Tariffs
While equity markets have pushed to new highs, markets were more benign over the week but continue to trend higher supported by a solid United States reporting season (to date) as well as increased certainty on the proposed tariff regime.
Over the weekend, the United States concluded an agreement with the European Union on baseline tariffs (at 15%), although it did exclude pharmaceuticals as well as European Union steel and aluminium exports to the United States, where the 50% tariff would still apply. Most notably for the European Union, the baseline tariff includes the region’s auto industry, which remains a critical export sector and labour market employer for the region. In addition, the European Union will look to purchase additional defence, and other strategic imports from the United States (at zero tariffs).
Overall, the European Union tariff will go some way in ‘restoring trade balance’, but with the Japanese exporters also facing a 15% baseline tariff, it now seems that the United States (outside the ongoing Chinese trade discussions) will look towards tariffs around 15–20%. While this will have an impact on both global growth, supply chains and prices, for now, many countries can move forward with greater level of certainty. We view this positively, but will closely watch the outcome for Australia.
The U.S.
It’s a big week on the data front, with the United States Federal Open Market Committee meeting (Wednesday) to be the focus. We expect this to be a line-ball decision. While Chairman Powell has reiterated a more cautious approach given the overall strength of the United States economy and impact of the tariffs on prices, several voting members support a lower Federal Funds rate.
China & Japan
In addition, (July) jobs data (forecast unemployment rate 4.2%, +0.1%) and the United States tariff deadline (Friday) is set to expire, while United States/China trade talks will continue. The Japanese Bank of Japan also meets (forecast 0.5%, no change), while in China, Purchasing Managers’ Index data will be the focus.
Australia
In Australia, it will all be about the second quarter 2025 Consumer Price Index numbers, with trimmed mean Consumer Price Index forecast to decline to 2.7% year-on-year, headline Consumer Price Index 2.2% year-on-year (–0.2% previous corresponding period). We view this as a base for an Reserve Bank of Australia cut at its August meeting.
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