Ahead of the game: 28 July 2025

Trade and earnings fuel US rally as Australia 200 dips

The US 500 (S&P 500) and US Tech 100 (Nasdaq 100) reached new record highs this week following the announcement of a trade deal with Japan. Their gains were also fuelled by strong United States (US) economic data and a continued streak of better-than-expected second-quarter (Q2) 2025 earnings. With just under one week until month-end, the US 500 is up 2.55% month-to-date (MTD), the US Tech 100 has gained 2.38%, and Wall Street (Dow Jones) has increased by 599 points (1.36%).

Locally, the Australia 200 (ASX 2000 fell this week as heavy selling in the big banks weighed on the index. Additionally, Reserve Bank of Australia (RBA) Governor Michele Bullock sounded hawkish as she downplayed the rise in employment and noted that monthly inflation data suggests the inflation rate may not fall as quickly as forecast in May. With just under one week until month-end, the Australia 200 has gained 1.47% MTD and is poised to secure a fourth consecutive month of gains.

The week that was: highlights

• In the US, initial jobless claims fell by 4000 from the previous week to 217,000, well below market expectations of an increase to 227,000. This marks the sixth consecutive decline in initial claims and the lowest level since April
• The US composite flash purchasing managers' index (PMI) rose to 54.6 in July 2025 from 52.9 in June, showing the fastest rate of increase in 2025 and the 30th consecutive month of expansion.
• In the United Kingdom (UK), the PMI composite index fell to 51 in July from 52 prior
• In Europe, the European Central Bank (ECB) kept interest rates on hold at 2% as widely expected. The ECB said it is well-positioned to hold and observe developments, raising the bar for a rate cut in September
• In China (CN), the one-year and five-year loan prime rates were kept unchanged at 3% and 3.5% respectively
• In Japan (JP), the Jibun Bank composite flash PMI remained at 51.5 in July
• Tokyo core consumer price index (CPI) rose to 2.9% year-on-year (YoY) in July, easing further away from the 3.5% high it hit in May
• In New Zealand (NZ), CPI rose 0.5% in the June quarter easing from 0.9% in the prior quarter. This saw the annual rate of inflation rise to 2.7% in Q2 from 2.5% in the previous quarter
• In Australia (AU), the RBA meeting minutes reflect a 'cautious and gradual' easing strategy, reflecting prioritising inflation control.
• Crude oil gained 0.32% this week to $66.26
• Gold gained 0.58% this week to $3369
• Bitcoin gained 0.22% this week to $117,600 after hitting a fresh record high last week of $123,236
• Wall Street's gauge of fear, the volatility index (VIX), rose to 15.38 this week from 16.40 in the previous week.

Key dates for the week ahead

Australia & New Zealand

• AU Q2 inflation: Wednesday, 30 July at 11.30am AEST
• AU building approvals and retail sales: Thursday, 31 July at 11.30am AEST
• AU producer price index (PPI): Friday, 1 August at 11.30am AEST

China & Japan

• CN National Bureau of Statistics (NBS) manufacturing PMI: Thursday, 31 July at 11.30am AEST
• JP Bank of Japan (BoJ) interest rate decision: Thursday, 31 July 
• CN Caixin manufacturing PMI: Friday, 1 August at 11.45am AEST

United States

• US Job Openings and Labor Turnover Survey (JOLTS) job openings: Wednesday, 30 July at 12.00am AEST
• US Conference Board (CB) consumer confidence: Wednesday, 30 July at 12.00am AEST
• US Automatic Data Processing (ADP) employment: Wednesday, 30 July at 10.15pm AEST
• US gross domestic product (GDP) Q2 advanced: Wednesday, 30 July at 10.30pm AEST
• US Federal Open Market Committee (FOMC) meeting: Thursday, 31 July at 4.30am AEST
• US core personal consumption expenditures (PCE) price index: Thursday, 31 July at 10.30pm AEST
• US non-farm payrolls: Friday, 1 August at 10.30pm AEST
• US institute for Supply Management (ISM) manufacturing index: Saturday, 2 August at 12.00am AEST

Europe & United Kingdom

• Euro area (EA) GDP Q2: Wednesday, 30 July at 7.00pm AEST
• UK inflation: Friday, 1 August at 7.00pm AEST

Key events for the week ahead

AU: Q2 inflation

Date: Wednesday, 30 July at 11.30am AEST

In the March, first quarter (Q1) headline inflation rose 0.9% quarter-on-quarter (QoQ) (consensus was +0.7%), with the annual rate steady at 2.4%, above the expected 2.3%.

