Ahead of the game: 7 July 2025

Wall Street strength and rate cut hopes propel Australia 200 higher

United States (US) stock markets finished a holiday-shortened week on a high note, driven by stronger-than-expected jobs data, optimism about trade deals, and the House's approval of President Trump’s tax bill, which now moves to the president's desk for signature.

Locally, the Australia 200 (ASX 200) is on track to record its 10th week of gains over the past 12 weeks, supported by gains on Wall Street and expectations of a Reserve Bank of Australia (RBA) interest rate cut this coming week.

The week that was: highlights

• In the US, the Institute for Supply Management (ISM) manufacturing purchasing managers' index (PMI) edged up to 49 in June from 48.5 prior
• Job openings and labor turnover survey (JOLTS) job openings for May rose by 374,000 to 7,769,000, the highest since November 2024
• The ADP employment report showed private employers shed 33,000 jobs in June, well below the consensus expectation of 98,000, marking the first negative print since March 2023
• Non-farm payrolls (NFP) for June rose by 147,000 versus the expected 110,000. The unemployment rate ticked down to 4.1% from 4.2%, well below the forecast of 4.3%
• US initial jobless claims fell to 233,000 last week from 237,000
• Staying in the US, the ISM services PMI rose to 50.8 in June from 49.9 prior
• In the Euro Area (EA): core inflation in June stayed at 2.3% while the headline rate edged up to 2% from 1.9% prior
• In China (CN), the National Bureau of Statistics (NBS) manufacturing PMI for June rose to 49.7 from 49.5 prior
• The Caixin manufacturing PMI for June rose to 50.4 from 48.3 prior
• In Japan (JP), the Tankan large manufacturers index in the second quarter (Q2) rose to 13 from 12
• In Australia (AU), retail sales for May rose by 0.2% month-on-month (MoM), an unimpressive rebound from last month’s flat reading and below consensus expectations of 0.5%
• Australian building approvals also missed the mark, rising 3.2% MoM in May, below forecasts of 4%
• In New Zealand (NZ), the Australia and New Zealand Banking Group Limited (ANZ) business confidence index for June rose to 46.3 from 36.3 prior, its first increase since February as tariff turmoil faded
• Crude oil gained 2.26% this week to $67.02
• Gold rose 1.74% this week to $3331
• Bitcoin gained 1.08% this week to $109,559
• Wall Street's gauge of fear, the volatility index (VIX), rose to 16.37 this week from 16.34 in the previous week.

Key dates for the week ahead

Australia & New Zealand

• National Australia Bank (NAB) business confidence: Tuesday 8 July at 9.30am SGT
• RBA interest rate decision: Tuesday 8 July at 12.30pm SGT
• RBA press onference: Tuesday 8 July at 1.30pm SGT
• Westpac consumer confidence: Wednesday 9 July at 8.30am SGT
• Reserve Bank of New Zealand (RBNZ) interest rate decision: Wednesday 9 July at 10.00am SGT
• NZ Business  PMI: Friday 11 July at 6.30am SGT

China & Japan

• CN consumer price index (CPI) and producer price index (PPI): Wednesday 9 July at 9.30am SGT
• CN balance of trade: Saturday 12 July at 11.00am SGT

United States

• US reciprocal tariffs pause expires: Tuesday 9 July
• Federal Open Market Committee (FOMC) minutes: Thursday 10 July at 2.00am SGT
• Weekly jobless claims: Thursday 10 July at 8.30pm SGT

Europe & United Kingdom

• EA gross domestic product (GDP): Friday 11 July at 2.00pm SGT

Key events for the week ahead

AU: RBA interest rate decision

Date: Tuesday, 8 July at 12.30pm SGT

At its last meeting in May, the RBA cut its official cash rate (OCR) by 25 basis points (bp), taking it to 3.85%. The rate cut was widely expected after the first quarter (Q1) 2025 inflation report showed both trimmed mean and headline inflation fell to within the bank's 2-3% inflation target range.

The RBA’s rate cut was accompanied by dovish commentary, highlighting that the RBA was 'cautious about the outlook.' At the same time, the RBA revised lower its inflation and growth forecasts and revised higher its forecast for the unemployment rate.

