FinX Weekly 26th May 2025
- Brett Careedy
- May 26
- 4 min read
US bond yields rose after the House of Representatives passed a budget bill that could add trillions of dollars to future deficits.
Australian assets outperformed following an RBA rate cut and a more dovish policy outlook.
This week’s key events include the Nvidia results, Australian retail sales and US PCE inflation figures.
Global equity markets gave up recent gains last week amid renewed tariff threats and softening economic sentiment.
Before the US Memorial Day long weekend, President Trump announced that a +50% tariff on EU imports could be introduced from 1stJune, citing stalled trade negotiations. He also threatened a +25% tariff on mobile phones manufactured outside the US. Apple shares declined by -7.6% over the week in US dollar terms.
Australian bonds, stocks and property performed relatively well after the RBA cut the cash rate by -0.25% for the second time this year to 3.85%. The cash rate is expected to be another -0.7% lower at the end of the year after a decidedly more dovish outlook.
In an upbeat press conference, Governor Bullock expressed greater confidence that inflation would return sustainably to target, noting that US tariffs would likely be disinflationary for Australia. However, rising uncertainty was a persistent theme as concerns moved from inflation to growth.
The Commonwealth 10yr yield fell by -0.10% to 4.42%. In contrast, American Treasury yields were pushed higher after House Republicans passed a budget bill by a single vote that could add trillions to government borrowing.
The proposed legislation included extensions of the 2017 Tax Cuts and Jobs Act (TCJA) provisions for both individuals and businesses, such as making the 37% top marginal individual income tax rate.
In a Bloomberg interview on Friday, Treasury Secretary Scott Bessent said expensing capital goods and factory construction would accelerate US onshoring. He also flagged two initiatives to boost Treasury demand: easing bank capital rules to allow for greater Treasury holdings and encouraging the creation of new cryptocurrency stablecoins backed by government debt.
In the short term, surveys continue to show weakness as the global economy grapples with volatile US trade policy. The flash PMIs revealed that the early-2025 increase in activity had quickly faded in the Eurozone and Japan.
The UK flash PMI was the first produced since a skeleton trade deal was announced with the US. Last week, the UK and EU also jointly announced a new framework for closer trade and defence ties. Commenting on the survey, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said, “Although brighter news on tariffs and trade appears to have helped restore some confidence among businesses, sentiment about prospects in the year ahead is still subdued”.
While most PMIs indicated mild contraction, the American surveys were slightly more positive. Mr Williamson said, “Business confidence has improved in May from the worrying slump seen in April, with gloom about prospects for the year ahead lifting somewhat thanks largely to the pause on higher rate tariffs. Current output growth has also picked up from April’s recent low, which had seen the weakest rise for over one-and-a-half years, in response to an upturn in demand.
“However, both sentiment and output growth remain relatively subdued, and at least some of the upturn in May can be linked to companies and their customers seeking to front-run further possible tariff-related issues, most notably the potential for future tariff hikes after the 90-day pause lapses in July. In particular, concerns over tariff-related supply shortages and price rises led to the largest accumulation of input inventories recorded since survey data were first available 18 years ago.”
The official Chinese PMI surveys will follow this weekend. Last week’s monthly activity data indicated that industrial production slowed by less than anticipated to +6.1% yoy, down from +7.7% yoy in March, perhaps in response to tariff front-running as container shipments picked up at the end of April. Unemployment dropped slightly to 5.1%. However, retail sales slowed by more than expected to +5.1% yoy, down from +5.9% last month. 1yr and 5yr prime loan rates were cut by -0.1% to 3.0% and 3.5%, respectively.
This week, investors will also watch for signs of tariff disturbances in the Nvidia, Costco, Macy’s and Best Buy earnings reports. Nvidia, due to report Wednesday are expected to generate 43cps in earnings on a quarterly consensus revenue figure of $US43.3billion.
Australian monthly CPI is expected to slow to just +2.3% yoy on Wednesday, comfortably within the lower half of the RBA’s target band. Retail sales figures follow on Friday.
In the US, the FOMC meeting minutes are due midweek, with Friday’s PCE inflation expected to slow to +2.2% year-on-year, just above the Fed’s 2% target.
Disclaimer
The contents of this communication is prepared by Brerona Capital Asset Management Pty Ltd (A.C.N. 627 650 293; AFSL 520526). The information contained in this communication is general in nature and does not take into consideration any investors personal objectives, goals, needs and financial situation. You should not rely on the information contained in this document to make any investment decisions without first consulting an investment professional such as your financial adviser. Any unauthorised use of this document is prohibited. This document (including any attachments) is intended only for the addressee, it may contain information of a privileged and confidential nature. If you are not the addressee of this communication, you must not copy, reproduce, disseminate or use this email and its contents. If this communication has been received in error by you, please inform us immediately and securely delete. Sharing, transmitting, copying, disseminating all or part of the contents of this document may result in a breach of the Federal Privacy Legislation and or copyright and trademark infringement of Brerona Capital Asset Management Pty Ltd and its related entities.