The RBA’s preferred measure, the trimmed mean, rose 0.7% QoQ (consensus +0.6%), bringing annual trimmed mean inflation down to 2.9% from 3.3% – the lowest rate since December quarter 2021 and the ninth consecutive quarter of decline.

The latest monthly CPI indicator (for May, released in late June) showed YoY inflation eased to 2.1% in May from 2.4% in April. Trimmed mean inflation also eased to 2.4% YoY in May from 2.8% in April.

At its July Board meeting, the RBA kept rates on hold at 3.85%, citing stronger-than-expected inflation data but said it could wait for further confirmation that inflation is on track to return to target.

Furthermore, Governor Bullock noted that the decision to hold rates was more about timing rather than direction. If next week’s June quarter (Q2) inflation data aligns with forecasts, a 25 basis point (bp) rate cut at the August meeting is likely. 

The preliminary estimate for Q2 2025 CPI report is for headline inflation to rise 0.8% QoQ, bringing the annual rate to 2.2%. The more significant core measure, the trimmed mean, is expected to increase by 0.7% QoQ which would bring the annual rate to 2.7%, down from 2.9% in Q1.

AU all groups CPI and trimmed mean chart

JP: BoJ interest rate decision

Date: Thursday, 31 July at no set time 

At its last monetary policy meeting in mid-June, the BoJ kept its key policy rate on hold at 0.50% for a third consecutive meeting. The decision to hold rates was widely expected, as was its move to cut growth and inflation forecasts, reflecting uncertainties surrounding US tariffs and their threat to Japan’s export-driven economy.

Additionally, the BoJ elected to decelerate the pace of its balance sheet drawdown in 2026, prompted by a period of unusual volatility in the Japanese bond market, which saw yields on Japanese government bonds soar to record highs.

Despite news this week that the US and Japan reached a trade agreement reducing uncertainty, next week’s BoJ meeting is being overshadowed by political uncertainty surrounding the future of Prime Minister Ishiba, following the Liberal Democratic Party election loss over the weekend.

Probability markets, such as Polymarket, now assign a 77% chance that Ishiba will be replaced as leader of the Liberal Democratic Party, with Sanae Takaichi and Shinjiro Koizumi viewed as the leading candidates.

While the identity of the next leader is important, the recent upper house election loss significantly constrains the new leader’s autonomy.

The need to form coalitions with smaller parties – like the Democratic Party for the People, which saw support surge in the upper house election due to its push for consumption tax cuts, or the 'Japanese First' anti-immigration party Sanseito, which won 14 seats to become the chamber’s third-largest party – will shape policy and market outcomes.

Given this political uncertainty, combined with recent softer inflation data, the BoJ is likely to keep rates on hold next week at 0.50%, before possibly raising rates again in December.

BoJ policy rate chart

US: Core PCE price index

Date: Thursday, 31 July at 10.30pm AEST

In May, headline PCE  price index rose by 2.3% YoY, from an upwardly revised 2.2% in April. The Federal Reserve's (Fed) preferred measure of inflation, the core PCE price index, increased by 2.7% YoY, above expectations of 2.6%.

Before the Fed entered its blackout period ahead of next week’s FOMC meeting, Chair Jerome Powell and the majority of the committee emphasised a wait-and-see approach, citing uncertainties about the inflationary impacts of President Trump’s tariffs.

For June, inflation data is expected to show some early signs of the inflationary impact of tariffs. The preliminary expectation is for the headline PCE price index to rise to 2.5% YoY, while the core measure is expected to remain at 2.7% YoY.

US headline PCE price index chart

US: Non-farm payrolls

Date: Friday, 1 August at 10.30pm AEST

In June, the US economy added 147,000 jobs following an upwardly revised 144,000 in May, beating market expectations of 110,000. The unemployment rate eased to 4.1% from 4.2%, well below the 4.3% forecast. The decline in the unemployment rate was assisted by a 0.1% decline in the participation rate to 62.3%, its lowest since December 2022.

For July, the market anticipates an increase of 106,000 jobs and expects the unemployment rate to rise slightly to 4.2%. This would mark the 15th consecutive month that the US unemployment rate has remained between 4% and 4.2%.

Ongoing strength in the labour market, combined with concerns over the inflationary impact of tariffs, is the main reason why the Fed is expected to keep rates on hold next week. The US rates market is pricing in 17 bp of rate cuts for the SeptemberFOMC meeting, with a total of 43 bp of cuts expected between now and the end of the year.

US unemployment rate chart

US: Q2 2025 earnings season

The Q2 2025 earnings season continues next week, with earnings reports scheduled for Microsoft, Meta, Qualcomm, Robinhood, Amazon, Apple, eBay and Coinbase.