Fin-X Weekly Update - 4th August

Corporate earnings largely beat expectations last week, but higher tariffs, data disappointments, and a hawkish Federal Reserve weighed on stock indices. 

Australian Q2 inflation data improved, leading the market to fully price an August rate cut. 

With relatively little significant data due out, the focus this week will likely centre on earnings, with the Bank of England also set to cut rates. 

Global equity markets lost momentum last week as positive earnings results were overshadowed by tariff announcements, weaker economic data, and a more hawkish tone from the US Federal Reserve.  

Earnings announcements were broadly upbeat, with earnings from the two-thirds of the S&P 500 constituents so far having reported delivering an average annual increase of +8.1%, with over 82% beating analyst expectations. 

Among the most-watched results were the US mega-cap technology firms. Microsoft shares rose +2.0% following stronger-than-expected earnings. Apple and Amazon both reported profits that were ahead of expectations. But the share prices fell -5.4% and -7.0%, respectively, as investors reacted to concerns over future demand, tariff threats, and high capital expenditures. 

In Australia, Rio Tinto cited tariffs as a growing risk to its outlook after reporting a -16% annual decline in underlying profit to US$4.8 billion, the lowest in five years. 

Despite widespread concerns over trade, investor reactions appear somewhat complacent. Analysis published by FactSet analysis suggests that sell-side analysts have yet to materially downgrade earnings expectations in response to higher tariffs. 

The US announced new tariff rates for multiple countries last week. South Korea secured a 15% tariff, in line with recent rates to be applied to imports from Japan and the EU. India’s rate was set at 25%, while Canada saw non-USMCA imports suddenly rise from 25% to 35%. Brazilian goods will attract a 90% tariff, and Indonesia, Vietnam, and Switzerland saw rates set between 19% and 39%.

Mexico secured a 90-day extension of its 25% rate as negotiations are ongoing.

Talks with China also continued, with a possible extension beyond the August 12^th deadline under consideration. The US also announced plans to tighten enforcement of transhipment rules to prevent tariff circumvention through third countries.  

As the tariff announcements were made, the White House found itself under pressure from disappointing economic data.  

The second quarter GDP reading showed a +3.0% annualised gain, but this was distorted by a significant drop in imports, which appear as a positive contribution.  

The ISM Manufacturing index also unexpectedly declined to 48, while its employment component fell to 43.4, indicating further contraction.  

Labour market data then surprised sharply to the downside on Friday night. The US added just +73k jobs in July, well below expectations. Revisions to previous months shaved off another -258k roles, leaving May and June gains at only +19k and +14k, respectively. The unemployment rate ticked up from 4.1% to 4.2%, as anticipated. 

President Trump reacted angrily to the labour report, promptly dismissing the commissioner of the Bureau of Labour Statistics and drawing heavy criticism. 

Earlier in the week, the Federal Reserve held rates steady at 4.25%–4.50%. Two committee members dissented in favour of a cut, citing early signs of labour market softness. However, the majority opted to wait for more data, given the apparent strength of the labour market. Markets now see a high probability of a rate cut in September.  

Separately, Board member Adriana Kugler resigned, effective August 8th, providing the president an opportunity to nominate a successor. With Chair Jerome Powell likely to leave in May or earlier, this provides an opportunity to install a somewhat more dovish committee. 

The week’s events caused wild swings in the FX at bond markets. The US dollar (DXY) index had strengthened following the FOMC meeting but tumbled along with stock prices and bond yields in Friday’s trading session after the trade and employment announcements. 

Treasury yield volatility seems likely to continue after the quarterly refunding announcement published on Monday showed that only $65 billion in new paper had been issued by the US government in the second quarter, well below the $514 billion estimated in April. During the July – September 2025 quarter, Treasury expects to borrow $1.007 trillion in privately-held net marketable debt, $453 billion than previously estimated and $590 billion in Q4. 

Overseas volatility will be another factor for the RBA to consider at its meeting next week. However, the market is already fully pricing an August cut after annual headline inflation slowed by slightly more than anticipated from +2.4% in Q1 to +2.1% in Q2. The critical annual trimmed mean measure was confirmed to have slowed from +2.9% to +2.7%, as anticipated. June retail sales increased by more than expected on discounting. This was the series’ final release, as it will be replaced by the Household Spending report, due out next week.

Earnings announcements are likely to dominate the news next week due to a relatively light calendar of economic data. However, the Bank of England is expected to lower the base rate by a quarter point to 4.0% on Thursday. 

Approximately two-thirds of S&P 500 have reported Q2 earnings. Annually the S&P 500 is reporting double-digit growth and above analysts consensus expectations. Factset earnings insight link.

US earnings calendar 

Monday (4^th): Palantir (PLTR), MercadoLibre (MELI), Vertex Pharmaceuticals (VRTX), Williams Companies (WMB), ON Semiconductor (ON), Tyson Foods (TSN) 

Tuesday (5^th): Advanced Micro Devices (AMD), Pfizer (PFE), BP, Caterpillar, Amgen (AMGN), Duke Energy (DUK), DuPont (DD),  

Wednesday (6^th): Walt Disney Co(DIS), Shopify (SHOP), Energy Transfer (ET), McDonalds (MCD), Airbnb (ABNB), Uber Technologies (UBER), Fortinet (FTNT), Novo Nordisk (NVO),  

Thursday (7^th): Gilead (GILD), Twilio (TWLO), Eli Lilly (LLY), Datadog (DDOG) 

Friday (8^th): Under Armour (UAA), Algonquin Power & Utilities (AQN) 

Significant Upcoming Data:

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