Your Weekly Edge



The following audio episode  provides an in depth discussion of this weeks news from "The Edge".

 

 
 

The Weekly Edge – Up to 18th February 2025 

​ Brought to you by the team at Gilt Investments

Welcome to The Weekly Edge, your definitive source for expert insights into the major financial and economic events shaping global and Australian fixed-income markets. Each day, we publish The Edge, an exclusive market update offering real-time analysis of critical developments. This weekly recap consolidates those insights, highlighting key themes, market trends, and strategic considerations for investors.

Major Market Developments This Week


1. U.S. Policy and Global Trade Uncertainty

  • President Donald Trump’s aggressive fiscal policies continued to disrupt global markets. His administration's push to shrink the U.S. federal workforce has led to layoffs and operational disruptions in various government agencies​.
  • Trump’s collaboration with Elon Musk’s Department of Government Efficiency is pressuring municipal bonds backed by government lease payments, raising concerns over potential debt volatility​.
  • Trade frictions escalated further as Japan requested exemptions from Trump’s reciprocal tariffs​, while South Africa prepared a bilateral trade proposal to maintain preferential U.S. market access​.
  • A looming U.S.-EU trade war is causing anxiety, with German Chancellor Olaf Scholz warning of economic ramifications should Trump push ahead with tariffs​.

2. Monetary Policy and Inflationary Pressures

  • Federal Reserve Chair Jerome Powell reaffirmed that the central bank is in no rush to cut interest rates, dampening equity market sentiment. The Fed continues to price in only one rate cut this year​.
  • The Reserve Bank of Australia (RBA) surprised markets by cutting interest rates to 4.10%. While the RBA cited easing inflation, concerns remain that ongoing geopolitical risks and tariffs could drive inflation back up​.
  • The Commonwealth Bank of Australia (CBA) reported an eye-watering $5.13 billion profit for the past six months, sparking debate over the dominance of major Australian banks and their pricing power over consumers​.

3. Commodities & Market Dynamics

  • Orange Juice futures suffered their worst weekly drop in 57 years, falling 22.5% in one week as market sentiment shifted due to improving supply dynamics​.
  • Copper futures saw a surge in speculative buying, with hedge funds increasing long positions amid uncertainty over potential tariffs​.
  • Coffee prices skyrocketed, with futures up 30% year-to-date, contributing to higher consumer prices for roasted and instant coffee​.
  • The sugar market is tightening, with India’s disappointing output raising concerns over higher sugar prices in the coming months​.

4. Geopolitical Risks and Economic Tensions

  • U.S. diplomatic maneuvering over Ukraine took center stage, with Prime Minister Keir Starmer pressing Trump for security guarantees while France held emergency meetings to discuss concerns over a possible U.S.-Russia peace deal​.
  • The Trump administration proposed a controversial deal that would give the U.S. half of Ukraine’s natural resource revenue in exchange for continued military aid, raising ethical and sovereignty concerns​.
  • Nissan issued warnings over potential U.S. tariffs on Mexican imports, stating that a 25% tariff would force the company to reconsider its production operations in Mexico​.


Gilt Investments’ Fixed Income Strategy: How to Position Your Portfolio

Given the evolving macroeconomic environment, Gilt Investments provides the following recommendations for fixed-income investors:

1. Positioning for Geopolitical and Trade Uncertainty

  • Investors should consider allocating to high-quality sovereign bonds such as:
    • U.S. Treasuries (USTs): Safe-haven assets that benefit during market volatility.
    • Australian Government Bonds (AGBs): Defensive in nature and attractive given the RBA's recent rate cut.
    • German Bunds: A hedge against escalating U.S.-EU trade risks.

2. Yield Opportunities in Credit Markets

  • With banks tightening lending standards​, corporate credit spreads may widen. Investors should focus on:
    • Investment-Grade Corporate Bonds: Offering a balance of safety and yield, especially in sectors less exposed to trade risks.
    • Supranational Bonds: Issued by entities like the World Bank, these provide global diversification and stability.
    • Australian Corporate Bonds: Some well-capitalized issuers offer strong yields without excessive risk.

3. Inflation Protection Strategies

  • Given potential inflationary pressures from tariffs and commodity price volatility, consider:
    • Inflation-Linked Bonds (ILBs): Protect purchasing power as coupon payments adjust with inflation.
    • Floating Rate Notes (FRNs): Provide higher yields if interest rates rise unexpectedly.
    • Commodities-Linked Bonds: Exposure to commodities could hedge against price surges in markets like copper and sugar.

4. Defensive Allocation Amid Economic Uncertainty

  • With central bank rate policies in flux, a barbell strategy combining:
    • Short-duration bonds for flexibility and reinvestment potential.
    • Long-duration bonds for capital appreciation if rates decline further.


Final Thoughts

Markets remain volatile, with Trump’s economic policies, global trade tensions, and shifting central bank strategies shaping fixed-income opportunities. This week underscored the importance of staying adaptable, hedging geopolitical risks, and positioning portfolios to capitalize on evolving yield dynamics.

For deeper insights and tailored fixed-income solutions, stay tuned for next week’s edition of The Weekly Edge.

— Brought to you by the team at Gilt Investments


Disclaimer

This publication has been prepared by Gilt Investments Pty Ltd and is for informational purposes only. It contains general financial product advice that does not take into account your personal objectives, financial situation, or needs.

Before acting on any information contained herein, you should consider whether it is appropriate for your circumstances and seek independent professional advice.

While every effort has been made to ensure the accuracy and reliability of the information provided, Gilt Investments, its directors, employees, and agents make no representations or warranties, express or implied, as to the completeness, timeliness, or accuracy of the content. Any opinions expressed are subject to change without notice.

Gilt Investments disclaims all liability for any loss or damage arising from reliance on the information contained in this report. Past performance is not indicative of future results, and all investments involve risk.