Ahead of the game: 5 May 2025

Wall Street rallies as global trade talks lift sentiment

Wall Street posted its eighth consecutive session of gains, supported by strong corporate earnings and comments from US President Donald Trump, who signalled progress on trade deals with India, Japan, and South Korea, alongside renewed optimism for an agreement with China.

The rally lifted other major indices, including the Australia 200, which benefited from the global risk-on mood and a well-received Q1 2025 inflation report. The report revealed that the Reserve Bank of Australia’s (RBA) preferred measure of core inflation—the trimmed mean—returned to the 2–3% target range for the first time since Q4 2021.

Markets are now pricing in 25 basis point (bp) cuts at the RBA’s May and July meetings, with downside risks to global growth and softening inflation expectations reinforcing dovish expectations.

The week that was: highlights

• The March trade deficit in goods widened to $162.0 billion from $147.8 billion in February.
• Job openings fell to 7.192 million in the March JOLTS report, down from a revised 7.480 million.
• The Conference Board’s Consumer Confidence Index dropped 7.9 points to 86.0 in April, marking the fifth monthly decline.
• Q1 2025 GDP fell by 0.3% quarter-on-quarter (QoQ), following a 2.4% rise in the previous quarter.
• ADP data showed just 62,000 new private sector jobs in April, significantly below March’s 147,000.
• The ISM Manufacturing PMI for April eased to 48.7, slightly better than the expected 48, but still indicating contraction.
• Initial jobless claims rose by 18,000 to 241,000, and continuing claims climbed to 1,916,000.
• Core Personal Consumption Expenditures (PCE) inflation increased by 2.6% in March, down from a revised 3.0%.
• In China, the NBS Manufacturing PMI dropped sharply to 49.0 in April, down from 50.5, marking the largest monthly decline in two years.
• Japan's industrial production fell by 1.1% in March, missing forecasts of a 0.4% gain.
• In Australia, Q1 2025 headline inflation rose by 0.9%, maintaining the annual rate at 2.4% (versus 2.3% expected).
• The RBA’s trimmed mean rose by 0.7% for the quarter, bringing the annual rate down to 2.9% from 3.3%.
• Crude oil slid 6.35% to US$59.02 per barrel, pressured by supply concerns and slowing global demand.
• Spot Gold dropped 2.37% to US$3,240 amid reduced safe-haven flows.
• Bitcoin gained 3.13% for the week, finishing at US$96,709 as crypto sentiment improved alongside risk assets.

Key dates for the week ahead

Australia & New Zealand

• Australia – Building approvals (Tuesday 6 May at 11.30am AEST)
• New Zealand – Employment report (Wednesday 7 May at 8.45am AEST)

China & Japan

• China – Caixin Services PMI (Tuesday 6 May at 11.45am AEST)
• Japan – Bank of Japan (BoJ) Monetary Policy Meeting Minutes (Thursday 8 May at 9.50am AEST)
• China – Trade Balance (Friday 9 May at 1.00pm AEST)
• China – Consumer Price Index (CPI) and Producer Price Index (PPI) (Saturday 10 May at 11.30am AEST)

United States

• US – ISM Services PMI (Tuesday 6 May at 12.00am AEST)
• US – Balance of trade (Tuesday 6 May at 10.30pm AEST)
• US – Federal Open Market Committee (FOMC) interest rate decision (Thursday 8 May at 4.00am AEST)

Europe & United Kingdom

• United Kingdom – Bank of England interest rate meeting (Thursday 8 May at 9.00pm AEST)

Key events for the week ahead

• US

ISM Services PMI

Date: Tuesday, 6 May at 12.00am AEST

Last March, the ISM Services PMI fell to 50.8 from 53.5 in February, falling short of the 53 expected to the lowest since June of 2024. Within the sub-indices, New Orders fell to 50.4 from 52.2 prior, and the Employment component dived to 46.2 from 53.9. On the positive side, production accelerated to 55.9 from 54.4, and price pressures eased to 60.9 from 62.6 prior.

Steve Miller, Chair of the ISM Services Business Survey, noted, "There has been a significant increase this month in the number of respondents reporting cost increases due to tariff activity."

For April, the ISM services PMI is expected to fall to 49.5 into contractionary territory. While the soft data, such as consumer sentiment and business surveys, are expected to weaken further due to uncertainties around trade policy, the hard data, such as Non-Farm Payrolls, is unlikely to reveal the impact of the Liberation Day reciprocal tariffs until late June/July.

