The Monday Report – 25 August 2025

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Fed Chair Powell opened the door to a US interest rate cut at the September 17 meeting, which sent US markets rallying sharply higher. The Dow Jones hit a record high for the first time this year.

After Friday's retreat, the ASX200 futures are tilted to a strong start and a new record high.

Good Morning,

The Australian market sold off last Friday, falling -52pts or -0.6% to 8,967. Seven out of eleven sectors declined, led by healthcare and consumer staples. Despite the fall, the ASX200 gained 0.3% for the week.

The highlight of this week’s data calendar is Wednesdays Monthly CPI indicator. Last month (June), the monthly CPI indicator rose 1.9% YoY, easing from 2.1% in May, its lowest level since March 2021, notes Tony Sycamore, IG. Annual trimmed mean inflation eased to 2.1% YoY from 2.4% prior, marking the lowest level since October 2021.

The preliminary expectation is for headline inflation to rise to 2.3% in July. The Australian interest rate market starts the week pricing in -24bp of rate cuts for the RBA’s meeting in November with a follow up -25bp rate cut fully priced for March 2026.

What happened last Friday, NAB Markets Today Research extract

Markets on Friday night took their cue from Fed chair Powell’s Jackson Hole remarks that “the balance of risks may be shifting” (in relation to the Fed’s dual mandate) and that “with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance”. 

The onus now looks to be on the intervening data between now and the Sep 16-17 FOMC –the August non-farm payrolls report in particular– to prevent the FOMC agreeing to a quarter point cut.

Certainly, that was the market’s interpretation, with front-end US Treasury yields falling- 9-10bps, the Russell 2000 leaping 3.9%, the Dow Jones up 1.9%, making a record high for the first time since last December, alongside gains of 1.5% for the S&P500 and 1.9% for the NASDAQ, and the DXY dollar index dropping -0.9%.

The AUD/USD was one of the best performing G10 currency pairs Friday, up 1.1% to a high of 0.6501 before ending the New York day at 0.6490, in doing so reinforcing the sanctity of the 0.64-0.66 range we used to describe the near-term AUD outlook in our latest FX Strategy update on Friday.

Fed Chair Powell’s speech to the Jackson Hole Fed symposium on Friday did not come across as particularly dovish, even though the above quotes signified a dovish tilt relative to the messages conveyed in the July FOMC meeting Minutes published less than 24 hours earlier. 

The soft July non-farm payrolls report evidently flicked the switch on Powell’s thinking, noting that “The July employment report released earlier this month showed that payroll job growth slowed to an average pace of only 35,000 per month over the past three months, down from 168,000 per month during 2024. 

“This slowdown is much larger than assessed just a month ago, as the earlier figures for May and June were revised down substantially”.

Powell was nevertheless at pains to point out that both labour supply and demand factors had weakened such that the ‘break even’ rate of job creation needed to maintain a steady unemployment report was lower.

Powell noted inflation risks were currently tilted to the upside and risks to employment to the downside but in relation to the impact of tariffs on consumer prices described ‘a reasonable base case’ that the effects will be relatively short lived –-a one-time shift in the price level– even though ‘one time’ does not mean ‘all at once’.

The Fed chair did though warn the tariff impact could spur a more lasting inflation dynamic if it results in higher wage demands that films accommodate, though he assesses this as unlikely given the labour market ‘is not particularly tight’. He also expressed concern that inflation expectations could move up, though he says they currently appear to remain well anchored.

In other Fed related news Friday, President Trump says he’ll fire Fed Governor Cook if she doesn’t resign. This after Cook said on Thursday’s she wouldn’t be bullied into doing so (in relation to accusations of mortgage fraud). 

Cleveland Fed President Beth Hammack (current non-voter) told CNBC she’s ‘heard the chair is open minded about September’ but says she’s cautious about removing restriction, is squarely focussed on the inflation side of the Fed’s mandate, days that we’re only a ‘very small distance’ to the neutral rate and that breakeven rate of jobs we need (to keep unemployment stable) has shifted materially.

Current St. Louis Fed president Alberto Musalem (a current voter) told Reuters the Fed needs more data before any September rate cut decision. In sharp contrast, former St. Louis Fed President James Bullard and a named contender for the Fed chair, says he backs -100bps of rate cuts this year and thinks the Fed goes in September (describing the July Minutes as ‘stale’). Bullard continues to burnish his Fed chair credentials, saying he’s still pretty bullish on the economy, citing deregulation.

