Fin-X Weekly Update 7th July 2025

Global equity markets set new records last week, with Australian shares also trading close to recent highs. 

President Trump signed a major fiscal act extending corporate and household tax cuts, shifting policy away from clean energy and increasing deficits. 

US labour data surprised to the upside, prompting a pullback in expectations for imminent Fed rate cuts. 

The RBA is widely expected to cut rates this week, even though Australian consumption data showed signs of improvement. 

Other significant events ahead include the updated US tariff announcements, the latest FOMC minutes, Chinese inflation data, and the BRICS summit in Rio de Janeiro.

Global equity markets reached another record high last week, while the S&P/ASX 300 index remained close to its early June peak, supported by generally favourable global sentiment and stabilising domestic data. 

President Trump secured a significant legislative victory with the passage of the “One Big Beautiful Bill Act” just ahead of the self-imposed 4^th July deadline. The bill makes permanent several corporate tax breaks from the 2017 Tax Cuts and Jobs Act, including bonus depreciation and research and development expensing, while reversing clean energy incentives from the Inflation Reduction Act in favour of fossil fuel support. It also significantly expands defence and border security budgets, including a large increase in funding for immigration enforcement. 

For households, the legislation extends individual tax cuts from 2017 and introduces new deductions for tips, overtime and auto loan interest. However, many of these benefits are temporary, and changes to Medicaid and the Affordable Care Act could leave up to 12 million Americans without health coverage. The bill passed both chambers of Congress by narrow margins, with the Vice President required to break a Senate deadlock. Although it fulfils key campaign promises, the bill is unpopular with voters overall, partly due to its regressive distributional effects. 

To accommodate the fiscal cost, the statutory debt ceiling was raised by US$ +5 trillion. The Congressional Budget Office expects the legislation to add around US$ +2.8 trillion to the deficit by 2034, with other estimates even higher. Longer-term modelling from the Yale Budget Lab suggests that the increase in debt will lead to higher interest rates and lower GDP growth over time. While there is a short-term boost to economic activity through to 2027, the cumulative effect is negative, with the economy expected to be nearly -3% smaller by 2054 compared to a scenario without the bill. 

Elon Musk, a vocal opponent of the higher debt burden, subsequently announced on his “X” social media platform that he had followed through on earlier threats and formed a new political party called the “America Party”.  

Despite this, the week was largely positive for the administration. Vietnam finalised a new trade agreement with the US, and Canada withdrew its digital services tax, reopening bilateral trade negotiations. The White House is expected to announce updated tariff rates by Wednesday, as the current 90-day suspension expires. 

US economic data broadly surprised to the upside. June non-farm payrolls rose by +147k, above expectations, and prior months were revised +16k higher, with state and local governments accounting for much of the gains. The unemployment rate declined to 4.1%, contrary to forecasts for an increase, although the drop was driven by a modest fall in labour force participation. Average weekly hours worked remained soft at 34.2 hrs, and private-sector job creation was relatively weak at just +74k. 

The stronger labour data contributed to a slight rise in US bond yields, with the 10-year Treasury yield rising by around +0.12% over the week.  

At the ECB Forum in Sintra, Fed Chair Jerome Powell reiterated that monetary policy is "modestly restrictive" and declined to rule out a rate cut as soon as July. However, he reaffirmed the baseline scenario of easing "later this year." Market pricing for immediate cuts was scaled back accordingly. 

Other central banks provided a mixed picture. ECB President Christine Lagarde said eurozone inflation had reached target, with the latest flash CPI reading at 2.0%. In contrast, her counterparts in the UK, Japan, and South Korea cited domestic-specific risks and tariff uncertainties as reasons for caution.  

In Australia, the Reserve Bank is expected to cut the cash rate by a further -0.25% to 3.60% on Tuesday. Domestic economic data showed a modest rebound in consumption, with ABS retail sales rising +0.2% in May. However, the broader household spending measure, which will soon replace the retail sales series, showed a more robust +0.9% monthly increase and +4.2% annual growth. 

In Asia, China’s Caixin manufacturing PMI ticked up to 50.4, returning to positive territory and suggesting some stabilisation in factory activity. Upcoming CPI and PPI data will provide further insight into the inflation environment.  

Over the weekend, OPEC+ eased pressure on the oil price by agreeing to raise oil production by an additional +548k barrels per day from August, more than the market had anticipated. 

In Europe, industrial production data due this week will shed light on the region’s activity levels. Meanwhile, the BRICS bloc will convene in Rio de Janeiro. However, the updated tariff announcements are likely to dominate the news.

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