It should also be mentioned that towards the end of 2022, despite a downturn in the soft data, the hard data held up, and recession fears proved unfounded. If tariffs continue to be lowered, this could be the case in 2025.

US ISM Services PMI chart

• US

FOMC interest rate decision

Date: Thursday, 8 May at 4.00am AEST

At the last FOMC meeting in mid-March, the Fed kept the Fed Funds rate on hold at 4.25-4.50%, citing solid economic growth, low unemployment, and slightly elevated inflation. The Fed's projections (Dots) showed that members still expected to deliver two 25bp rate cuts in 2025. The Fed's updated forecasts, as expected, showed an increase in inflation and unemployment forecasts while lowering its GDP forecasts, reflecting the overall impact of increased tariffs.

The significant reciprocal tariffs announced on "Liberation Day" have raised fears of higher inflation and a slowdown in the US, testing both elements of the Fed's dual mandate.

Fed Governor Christopher Waller, speaking in late April, indicated that the central bank might consider cutting interest rates if the economy weakens significantly. He stated, "I'm not going to overreact to any increase in inflation that I think is attributable to the tariffs, but if I see a significant drop in the labour market, then the employment side of the mandate, I think, is important that we step in." Waller's comments came a week after Fed Chair Jerome Powell expressed reluctance to lower rates. The Fed, like many of us, wants more clarity around the impact of tariffs.

As such, it is expected to keep its Fed Funds rate unchanged next week at 4.25-4.50% and emphasise ongoing economic uncertainty, particularly due to potential tariff effects and a softening labour market, while awaiting clearer data. No Summary of Economic Projections or "dot plot" update is due this meeting.

The rates market is currently pricing in a 65% chance of an initial 25 basis point Fed rate cut in June, with a total of 105 basis points of rate cuts expected this year.

Fed funds rate chart

• UK

Bank of England interest rate meeting

Date: Thursday, 8 May at 9.00pm AEST

At its March meeting, the Bank of England (BoE) maintained its Bank Rate at 4.50% with an 8–1 vote, continuing its cautious approach amid heightened global uncertainty. The lone dissenter, Swati Dhingra, pushed for a 25 basis point (bp) cut, citing signs of economic softness.

The central bank’s “gradual and careful” posture has resulted in only three rate cuts since August 2024, but that tempo may be set to accelerate. Markets are pricing in a 25 bp cut at the upcoming May meeting, driven by President Trump’s sweeping tariffs and mounting concerns over global growth.

Governor Andrew Bailey recently noted the BoE is taking the tariff threat “very seriously”, especially in light of the International Monetary Fund (IMF) downgrading its outlook for UK and global GDP.

Still, the BoE must tread carefully. Inflation remains elevated at 2.6% (March), above the 2% target, and wage growth stood at a robust 5.9% in the three months to January. This presents a dilemma: while growth concerns demand easing, sticky inflation keeps the bank in a tightening mindset.

Despite these challenges, traders now anticipate four 25 bp cuts in 2025, suggesting that rate normalisation may pick up pace in the months ahead.

BoE interest rate chart

• CN

CPI

Date: Saturday, 10 May at 11.30am AEST

China’s March Consumer Price Index (CPI) showed a modest improvement to -0.1% year-on-year, up from -0.7%, but still in deflationary territory. Month-on-month, both food and non-food prices weakened, reflecting subdued domestic demand, restrained credit growth, and ongoing property market stress.

Meanwhile, Producer Price Index (PPI) remained negative for the 30th consecutive month, dropping -2.5% year-on-year, compared to -2.2% in February. The deeper contraction was largely due to falling raw material costs and continued excess industrial capacity.

Looking ahead, the growing US tariff threat could weigh on export demand, further strain business confidence, and accelerate supply chain shifts. This could drag on growth and depress prices even further.

April CPI is expected to remain flat at 0.0% year-on-year, while PPI is forecast to ease slightly to -2.3%, still well below healthy levels. Should deflationary pressures persist, authorities may need to intensify policy support to bolster demand and stay on course toward the “around 5%” GDP growth target for 2025.

China's CPI and PPI chart

• US

Q1 2025 reporting season

This coming week sees earnings reports from companies including Ford, Advanced Micro Devices, Walt Disney and Uber.

US Q1 2025 reporting chart