FinX Weekly 30th June 2025

Global equity indices reached record highs as tensions in the Middle East eased and following a cordial NATO summit.

US economic data remained subdued, with GDP revised lower and consumer spending falling, but global PMIs pointed to a moderate pickup in activity during the tariff pause.

American PCE inflation surprised to the upside, reinforcing the Fed's cautious messaging despite some officials signalling possible cuts as early as July. Australian monthly inflation figures were lower than anticipated, supporting calls for a July cut against a backdrop of global risks.

Data this week includes US labour market figures, ISM surveys, Chinese PMIs, and Australian retail sales, all due ahead of the US long weekend.

Global equities closed the week higher, with the MSCI All Country World Index reaching a new record. Market sentiment was lifted by signs of de-escalation in the Middle East after the US struck Iranian nuclear facilities, and a ceasefire between Iran and Israel appeared to hold. The Brent crude oil price fell sharply over the week, declining by around -12%, although it remains roughly +14% above its early May low. In Australia, the S&P/ASX 300 Index drifted lower on Friday but stayed close to its all-time high recorded earlier in June.

Also in geopolitics, the NATO summit in the Netherlands focused on reinforcing defence unity. Secretary General Mark Rutte, a former Dutch prime minister, praised the US for its continued leadership and announced a new 5% GDP target for defence spending. The summit was attended by Ukraine’s president and resulted in renewed commitments to strengthening the alliance’s deterrence capabilities.

US equity markets also ended the week at record levels, despite an intraday dip on Friday following President Trump's announcement that trade talks with Canada would be halted. The decision was made in response to the 3% digital services tax introduced by Canada, which took effect over the weekend. The president noted that it was proving difficult to complete all trade negotiations ahead of the 9th July deadline and indicated that letters detailing new tariff rates would be issued within the next two weeks.

Markets found some relief in progress elsewhere. China announced that it had concluded a framework agreement with the US based on recent negotiations in London. As part of the arrangement, China would accelerate the approval process for export-controlled items, while the US would remove a range of existing trade restrictions. While details remain limited, the news helped calm investor concerns.

However, the economic backdrop in the US remains fragile. The third estimate of Q1 GDP growth was revised down significantly from -0.2% to -0.5% (annualised), with consumer spending slowing to its weakest pace since the pandemic began. May data showed that personal incomes fell by -0.4% and spending declined by -0.1%, with year-to-date spending growth slowing to approximately +1.0%, down from roughly +3.0% last year.

Despite the subdued growth, the latest S&P Global Flash PMI readings indicated a modest increase in activity during the temporary pause in tariff implementation.

The S&P Global US Composite PMI slipped slightly to 52.8 from 53.0, while the manufacturing index held steady at 52.0 – a 4-month high. Manufacturers reported strong hiring momentum and higher input costs, with around two-thirds citing tariffs as a key driver, as stockpiling increased both orders and costs. Goods prices rose at the fastest pace since mid-2022.

These cost pressures were reflected in inflation data. The Fed’s preferred PCE inflation gauge came in stronger than expected, with headline inflation rising to +2.3% yoy in May. The core measure, which excludes food and energy, rose to +2.7% yoy, exceeding both April’s revised figure and market forecasts.

The Federal Reserve’s Vice Chair of Supervision, Michelle Bowman, added to Governor Waller’s comments a week earlier, both of whom flagged the possibility of a rate cut as early as July. However, broader FOMC projections have remained more cautious. Markets are currently not pricing in any policy easing until at least mid-September.

In Europe, economic activity remained sluggish. The Eurozone PMI indicated only minimal growth, but inflation was seen hovering close to the ECB’s 2% target, as anticipated in this week’s preliminary June figures. The UK posted slightly better results, with improved momentum and easing inflationary pressure.

Asia-Pacific data were generally firmer. India led regional growth, with its flash PMI reaching a 14-month high of 61.0. Japan also showed signs of improvement, with manufacturing activity returning to expansion for the first time in several months.

Australia’s economic indicators were mixed. The composite PMI rose to 51.2, driven by stronger services activity, while manufacturing held steady. However, export orders fell at their fastest pace in nearly a year, primarily due to shifting US trade policy. Encouragingly, price pressures eased, with output price inflation at its lowest since late 2020.

The Australian Bureau of Statistics reported a marked decline in its monthly CPI estimate, which fell from +2.4% yoy in April to +2.1% yoy in May. While monthly CPI data are not as reliable as quarterly figures, the decline, together with easing PMI price pressures, supports expectations for further monetary easing. Markets now widely expect the RBA to cut rates by -0.25% at its meeting next week. A follow-up cut in August is also priced in but may hinge on how markets respond to the impending US tariff announcements.

In Washington, attention turned to the “One Big Beautiful Bill Act”, which is expected to pass both chambers of Congress before the upcoming Independence Day holiday. The legislation proposes US$ -4.5 trillion in tax cuts and spending reductions, including changes to Medicaid, green energy tax credits, and local tax deductions. A controversial provision allowing the taxation of foreign entities has been removed, easing market concerns.

Several key economic releases will be brought forward ahead of the holiday weekend. The June labour market report is expected to show a modest rise in unemployment to 4.3%. Investors will also focus on the ISM manufacturing and services surveys, Chinese PMIs, Eurozone inflation and a range of US employment data. In Australia, monthly retail sales will be released on Wednesday.

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