Ahead of the game: 12 May 2025

US stocks flat as Fed holds rates; Australia 200 awaits trade talks

United States (US) stock markets ended the week little changed as attention shifted to high-stakes trade discussions between the US and China (CN), set to begin this weekend. A potential US–United Kingdom (UK) trade agreement and the US Federal Reserve’s (Fed) decision to keep interest rates on hold offered limited catalysts in the interim.

A similar story for the Australia 200 , which spent the week consolidating its recent gains ahead of US-CN trade talks this weekend. Technology stocks were the week's best performers, while banking and healthcare stocks underperformed the broader index.

The week that was: highlights

• In the US, the Institute for Supply Management (ISM) services purchasing managers' index (PMI) unexpectedly increased to 51.7 in April from 50.8 in March
• The Fed kept the Federal Funds rate on hold at 4.25% - 4.50% for a third consecutive meeting, as widely expected. It noted that tariffs could drive up inflation and the unemployment rate
• US initial jobless claims fell by 12,000 to 228,000 for the week ending 3 May
• In the UK, the Bank of England (BoE) cut rates by 25 basis points (bp) to 4.25%
• In CN, the Caixin services PMI fell to 50.7 in April, down from a three-month high of 51.9
• In New Zealand (NZ), the unemployment rate stayed at 5.1% in the first quarter (Q1) of 2025, below market expectations of a rise to 5.3%
• Crude oil gained 2.93% this week to $59.99
• Gold fell 2.17% this week to $3311
• Bitcoin trades 9% higher for the week at $103,000
• Wall Street's gauge of fear, the volatility index (VIX), eased to 22.47 from 22.67 last week.

Key dates for the week ahead

Australia & New Zealand

• AU: Westpac consumer confidence (Tuesday, 13 May at 10:30am AEST)
• AU: National Australia Bank (NAB) business confidence (Tuesday, 13 May at 11:30am AEST)
• AU: Home loans and investment lending (Wednesday, 14 May at 11:30am AEST)
• AU: Employment (Thursday, 15 May at 11:30am AEST)

China & Japan

• Japan (JP): Current account (Monday, 12 May at 9:50am AEST)
• JP: Gross domestic product (GDP) Q1 2025 (Friday, 16 May at 9:50am AEST)

United States

• US: Consumer price index (CPI) (Tuesday, 13 May at 10:30pm AEST)
• US: Producer price index (PPI) and retail sales (Thursday, 15 May at 10:30pm AEST)
• US: Building permits and housing starts (Friday, 16 May at 10:30pm AEST)
• US: Michigan consumer sentiment preliminary (Saturday, 17 May at 12:00am AEST)

Europe & United Kingdom

• UK: Unemployment (Tuesday, 13 May at 4:00pm AEST)
• UK: GDP Q1 2025 (Thursday, 15 May at 4:00pm AEST)

Key events for the week ahead

US: CPI

Date: Tuesday, 13 May at 10:30pm AEST

For March, the headline inflation rate fell 0.1% month-on-month (MoM), which saw the annual rate of headline inflation ease to 2.4% YoY from 2.8% prior and below forecasts of 2.6%. Meanwhile, core inflation rose 0.1% MoM, which allowed the annual rate to ease to 2.8% from 3.1% prior, the lowest since March 2021 and below forecasts of 3%.

At this week’s Federal Open Market Committee (FOMC) meeting, the Fed kept the Federal Funds rate on hold at 4.25% - 4.50%. In the press conference, the Fed Chair noted that the economic outlook had increased risks to both sides of the dual mandate: ‘The risks of higher unemployment and higher inflation have risen.’

The Fed Chair also highlighted the need for patience due to the uncertain economic outlook. He reiterated his cautious stance on inflation, emphasising the importance of maintaining well-anchored long-term inflation expectations and preventing a temporary price increase from ‘becoming an ongoing inflation problem.’

For May, the preliminary expectation is for headline inflation to rise by 0.3% and for the annual rate to rise to 2.6%. The core inflation rate is expected to rise by 0.2% MoM and for the annual rate to remain at 2.8%.

The US interest rate market is pricing in a 70% chance of a 25 bp Fed rate cut in July. Between now and year-end, a cumulative 69 bp of rate cuts are priced.

US core inflation rate chart

AU: Employment 

Date: Thursday, 15 May at 11:30am AEST

For March, the Australian economy added 32,200 jobs, below the 40,000 gain the market had expected. The unemployment rate edged higher to 4.1% from a downwardly revised 4% in February, as the participation rate edged up to a four-month high of 66.8%.

The Reserve Bank of Australia (RBA) noted at its Board meeting in April, where it kept rates on hold, that labour market conditions ‘remain tight.’ It also noted that it would continue to ‘pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market’ to guide its future decisions about monetary policy.

The preliminary expectation is that the Australian economy will add 20,000 jobs in April and the unemployment rate will remain at 4.1%. Assuming the actual numbers are in line with expectations, the RBA is likely to cut interest rates by 25 bp at its next interest meeting on 20 May.

AU unemployment rate chart

JP: GDP Q1 2025

Date: Friday, 16 May at 9:50am AEST

Japan’s economy is expected to contract by an annualised 0.2% in Q1 2025, reversing the 2.2% growth recorded in the fourth quarter (Q4) of 2024 and marking the first decline since Q1 2024. The contraction is expected to be driven entirely by a 0.6% drag from net exports - down sharply from a 0.7% contribution in the previous quarter.

This reflects a likely surge in imports outpacing exports, as firms continued to front-load shipments ahead of anticipated US tariffs. The negative trade balance is seen more than offsetting modest gains in domestic demand, with private consumption projected to rise 0.1% (vs 0.0% in Q4) and capital expenditure estimated to grow 0.8% (vs 0.6% in Q4).

Last week, the Bank of Japan (BoJ) held rates steady and lowered its growth outlook, citing heightened uncertainty around global trade and the impact of US tariffs on exports. Markets now widely expect the BoJ to keep rates unchanged for the remainder of the year, and a weak GDP print would likely reinforce that view.

JP GDP growth annunalised chart

US: Michigan consumer sentiment preliminary

Date: Saturday, 17 May at 12:00am AEST

The revised University of Michigan (UoM) consumer sentiment index for April 2025 came in at 52.2, slightly above the preliminary estimate of 50.8 but still down 9% from March’s reading of 57.0. This marks the fourth consecutive monthly decline, reflecting heightened consumer concerns across multiple fronts, largely driven by ongoing uncertainty surrounding trade policy and the risk of a renewed inflation surge.

However, with trade rhetoric showing signs of improvement and hopes rising for formalised trade agreements, sentiment may look to stabilise. Given that consumer spending accounts for roughly two-thirds of US GDP, any rebound in sentiment could help ease some of the prevailing growth concerns. The upcoming preliminary reading for May is expected to edge up to 53.1, from April’s final print of 52.2.

US Michigan consumer sentiment chart

US: Q1 2025 reporting season

This coming week sees earnings reports from companies including Under Armour, Tencent, Alibaba, and Walmart.

US Q1 2025 earnings chart