Since then, the case for further monetary policy easing has strengthened. This includes a soft May CPI report where the headline CPI indicator eased to 2.1% year-on-year (YoY) from 2.4% in April. The core measure of inflation, the annual trimmed mean, fell to 2.4% YoY in May from 2.8%, marking the lowest rate since November 2021.

Meanwhile, Q1 GDP data released in June showed the Australian economy grew at just 0.2% quarter-on-quarter (QoQ), for an annual rate of 1.3%. Both readings were weaker than expected, and the annual rate remains well below the 2.75-3.25% growth rate we had become accustomed to before the Covid-19 shock.

These factors, combined with ongoing concerns around tariffs and trade, have negated any concerns that the RBA may have had about a tight labour market.

As a result, we expect the RBA will cut the rate by 25 bp at its July, August, and December meetings, bringing the OCR back to 3.1% by year-end.

RBA official cash rate chart

CN: CPI

Date: Wednesday, 9 July at 9.30am SGT

For May, headline consumer prices fell by 0.1% YoY, matching the same rate of decline observed in March and April. It was the fourth consecutive month of consumer deflation, driven by the uncertainty created by tepid domestic demand, tariff concerns, and sharper falls in food prices. Specifically, pork prices fell 14.4% YoY due to oversupply and weaker demand.

The core measure of inflation, which excludes volatile food and energy prices, rose by 0.6%, marking the highest reading since January, following a 0.5% increase in the prior two months.

For June, the expectation is for headline inflation to fall by 0.3%. There are hopes that the recent trade deal signed with the US will help mitigate trade concerns and boost domestic demand to end the deflationary spiral. Additionally, Chinese authorities earlier this week warned about overcapacity and ‘disorderly low-price competition’ across various industries, including chemicals and metals, potentially providing an additional boost back into positive territory in the months ahead.

CN inflation rate chart

NZ: RBNZ interest rate decision 

Date: Wednesday, 9 July at 10.00am SGT

At its last meeting in May, the RBNZ lowered the OCR by 25 bp to 3.25% on a vote of 5 to 1 in favour of cutting versus holding. It was the RBNZ’s sixth straight cut, bringing total easing to 225 bp.

In recognition of the downside risks to growth from President Trump’s tariffs and with inflation back within the target band, the RBNZ lowered its OCR track by 25 bp from 3.1% to 2.85%. This indicates the RBNZ is anticipating the need for up to two more rate cuts, taking the cash rate to 2.75% by early next year.

The 5-1 vote and the removal of the explicit forward guidance stating ‘scope to lower the OCR further’ were interpreted by markets as signalling that the RBNZ was likely to pause its easing cycle in July. This view has since been supported by a better-than-expected Q1 2025 GDP report and a rise in business confidence.

However, with New Zealand’s unemployment rate at 5.1%, significantly above the 3.3% low recorded in September 2022, and considering ongoing trade uncertainties, sluggish activity, and a still-weak housing market, further RBNZ rate cuts are necessary to help foster the green shoots that are beginning to emerge.

We expect the RBNZ to hold rates steady next week before a 25 bp rate cut in October and another in February, which would bring the terminal rate to 2.75%.

RBNZ offical cash rate chart

US: FOMC minutes

Date: Wednesday, 10 July at 2.00am SGT

At its last meeting in mid-June, the Federal Reserve (Fed) kept the Fed Funds target rate unchanged at 4.25% - 4.50%, as widely expected. The decision was unanimous, reflecting a cautious 'wait-and-see' approach due to economic uncertainties, particularly around trade tariffs and their potential inflationary impact.

Fed Chair Jerome Powell emphasised the need for more data before adjusting policy, noting solid labour market conditions and slightly elevated inflation. The Fed’s dot plot shows members still anticipating two 25 bp rate cuts in 2025, likely starting in September.

This week’s stronger-than-expected NFP report, which showed the US economy added 147,000 jobs in June versus the 110,000 expected, along with a surprise decline in the unemployment rate to 4.1% from 4.2%, supports the idea the Fed can afford to remain in 'wait-and-see' mode until the September FOMC meeting.

The minutes from the last FOMC meeting will be closely scrutinised for discussions around what might prompt an early Fed rate cut or what might see them push back rate cuts until the final months of this year.

US Fed Funds rate chart