Fin-X Weekly Update 10th June 2025

Equities rose last week despite a softening economic outlook. The US dollar weakened and bond yields fell before rising on Friday following stronger-than-expected US payroll additions.

Tesla shares fell sharply after Elon Musk entered into a social media argument with President Trump, criticising the bill’s implications for future deficits and the reduction in environmental credits for electric vehicles.

The eurozone and Indian central banks cut rates, while the RBA remains on track to ease policy in July after Australian GDP growth fell short of expectations. 

This week’s focus will be on the US CPI figures, due to be released on Wednesday. Chinese inflation data is due out later today, and the monthly Australian business and consumer confidence surveys will be published tomorrow.

Equity markets made gains last week, showing resilience in the face of softening economic data and political uncertainty. The US dollar weakened, and bond yields declined early in the week, before rising on Friday due to a stronger-than-expected US labour market report.

President Trump’s flagship legislation, referred to as the “One Big Beautiful Bill”, continues to be challenged in the Senate. The bill faces opposition from both Democrats and some Republicans, primarily due to concerns over its long-term impact on public debt.

On Wednesday, the Congressional Budget Office (CBO) released an analysis estimating that the bill would increase federal deficits by US$ +2.4 trillion in primary terms over the next decade, or US$ +3.0 trillion including interest. The bill is also expected to remove health coverage for nearly 11 million Americans, mainly through cuts to Medicaid and the introduction of new work requirements.

The projected rise in deficits triggered a public disagreement on social media between President Trump and Elon Musk. Musk, a former head of the Department of Government Efficiency, voiced opposition to the deficit increase and criticised the proposed reduction in environmental credits, which would affect Tesla. Tesla’s stock dropped by -14.8% over the week.

Separately, the CBO noted that tariffs already announced before 13th May could help offset some of the fiscal impact of the bill, potentially generating US$ +2.8 trillion in revenue after accounting for the likely drag on economic growth.

Last week also saw the implementation of higher 50% tariffs on American steel and aluminium imports. EU officials stated this move could hinder ongoing trade discussions and may lead to accelerated retaliation.

President Trump also commented that negotiating a deal with China’s President Xi Jinping is proving “extremely hard.” Later in the week, Chinese State Media reported that the two leaders had spoken. Meanwhile, the US confirmed an extension of the current tariff pause on some Chinese goods through to 31st August.

On Tuesday, the Organisation for Economic Co-operation and Development (OECD) followed the IMF in cutting its growth outlooks for both the US and the global economy. The OECD now expects US growth of +1.6% in 2025 and +1.5% in 2026. The downgrade cited trade tensions and policy uncertainty as significant factors.

So far, “soft” survey data suggests slowing momentum, while “hard” recorded data is only just beginning to show signs of weakness.

The ISM manufacturing survey delivered another disappointing result, and for the first time in a year, the services index fell into contraction. Notably, new orders in the services sector declined sharply, while input prices remained high across both the manufacturing and services sectors.

The JOLTS report revealed a small upside surprise in job advertisements, but the ADP private payrolls report showed a very weak increase of just +37k jobs in May, the lowest reading since March 2023.

However, Friday’s official nonfarm payrolls report was more encouraging, beating market expectations with +139k new jobs added. This helped the S&P 500 index close above 6,000 for the first time since 21st February. However, much of the apparent strength was offset by prior two-month revisions totalling -95k jobs.

The unemployment rate remained steady at 4.2%, although this was supported by a -0.2% decline in the labour force participation rate, which dropped to 62.4%.

President Trump renewed pressure on the Federal Reserve, urging Chairman Jerome Powell to lower interest rates by a whole percentage point, highlighting that European central banks had already trimmed rates several times.

The European Central Bank (ECB) followed through with another -0.25% cut as anticipated on Thursday, bringing its main rate down to 2.0%. This came after eurozone inflation dropped to +1.9% yoy, just under the ECB’s 2% target. In Switzerland, the annual change in prices turned negative for the first time in four years, falling by -0.1%.

India’s central bank also delivered a larger-than-expected -0.5% rate cut, lowering its policy rate to 5.5%. This was the third cut since February and more than the anticipated -0.25% cut. The Reserve Bank of India also shifted its policy stance from “accommodative” to “neutral.”

In Australia, the Reserve Bank remains on track for another rate cut in July, despite a +3.5% increase to the minimum wage announced by the Fair Work Commission (FWC). While slightly below last July’s +3.75% increase, the FWC said that lower inflationary pressures allowed the award to increase by more than inflation in the next financial year. The benchmark real value of wages has fallen by -4.5% since July 2021.

Australian GDP data for the first quarter came in below expectations. The economy grew by just +0.2% in the quarter, down from +0.6% in Q4, with reduced public spending weighing on activity. Economists had forecast a +0.4% increase.

On an annual basis, real GDP rose by +1.3%, in line with the previous quarter but short of the +1.5% consensus forecast. GDP per capita declined by -0.2%, marking the tenth drop in living standards over the last eleven quarters.

Despite the soft headline figures, there was a notable improvement in household finances as the compensation of employees rose by +1.5% during the quarter. This helped the household savings-to-income ratio recover from 3.9% to 5.2%.

Looking ahead, the key release this week will be the US Consumer Price Index (CPI), scheduled for release on Wednesday night. Economists expect a slight increase in the annual headline rate from 2.3% to 2.5%.

Chinese inflation data is due out later today. European and Japanese industrial production figures, UK unemployment, and the Australian monthly NAB business and Westpac consumer confidence surveys all follow later in the week.

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