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We have to admit that Donald Trump's had a good couple of weeks, culminating in the Big Beautiful Bill passing both the US Senate and Congress, and landing on his desk in time for the July 4th Independence Day celebrations. Add that to the Iran/Israel cease fire, a pending cease fire in Gaza, his centre stage position at the NATO conference, and he no doubt feels pretty pleased with himself.
Which is not unusual.
Ukraine seems to have lost its interest, and Elon's a distant memory who needs to go back to South Africa. His next challenge will be Jerome Powell at the Fed, who is proving a little troublesome in refusing to cut rates on Donald's say-so. However, strong jobs data in the US overnight, adding 147,000 jobs in June vs. an expectation of 106,000, and dropping the unemployment rate to 4.1% from an expectation of 4.3%, and a May figure of 4.2%, saw the market scotch chances of an imminent rate cut.
Powell has been keen to play a waiting game due to the uncertainty surrounding the outcome of Trump's tariff policy. A stronger US labour market may have just strengthened his argument. Even though Trump says letters are going out to US trading partners next week, it may still be some time before the inflationary effects flow through to the US business and consumer sector. For his part, Trump assumes exporters around the world will pay the tariffs, and the US will magically collect the proceeds at the border.
Back in Australia, a rate cut following next week's RBA meeting seemed all but assured earlier in the week, with all four big banks tipping a move, and with further cuts to follow before the year's end. The US employment data may have tempered that view somewhat, such that the market's saying it's no longer a certainty.
In the lead-up to the RBA's July policy meeting next Monday and Tuesday, we hosted Nicholas Chaplin from Seed Funds Management, and Renny Ellis from Arculus Funds Management to give their opinion in the current economic outlook and assess the likelihood and implications of a rate cut. Despite soft inflation data for May (2.1%), both guests urged caution, highlighting the strength of our own labour market, rebounding housing prices, and the broader economic stability.
While markets are pricing in a cut, both questioned the need for further easing given the current conditions, pointing out that GDP softness, not inflation, may be the real concern. They also compared the RBA's stance with the U.S. Federal Reserve, concluding that domestic factors should drive policy, not international pressure.
Although both Nicholas Chaplin and Renny Ellis thought the RBA would cut, they also both advocated a "wait and see" approach if they were in Michele Bullock's shoes. Despite market expectations, they cautioned that economic fundamentals do not yet warrant aggressive easing, especially with strong employment and stable inflation. Growth concerns exist, but they believe the RBA has room to observe data and remain flexible in its response.
You can read the full transcript of the interview here, or view the video here.
Either way, we'll know the answer next Tuesday afternoon at 2:30, when we will check back in with Nick and Renny to get their take on the decision, the Board's thinking, and where - or when - they think the next cut may be.
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