In other US news, the Congressional Budget Office said Friday tariffs announced so far this year would reduce primary deficits by -US$3.3tn over the period to 2035, while interest payments would fall by an additional -US$700bn. 

“As a result, the changes in tariffs will reduce total deficits by -US$4tn altogether,” said Phillip Swagel, director of the CBO, a non-partisan agency that sits within the legislative branch of government. The overall effect of the levies on debt levels over the period is about a third higher than the -US$3tn estimated by the CBO based on measures announced between January and mid-May.

President Trump seized on the report, saying it showed “that Trump was right” and that the tariff revenues “are going to reduce the deficit by numbers far greater than they ever expected — unheard of”.

Elsewhere, and in what some may see as the latest example of ‘State capitalism with American characteristics’ the US government has announced it is taking a 10% stake in struggling chipmaker Intel via an US$8.9bn equity investment, funded by federal grants previously agreed under the 2022 Chips Act but not allocated.

Northern hemisphere economic data of note Friday were limited to final Q2 German GDP, revised to -0.3% q/q from -0.1% on downward revisions to both consumption and business investment, and Canadian retail sales which ex (weak) auto sales were very strong at 1.9% m/m against a 0.8% consensus. 

Prime Minister Mark Carney announced Canada would from September 1 remove the 25% reciprocal tariff it has imposed on many US goods since March, but says steel and aluminium duties would remain in place.

He says that as a result ‘more than 85% of Canada-US trade is now tariff free’.

Powell dismisses the ongoing risk to inflation – a potentially dangerous path to tread: Chris Weston, Pepperstone

What unfolded caught many off guard. Powell downplayed the ongoing risk of a tariff-affected inflation rise, stressing he still believed tariffs would lead to a one-off or two-off lift in the price level, rather than a steady, prolonged rise in price pressures into 2026 – and even stoked conjecture the Fed was moving away from targeting a 2% average inflation rate. 

His speech was seen as market-friendly as the bulls could have hoped for, at least at this time, as the pivot may well prove to be a poor call, and we watch the extent of any further rise in the market’s pricing of inflation expectations. 

In the long end of the Treasury curve (i.e. 10- and 30-year US Treasuries), the bond market will soon let us all know if they see this as a ‘policy mistake’. We then also consider that September is seasonally the worst month for bond returns, notably given the US Treasury Department’s sizeable net cash borrowing requirement ahead.

However, Powell’s pivot not only opened the door to a September rate cut, but it aligned with the thesis already expressed in interest rate pricing; that the fed funds rate should be lowered towards neutral far sooner to support growth and jobs. In essence, the perceived divergence between Powell’s policy stance and that of the interest rate (IR) market has converged, with both now singing from the same song sheet.

The base case is now for the Fed to cut in September, with another -25bp cut priced before year-end and the perceived terminal fed funds rate eyed at 2.94%. 

With a new appetite to ease, the strike price on the ‘Fed Put’ has essentially been pulled closer to market levels. Intuitively, the bar for a September cut seems to be set low, which makes Friday’s US core PCE inflation read even more important, as a print at or above 3% would increase the selling in long-end Treasuries and further steepen the yield curve.

Conversely, one could also argue that if US core PCE proves more benign than expected (at 2.8% y/y or lower), and the August nonfarm payrolls (due 5 Sept) come in under 80k with unemployment above 4.3%, and we again we see outsized revisions, then a -50bp cut in September could be partially priced into IR swaps.

US financial conditions look set to break to new cycle highs, with real Treasury yields closing a punchy -14bp lower on Friday. Traders felt reinvigorated to sell equity vol and move cash off the sidelines to chase equities higher. Flows into higher-risk equity were obvious: small caps surged, non-profitable tech and high short-interest stocks rallied hard, and US homebuilders gained 5%. Crypto also lit up, with Ethereum closing 14%, briefly hitting a new all-time high, and record volumes seen in ETHA (iShares ETH ETF). 

The question for traders early this week is whether to chase Friday’s rally in risk and the USD downside. Given the extent of Friday’s move was premised on positioning being offside, and with much of that being cut, we enter the week with a cleaner slate. Still, while the risk of Powell getting this one wholly wrong perhaps reinvigorates the case to own gold, the fact that he has cemented the Fed Put and helped lower the implied volatility in markets should see support for risk continuing.

