Fin-X Weekly Update 2nd June 2025

Asset prices moved higher last week after the US administration postponed new tariffs on European goods and a court ruling blocked several of President Trump’s broad-based tariff orders. The President responded by increasing sector-specific tariffs and vowing to explore alternative legal paths to reinstate broader trade measures.  

Nvidia’s first-quarter results reassured investors with strong revenue growth and a solid outlook despite export curbs. 

This week, markets will receive Australia’s Q1 GDP result, the ISM surveys, and the American labour report on Friday. Rate cuts are anticipated from the ECB and the Reserve Bank of India.

Financial markets absorbed a complex mix of geopolitical developments, economic data, and earnings updates this week, with equity markets broadly stable and bond yields drifting lower. While risks around US trade policy remained elevated, stable fundamentals helped support sentiment. 

Global equities rallied on Tuesday following the reopening of US markets after the Memorial Day holiday. President Trump had announced on Sunday that a planned 50% tariff on European imports would be delayed until 9th July.  

That positive momentum was reinforced midweek by a significant court ruling. On Wednesday, the US Federal Court of International Trade ruled unanimously that President Trump had overreached his authority under the International Emergency Economic Powers Act (IEEPA). The court invalidated several executive orders, including a 25% tariff on Canadian and Mexican imports, a 20% tariff on Chinese goods tied to drug trafficking allegations, a 10% general tariff on all US trading partners addressing trade deficits, and the deferred “reciprocal” tariffs of 20–50% on over 60 trading partners, due to activate in July unless trade agreements are reached in the meantime. 

The ruling does not affect sector-specific tariffs such as those on steel, aluminium, and autos, nor selected country-specific measures, most notably those targeting China.  

Over the weekend, President Trump doubled down on protectionist rhetoric, announcing plans to increase steel tariffs to 50%, citing the need to "further secure the US steel industry." His comments followed the approval of Nippon Steel's acquisition of US Steel, a deal that President Biden had previously blocked on national security grounds. 

The court’s decision has weakened the administration’s negotiating leverage. Treasury Secretary Bessent acknowledged that talks with the EU were inching forward, but that progress with China had "stalled." President Trump escalated tensions further with a public statement accusing China of reneging on the recent Geneva tariff truce, stating: “So much for being Mr. NICE GUY!” 

In the aftermath, reports emerged that White House officials are now evaluating alternative legal and legislative routes to reimpose key elements of their tariff policy, including options that were previously set aside. These may include reliance on alternative texts or seeking new Congressional legislation. 

The setback coincides with growing signs of internal administration strain. Elon Musk formally exited the administration this week, and the ambitious DOGE spending cuts have fallen well short of the original $1 to $2 trillion target. If tariffs continue to be obstructed, the US could face a much more expansionary fiscal outlook. 

Despite the government’s determination, tariffs remain unpopular with voters, and a stronger-than-expected rebound in consumer confidence followed the reduction in Chinese import tariffs from 145% to 30%.  

Ongoing uncertainty makes it difficult for other policymakers to choose how to respond. The latest minutes revealed broad support for a wait-and-see approach at the Federal Reserve. FOMC member Neel Kashkari said he was unsure whether the Fed Funds rate would be cut by September. 

Nevertheless, global bond yields moved lower. Japanese long yields tumbled on Tuesday after the Ministry of Finance said that it might reduce the quantity of long-dated debt issued due to rising yields. The prospect of a drop in supply constrained yields at the long end of global government curves. On Friday, an unexpectedly benign PCE annual inflation reading of +2.1% then further helped bonds rally into the end of the week. 

Australian bond yields also declined, despite a modest upside surprise in the monthly CPI. As this is not the RBA’s preferred inflation measure, the reading is unlikely to influence near-term policy. Meanwhile, softer-than-expected retail sales added to signs that domestic demand is moderating, despite a weather-related rebound in Queensland. 

Although there were plenty of significant macroeconomic headlines, equity indices remained relatively stable. Markets were underpinned by better-than-expected corporate earnings and reassuring data. 

In China, industrial profits rose by +3.0% yoy in April, bringing year-to-date growth to +1.4%. Analysts attributed the strength to targeted policy support for the private sector. Notably, state-owned enterprises reported a -4.4% decline over the same period. Official PMI surveys released over the weekend were little changed from April, with manufacturing at 49.5 and services at 50.3, both signalling subdued but steady activity.  

One of the week’s most closely watched earnings reports came from Nvidia. While results suggested a potential deceleration in growth, the company still posted an impressive +69% annual sales increase to US$44.1 billion in Q1, driven by continued dominance in AI accelerators and expansion across software and hardware platforms. Management guided to Q2 revenue of around US$45 billion, even after factoring in a US$8 billion hit from new US export restrictions to China. CEO Jensen Huang expressed concerns about the restrictions hindering Nvidia's long-term growth and appealed to the administration to allow the company to resume chip deliveries to China. 

This week, the ABS is expected to report annual Australian GDP growth of +1.5%. In the US, the ISM surveys are likely to indicate slow growth, while Friday’s labour report is expected to show that American unemployment remained at 4.2% in May. The ECB and the Reserve Bank of India are both expected to trim policy rates. 

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