Ahead of the game: 23 June 2025

Australia 200 falters as US conflict risks and China slowdown collide

United States (US) stock markets traded cautiously during a holiday-shortened week as investors awaited clarity on whether the US will intervene in the Israel–Iran conflict.

President Donald Trump extended the timeline for a decision, stating he would determine 'within the next two weeks' whether the US would join the conflict. This 'two-week deadline' strategy has been used in previous geopolitical decisions - including those involving Russia, Ukraine, and tariffs. These deadlines often expire without concrete action, a pattern referred to as 'TACO' (Threat Announced, Commitment Outstanding). Given the complexities surrounding US involvement in the Middle East, this remains a distinct possibility.

Locally, the Australia 200 is on track to break its five-week winning streak, weighed down by geopolitical risks and sharp losses in the mining sector. This followed weaker-than-expected Chinese economic data, which pushed iron ore to a nine-month low of $92.00 per tonne.

The week that was: highlights

• In the US, headline retail sales fell by 0.9% month-on-month (MoM) in May, worse than the market forecast of a 0.7% decline. The key retail control group, which feeds into gross domestic product (GDP), rose 0.4% MoM against a 0.3% forecast
• The Federal Open Market Committee (FOMC) kept the Federal Reserve (Fed) Funds interest rate unchanged at 4.25% – 4.50% and emphasised a wait-and-see approach. This was due to uncertainties about the inflationary impacts of President Trump’s tariffs and the risk of stagflation
• Fed officials forecasted two rate cuts in 2025 and downgraded the year-end 2025 growth forecast to 1.4%. Inflation expectations were raised to 3%
• US initial jobless claims rose by 248,000 in line with expectations, while continuing claims remained at 1,945,000, close to a three-year high
• In the United Kingdom (UK), headline inflation for May rose by 3.4% year-on-year (YoY), slightly less than the 3.5% expected. Core inflation rose by 3.5% YoY versus a 3.8% expectation
• The Bank of England (BoE) kept rates on hold at 4.25% as expected
• In China, new home prices in 70 cities fell 3.5% YoY in May, marking 23 months of contraction. Industrial production and fixed asset investment were weaker than expected, while retail sales was stronger
• The Bank of Japan (BoJ) kept rates on hold at 0.50%. Core inflation in Japan rose to 3.7% YoY in May, up from 3.5%, reaching its highest level since January 2023
• In Australia (AU), the labour force report for May showed employment fell by 2500, far less than the expected 22,500 gain. The unemployment rate remained at 4.1% while the participation rate eased to 67% from 67.1%
• Crude oil gained 1.14% this week to $73.84
• Gold fell 1.18% this week to $3,368
• Bitcoin decreased 0.78% this week to $104,778
• Wall Street's volatility index (VIX) fell to 20.13 from 20.81.

Key dates for the week ahead

Australia & New Zealand

• AU: S&P Global Manufacturing purchasing managers index (PMI) flash (Monday, 23 June at 9.00am AEST)
• AU: S&P Global Services PMI flash (Monday, 23 June at 9.00am AEST)
• NZ: Balance of trade (Wednesday, 25 June at 8.45am AEST)
• AU: Monthly consumer price index (CPI) indicator (Wednesday, 25 June at 11.30am AEST)

China & Japan

• Japamn (JP): Jibun Bank Manufacturing PMI flash (Monday, 23 June at 10.30am AEST)
• JP: Jibun Bank Services PMI flash (Monday, 23 June at 10.30am AEST)
• JP: Retail sales (Friday, 27 June at 3.00pm AEST)

United States

• US: S&P Composite PMI flash (Monday, 23 June at 11.45pm AEST)
• US: S&P Manufacturing PMI flash (Monday, 23 June at 11.45pm AEST)
• US: S&P Services PMI flash (Monday, 23 June at 11.45pm AEST)
• US: Conference Board (CB) consumer confidence (Wednesday, 25 June at 12.00am AEST)
• US: Durable goods orders MoM (Thursday, 26 June at 10.30pm AEST)
• US: Initial jobless claims (Thursday, 26 June at 10.30pm AEST)
• US: Core personal consumption expenditures (PCE) price index MoM (Friday, 27 June at 10.30pm AEST)
• US: Personal income MoM (Friday, 27 June at 10.30pm AEST)
• US: Personal spending MoM (Friday, 27 June at 10.30pm AEST)

Europe & United Kingdom

• Europe (EA): Hamburg Commercial Bank (HCOB) Composite PMI flash (Monday, 23 June at 6.00pm AEST)
• UK: S&P Global Manufacturing PMI flash (Monday, 23 June at 6.30pm AEST)
• UK: S&P Global Services PMI flash (Monday, 23 June at 6.30pm AEST)

Key events for the week ahead

AU: Monthly CPI indicator

Date: Wednesday, 25 June at 11.30am AEST

In April, Australia’s Monthly CPI rose 2.4% YoY, unchanged for the third consecutive month. The trimmed mean inflation rate (inflation measure within the Monthly CPI indicator) edged up to 2.8% YoY from 2.7% in March.

The inflation data followed the RBA’s decision to cut the Official Cash rate by 25 basis points (bp) to 3.85%, after first-quarter (Q1) 2025 data showed inflation had returned to the RBA’s 2% – 3% target range for the first time since the fourth quarter (Q4) of 2021.

In its post-meeting statement, the RBA revealed that a larger 50 bp cut had been considered, and that the bank would likely have cut rates regardless of the Liberation Day incident. Forecasts for May point to a slight decline in headline inflation to 2.3%.

Markets currently price in a 75% probability of another 25 bp cut in July, and a total of 71 bp of easing by the end of 2025.

AU monthly CPI chart

US: S&P global composite PMI flash

Date: Monday, 23 June at 11.45pm AEST

The S&P Global Composite PMI for May was revised up to 53.0 from an initial reading of 52.1, and well above April’s 19-month low of 50.6. 

The improvement was led by stronger services sector activity, offsetting a slight decline in manufacturing. Increased new business resulted in faster overall growth compared to the previous month. Employment rose for the third consecutive month, and business confidence reached its highest level since January.

The preliminary forecast for June is for the Composite PMI to edge higher to 53.1, back towards year-to-date highs.

US composite PMI chart

US: Core PCE price index

Date: Friday, 27 June at 10.30pm AEST

In April, the headline PCE price index rose by 2.1% YoY, the lowest in seven months and below market expectations of 2.2%. The Fed’s preferred inflation measure, the core PCE price index, increased by 2.5% YoY, slowing from a 2.7% rise in March, marking the smallest gain since March 2021. Additional report details showed personal income and spending grew by 0.8% and 0.2% respectively, both exceeding expectations.

At this week’s FOMC meeting, the Fed kept interest rates on hold at 4.25% – 4.50%. Chair Jerome Powell reiterated a wait-and-see approach, citing tariff-related uncertainty and inflation risks.

Officials projected two rate cuts in 2025, but downgraded the year-end 2025 growth forecast to 1.4% while raising inflation expectations to 3%. The statement noted that the uncertainty of the economic outlook has 'diminished but remains elevated' and removed the previous language about the 'risks of higher unemployment and higher inflation.'

For May, which is  likely too soon to reflect tariff impacts, shows preliminary expectations for the headline PCE price index to rise to 2.2% with the core measure expected to ease to 2.5% YoY.

The US rates market is set to end this week, pricing in a 70% chance of a 25 bp Fed rate cut in September and 48 bp in total Fed rate cuts by year-end.

US core PCE price index chart