Hard to be tactically short risk – Nvidia’s Q226 earnings in the mix. It certainly feels difficult to be short risk at this point, although an open mind is key, as sentiment could easily turn when we’re at such lofty levels in risky markets.

Nvidia’s 2Q26 earnings (on Wednesday) will be a clear risk to equity and index positioning. Granted, options market makers have reduced the implied volatility for a move in response to earnings to minus/plus 5.8%, but the extent of any beat and raise to sales and margins will likely be a key risk that many should be set to manage. 

Asian equities should fire up on Monday, with the ASX200 set to post a new all-time high and China continuing to climb and outperform. Chinese equities certainly need close inspection, as the rally we’re witnessing in mainland equity bourses (and the CN50) seems almost entirely driven by liquidity dynamics and in no way justified by the economics or fundamentals. That said, this is so often the case with most risky assets these days, so we shouldn’t be wholly surprised. 

We live in interesting times, and equity should be supported into weakness, yield curves pulled steeper and the USD selling likely back in vogue. However, the further this all goes, the greater the urgency to consider hedging the risk as words like “policy mistake,” “bubble,” and “term premium” start to be used more liberally in traders’ conversations.

Corporate news in Australia

-Peninsula Energy ((PEN)) is undertaking a $69.9 million (US$44.9 million) equity raising to fund the restart of its Lance Uranium Project in the US state of Wyoming.

-The Schall Law Firm (US) is investigating James Hardie’s ((JHX)) surprise earnings results and downgrade.

-Adnoc and Carlyle’s exclusivity agreement for Santos is expected to be extended by four weeks.

-Cuscal ((CCL))’s escrowed shareholders with a 29.6% stake can start selling today post Friday’s release of FY25 results.

On the calendar today:

-NZ 2Q Retail sales

-US Dallas Fed meeting

-US July building permits

-US July new home sales

-AUSSIE BROADBAND LIMITED ((ABB)) earnings report

-ABACUS GROUP ((ABG)) earnings report

-ACROW LIMITED ((ACF)) earnings report

-AUSTIN ENGINEERING LIMITED ((ANG)) earnings report

-ANSELL LIMITED ((ANN)) earnings report

-BENDIGO & ADELAIDE BANK LIMITED ((BEN)) earnings report

-CHORUS LIMITED ((CNU)) earnings report

-DALRYMPLE BAY INFRASTRUCTURE LIMITED ((DBI)) earnings report

-DATA#3 LIMITED. ((DTL)) earnings report

-ENDEAVOUR GROUP LIMITED ((EDV)) earnings report

-EMBARK EARLY EDUCATION LIMITED ((EVO)) earnings report

-FORTESCUE LIMITED ((FMG)) earnings report

-GENESIS ENERGY LIMITED ((GNE)) earnings report

-GQG PARTNERS INC ((GQG)) earnings report

-INFOMEDIA LIMITED ((IFM)) earnings report

-IMDEX LIMITED ((IMD)) earnings report

-IPD GROUP LIMITED ((IPG)) earnings report

-KOGAN.COM LIMITED ((KGN)) earnings report

-KELSIAN GROUP LIMITED ((KLS)) earnings report

-LINDSAY AUSTRALIA LIMITED ((LAU)) earnings report

-MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) ex-div 21.00c (100%)

-MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) ex-div 25.90c (100%)

-NETWEALTH GROUP LIMITED ((NWL)) earnings report

-NUIX LIMITED ((NXL)) earnings report

-ORORA LIMITED ((ORA)) earnings report

-PREMIER INVESTMENTS LIMITED ((PMV)) earnings report

-POLYNOVO LIMITED ((PNV)) earnings report

-PEOPLEIN LIMITED ((PPE)) earnings report

-PRAEMIUM LIMITED ((PPS)) earnings report

-PERENTI LIMITED ((PRN)) earnings report

-REGIS HEALTHCARE LIMITED ((REG)) earnings report

-REECE LIMITED ((REH)) earnings report

-REGAL PARTNERS LIMITED ((RPL)) earnings report

-SOLVAR LIMITED ((SVR)) earnings report

-SOUTHERN CROSS ELECTRICAL ENGINEERING LIMITED ((SXE)) earnings report

-SOUTHERN CROSS MEDIA GROUP LIMITED ((SXL)) earnings report

-TASMEA LIMITED ((TEA)) earnings report

-TOURISM HOLDINGS LIMITED ((THL)) earnings report

-VICINITY CENTRES ((VCX)) ex-div 6.1c

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days…

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