FinX Weekly 23rd June 2025

As you would have seen by now, the US military attack on the nuclear sites in Iran was conducted early Sunday, Australian time. The extent of the damage is as yet unknown. How the Iranian regime responds will shape global markets in the next few weeks and months. Could they target US energy assets and shipments in the region, placing upward pressure on oil prices.

The Federal Reserve was among the central banks that held rates steady last week, lowering its growth forecast while anticipating higher inflation. The Swiss, Swedish and Norwegian central banks all cut their policy rates.

China’s strong retail sales were driven by short-term stimulus, while industrial output and investment continued to decelerate.

Markets will focus this week on the US PCE inflation, the IFO survey, and today’s flash PMI updates

Markets were broadly steady last week, with trading volumes in the United States lower due to the Juneteenth public holiday. Investors remained focused on global political tensions, economic data, and interest rate decisions from several G10 central banks.

The ongoing middle eastern tensions helped push Brent crude oil up by about +3.75% to US$77 per barrel. In addition, the price was supported by the possibility of expanded US sanctions on Russia, which are currently being discussed by Republicans in Congress.

President Trump’s early departure from the G7 meeting in Canada added to investor discomfort. He left before the leader of Ukraine arrived and did not hold a meeting with the Australian Prime Minister, thereby limiting the scope for meaningful discussions.

With a self-imposed deadline of 9th July approaching, there was little sign of significant progress in trade negotiations. Although preliminary agreements with the UK and China appear to have reduced short-term market concerns, the details of the future trade regime remain unclear.

The Senate Finance Committee produced a new version of the “One Big Beautiful Bill Act” on Monday. Compared to the version passed by the House, it includes some differences, such as a smaller offset for state and local tax deductions. The bill is likely to face further amendments, particularly from Republicans concerned about the long-term impact on government deficits. However, the centre-right-leaning Tax Foundation estimated that making the 2017 tax cuts permanent, as the bill proposes, could add up to +1.1% to long-term economic growth.

The US Federal Reserve kept interest rates unchanged and revised its economic outlook. It now expects slightly higher inflation and unemployment this year, while growth forecasts for 2025 and 2026 have been lowered. A further two interest rate cuts are now priced into the Fed futures curve (see above chart).

Retail sales data for May showed a decline of -0.9%, suggesting that consumers may be under pressure. However, when excluding some volatile categories such as vehicle sales and fuel, sales rose by +0.4%. Industrial production was little changed (-0.2%) despite weakening regional surveys.

Fewer FOMC members expect an interest rate cut in 2025. However, Jerome Powell highlighted that investors shouldn’t read too much into the forecasts as confidence was low due to an unusually high degree of uncertainty related to tariffs. Governor Waller later said that a cut was possible as soon as July. The May PCE inflation report, due this Friday, is expected to show a slight acceleration in headline inflation to around +2.3% yoy.

The Bank of England, the Bank of Japan, and the People’s Bank of China all left rates unchanged. However, in Japan, a rise in core inflation to +3.7% yoy in May has increased speculation that the Bank of Japan may be forced to raise rates again soon.

In contrast, several smaller central banks moved in the opposite direction. Norges Bank cut its key rate by 25 basis points to 4.25%, while the Swedish Riksbank reduced its rate to 2.00%. The Swiss National Bank also lowered its policy rate to 0% in response to declining inflation and the persistent strength of the Swiss franc due to its safe-haven appeal.

In Australia, unemployment remained steady at 4.1% in May, according to the Australian Bureau of Statistics (ABS). Despite the headline stability, there is growing expectation that the Reserve Bank will cut rates at its next meeting in two weeks. This week’s monthly CPI estimate is expected to slip to +2.3% yoy, but the RBA will likely be more focused on global risks.

In China, retail sales grew strongly in May, up +6.4% yoy. This was mainly driven by a government-led trade-in programme that encouraged households to replace old home appliances and electronics. However, the gains may prove short-lived, as the scheme is capped and is likely to have brought forward spending that would have occurred later in the year. At the same time, industrial production slowed to +5.8% yoy, while fixed asset investment growth also eased to +3.7% ytd yoy. The Chinese government is expected to assess the impact of its current policies in late July or early August. Important policy meetings, including the Politburo gathering and the expiration of a key US tariff pause, will guide the next steps.

In corporate news, energy company Santos received a new takeover bid from a consortium led by the Abu Dhabi National Oil Company’s investment arm. The offer, at A$18.7 billion, represented a +28% premium to the previous Friday’s closing share price. The consortium also includes Abu Dhabi Development Holding Co. and private equity firm Carlyle Group. The deal will require approval from Australia’s Foreign Investment Review Board. Given Santos’ importance to domestic gas supply, regulatory clearance may not be straightforward.

Besides the US and Australian CPI updates, the IFO survey will be released in Europe. The week’s data kicks off with the latest flash PMI surveys, due out later today.

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