a poker game where both players keep doubling down, and no one seems to be bluffing. Let's see who loses their stack first. We catch you up on all the US-China tariff updates, stocks to watch with Chinese exposure, plus why the U.S. 10-year treasury yield is surging. Let’s jump in.

Local Market

The market rollercoaster continues, with Australian shares retreating after yesterday's brief rally proved short-lived. The S&P/ASX200 index tumbled 135 pts (-1.80%) to close at 7,375.0, with all 11 sectors declining. Energy (-4.03%), Health Care (-3.55%), and Materials (-3.57%) led the broad-based selloff.

Overnight, Wall Street investors went on a wild ride, with the S&P500 surging as much as 4% before executing a complete reversal to close 1.6% lower. The sharp turnaround followed White House confirmation that a 104% tariff on Chinese imports would take effect from midnight (2:00 pm AEST today) after Beijing refused to withdraw its threatened retaliatory measures. All previously announced reciprocal tariffs also came into effect this afternoon.

The tariff battle between the United States and China feels like it’s only heating up. In the Stock Watch section of our newsletter, we highlight companies with significant Chinese exposure that investors should be monitoring closely.

It feels like our market is currently trading at the whim of the U.S. president. CSL (-4.96%) shares fell after Trump said he would announce a “major” tariff on pharmaceutical imports. Brent Crude oil futures dropped 4% to below $62.00/bbl, extending losses to a fifth consecutive session as fears of a global recession and reduced demand continue to climb.

It was a busy day for broker ratings, with nine companies seeing rating changes. Plus, we have detailed broker summaries for Guzman Y Gomez and Pilbara Minerals. Get all the details in our Broker Ratings section later in the newsletter.

The U.S. 10-year treasury yield is defying conventional logic and shooting higher, up over 20bps today at 4.46%. But why?

Well, to start with, one theory to explain Trump’s tariff actions is that it’s a ploy to push money out of equities and into the bond market, which should, in theory, push down treasury yields. And for a brief moment, they did. The 10-year fell under 4.0% last week for the first time since October last year.

Why is this important? Lower yields mean the U.S. can refinance its high-debt bill at lower rates, reducing the interest it pays. The U.S. needs to roll over around $9.2 trillion in debt that matures in 2025. When money exits the equity market (in other words, markets fall), one place it goes to is government bonds (treasury yields), which are deemed safer assets. This, in turn, creates more demand for bonds, pushing down the yield.

However, yields have shot up in the last week despite equity markets falling, with the U.S. 10-year surging. One potential (and speculative) theory for this? China is selling its U.S. treasuries on the market in a bid to fight back against the U.S. tariffs, increasing the supply of bonds and forcing yields higher. Tanking the equity market while pushing the yield higher would be a lose/lose scenario for the White House.

ASX Indices

ASX Sector Performance

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DISCLAIMER: Please note that the information provided in this newsletter is for educational purposes only and should not be considered financial advice. It is not intended to encourage you to buy/sell assets or make economic decisions. We strongly recommend conducting your own research before making any investment.