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A 0.25% reduction in the US benchmark rate, the expectation of a further 1.0% decline this year and no early signs of major tariff-driven economic disruptions pushed stocks higher. Asian stocks led the way. Chinese shares rose 17.9%. Australian small capitalisation stocks featured, rallying 14.3% slightly ahead of their US peers. The NASDAQ rose 11.4% and European stocks underperformed. Australian 10-year bonds resumed trading at a discount to US treasuries as some of the perceived tariff-related risk premium decreased for US debt holdings. These higher relative yields for Australian bonds and soaring gold price pulled the Australian dollar higher against most currencies. The demand for precious metals was on clear view in the silver market where prices rose 29.8%!

 

The ‘One Big Beautiful Bill’ finally passed into law in the US. The outcome of tariff negotiations saw US import tariffs imposed across the board including Canada (+35%), Switzerland (+39%), the EU (+15%), Japan (+15%), Indonesia (+19%) and Vietnam (+20%). In the meantime, the US jobs market is on a softening trend while concerns remain over tariff-related inflationary risks. For example, Alanta FED (Federal Reserve Board) president, Bostic said ‘I am concerned about the inflation that has been too high for a long time’. Richmond FED president, Barkin noted with respect to tariffs that ‘you are seeing some of it being borne by the exporter. You’re seeing some of it being borne by the company, and you are seeing some of it being passed on to the consumer.’

 

Commentators have been quick to praise Chinese efforts to replace lost tariff-related US exports with shipments to Asia. Data for August may be indicating a turning point. Chinese export growth to August slowed from 7.2% to 4.4% over the year. If it was that easy to replace US exports with more local alternatives one wonders why this was not already done in the first place. This is problematic for China. Tariffs are slowing investment growth rates. August investment was running at 0.5% down from 2.8% in June. Tariffs mean businesses are less motivated by the future. Combine this with low-capacity utilization, house price deflation, and a weakening consumer and it is easy to see the temptation for a new program of stimulus measures.

 

The Bank of Japan (BOJ) remains somewhat hawkish. Tightness exists in the labour market and corporate profits are good supporting investment and eventually further wage increases. The next wage round is in March 2026. The BOJ also announced that it would start unloading ¥335 billion pa of ETFs and real estate investment trusts previously purchased to reflate the economy. Prime Minister Shigeru Ishiba succumbed to political pressure and resigned meaning the country will have had four Prime Ministers within five years.

 

The European economy is growing at a steady 1.4% pace. Monetary policy is neutral and the labour market is good. Public spending is likely to further support economic growth. By comparison, the Bank of England (BOE) cut rates 0.25% to 4% in the face of a softer labour market. The decision was close given the inflationary pressures that still exist. Services inflation is the main cause. The BOE is concerned that second-round effects place upside risks to medium-term inflation.

 

The Australian economy is experiencing a softening labour market and lower inflation. Latest data shows lower employment and participation with unemployment slightly higher at 4.2%. The non-market job sector’s growth rate is now declining.  Concerns remain that inflation is not yet anchored. The Reserve Bank of Australia (RBA) cut rates for a third time to 3.60%. Low productivity growth and lingering price pressures leave the RBA reticent to stoke a second inflationary wave. A gradual recovery in private sector demand is providing some economic growth. The June quarter GDP release showed economic growth was up 1.8% over the year. Consumption growth should continue to contribute. Questions remain over the willingness of business to invest.