Trade Headlines and Deadlines Can’t Kill Rally

Transcript

Hi and welcome to the market weekend review for the week ending the 11th of July 2025. My name is Alex Kusley. I'm a senior portfolio manager based out of Sydney. Uh and really this week we saw another week of strength in equity markets. So US equities are back and near all-time highs or at alltime highs and I think resilience remains the name of the game uh for the US economy. So this week it's a fairly weak uh light week in terms of data, but we had continuing jobless claims and initial jobless claims that were actually a little bit better than expected. So less people filing for unemployment insurance. Then we also had the one big beautiful act that is now being passed by about both the Senate and the House. And we think that's going to have a very modest um uptick or and modest boost to economic growth in 2026. And one of the key um elements of that that we are closely looking at is the depreciation uh encouragement or the depreciation expense that is allowed for capital expenditure and we're about to sees an increase in capital expenditure by US companies as we head into 2026. Uh on the geopolitical front, we saw tariffs coming back into the headlines with Vietnam last week. So Trump putting 20% tariffs on Vietnam and 40% tariffs on trans shipments. So um exports that have come from China to Vietnam and then get sent across to the United States. Um to the extent that that is able to be policed and monitored that will be at 40% and then this week we saw letters to Japan and South Korea um hing they've got to August 1st to come up with a deal otherwise it will be 25% tariff rates. The market has largely looked through this. I think generally the view uh still remains that this is a negotiating tactic. The final one that we got was around Brazil. So, um, the US have put a 50% tariff on Brazil, which seems to be driven by more political considerations, um, rather than trade considerations and and that's a bit of a harder one to to pull apart. But nevertheless, as we sit here today, we think recession risks are still high, a little bit higher than normal, but they have come down from the peaks uh that we saw around Liberation Day. Uh, the US economy has remained fairly resilient. Europe still looks pretty healthy. uh and China is is stumbling along. The final bit that is uh kind of exciting to talk about as an Australian, we don't get to spend too much time talking at the Reserve Bank of Australia, but they actually surprised markets this week. So, the market had fully priced in an interest rate cut from RBA uh and they actually held uh and kept rates steady. The reason for that is they would like a little bit more confidence that they have gotten to the point where inflation is sustainably within the two or 3% target range that the RBA are aiming for. They've already done a couple of rate cuts this year and so they want to see how that flows through. I think I've discussed this in other videos before, but Australia's mortgage market is quite different to the United States. We do not have 30-year fixed rates. most people have at most a three-year fixed rate and so interest rates have a pretty quick um and a quick pass through to consumers and so as we roll out the next six months we'll start to get a sense of how those two interest rate cuts start to flow through to the broader economy. The other challenge that the RBA are grappling with is productivity growth has remained fairly soft in Australia. That's a theme that's kind of been fairly similar throughout the developed world with the exception of the United States. And with wage growth running at 3 and a half% right now in Australia and productivity growth very minimal, that doesn't allow that doesn't get us back towards comfortable uh comfortably within the the inflation target. So they're the two things that the RBA is monitoring. As we look ahead to the rest of the year, we do think there's probably room for one more rate cut um towards the back half of the year, maybe two if the economy more meaningfully slows or we see more pressure coming out of the Chinese economy. But for now, we think that there is probably room for for one more rate cut towards the end of the year. So, with that, I'll leave it there. Thank you very much for listening and we look forward to speaking to you soon. Hi, I'm Sophie Antaly, head of portfolio and business consulting at Russell Investments. If you liked what you just saw and heard, consider subscribing to our YouTube channel or check us out on LinkedIn. Thanks for tuning in.

Key Takeaways

U.S. jobless claims dip
Investors brush off tariff threats
RBA rate decision stuns markets

On this week’s edition of Market Week in Review, Director and Senior Investment Strategist Alex Cousley discussed the resilience of the United States economy as well as the latest trade developments. He also dug into the Reserve Bank of Australia’s (RBA) surprising decision to leave interest rates unchanged.

Resiliency Reigns

While the first full week of July was light on economic data, Cousley said the numbers that were released point to the ongoing resilience of the U.S. economy.

“Both initial jobless claims and continuing jobless claims for the past week came in a little better than expected, with slightly fewer people filing for unemployment insurance,” he stated.

Cousley noted the recently passed One Big Beautiful Bill is expected to modestly boost economic growth in 2026 by up to 0.4%. A key watchpoint will be whether the expansion of tax benefits for businesses leads to an increase in capital expenditures, he said.

Shrugging It Off

Turning to geopolitics, Cousley noted tariffs and trade are back in the headlines this month. July began with the U.S. and Vietnam signing off on a trade pact that places 20% tariffs on Vietnamese imports and 40% tariffs on products made elsewhere but shipped through Vietnam. Then this past Monday, President Donald Trump sent letters to several countries—including Japan and South Korea—warning they’ll face 25% tariffs if they don’t reach an agreement on trade with the U.S. by Aug. 1.

The stock market, however, has largely been unfazed by these developments, with the S&P 500 and the Nasdaq setting new all-time highs on Thursday. “The view in markets is still that tariffs are a negotiating tactic by the Trump administration,” Cousley explained.

He added that while recession risks still look a little higher than normal, they’ve fallen from their post-“Liberation Day” peaks. The U.S. economy remains robust and the European economy looks pretty healthy, Cousley said, noting China’s economy continues to stumble.

Pause Down Under

Cousley finished with a look at the RBA's unexpected decision on interest rates. He said markets had fully priced in a rate cut but that RBA officials opted to leave rates unchanged instead.

Why? Cousley explained that central-bank leaders want to feel more confident about the slowdown in inflation before lowering rates again. “The RBA has already cut rates a couple times this year, and they want to see how those cuts flow through to the broader economy first,” he remarked.

Cousley noted Australia’s mortgage market is very different from the U.S., with most borrowers having variable mortgage rates rather than 30-year fixed rates. That's why Australian consumers are far more impacted by interest-rate moves, he said.

Cousley added that the other challenge the RBA is grappling with is the country’s tepid productivity growth. “Australia’s productivity gains have been very minimal, which makes it harder for inflation to come down further,” he noted. That said, Cousley thinks one more rate cut is possible later this year if the situation improves.

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