The Monday Report – 26 May 2025

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US markets fell last week with tariff tremors re-emerging on Friday with President Trump threatening the EU. US markets are closed Monday for Memorial Day, so it might be a quiet start to the week. ASX200 futures are pointing to a negative open.

Good Morning,

The Australian market is set for a soft open to start the last week of May with investors likely to focus on the April CPI print this Wednesday amid ongoing out of cycle earnings reports and US tariff rumblings (again). Bond markets are likely to also take centre stage as the US Senate seeks to approve the big new tax bill.

What happened on Friday: Extract Tony Sycamore, IG

The ASX200 finished 17 points  or 0.21% higher last week at 8360, for its fifth week of gains in six weeks. A dovish RBA rate cut supported its gains, helping it ride out headwinds from Wall Street and surging bond yields.

The strongest sectors last week were the Telcos rising 2.96%, IT up 1.99%, Real Estate up 1.02% and Financial Sectors up 0.86%.

In contrast, Energy fell -1.33%, Materials declined -1.17%, Consumer Discretionary slipped -0.91% and Industrial sectors -0.78% were all the weakest.

At a stock level, Catapult Group ((CAT)) rose 23.78%, TechnologyOne ((TNE)) up 16.65%, Evolution Mining ((EVN)) up 11.44%, and Johns Lyng Group ((JKG)) up 11.26% were among last week’s biggest winners.

The biggest losers last week were Coronado Global Resources ((CRN)) -40.54%, Nufarm ((NUF)) -39.31%, Mayne Pharma Group ((MYX)) -25.62%, and Imugene ((IMU)) -22.73%.

The highlight on this week’s local calendar is Wednesday’s Monthly CPI indicator.

In the March 2025 quarter (Q1), headline inflation rose by 0.9%, which saw the annual rate remain at 2.4%.

The RBA’s preferred measure of inflation, the trimmed mean, rose by 0.7% in the quarter, allowing the annual rate to fall to 2.9% from 3.3% prior.

At the same time, the Monthly CPI indicator (for March) rose by 2.4% YoY, unchanged from February. The annual trimmed mean inflation measure within the Monthly CPI indicator remained at 2.7% YoY in March from 2.7% in February. 

At last week’s meeting, the Reserve Bank of Australia delivered a dovish -25bp cut, taking its cash rate to 3.85%. The rate cut was widely expected after the weaker inflation readings outlined above, which saw both trimmed mean and headline inflation fall within the RBA’s 2-3% target range for the first time since Q4 2021. 

The RBA’s dovish tones were re-inforced by its cooler inflation forecasts and in the press conference, where the RBA Governor acknowledged that a -50bp cut was considered, and that the RBA would likely have cut rates last week even without the Liberation Day tariff fiasco. 

The preliminary expectation for the Monthly CPI indicator is for headline inflation to ease to 2.3% in April from 2.4% prior. The trimmed mean is expected to remain at 2.7%. The rates market starts this week, pricing in a 60% chance of a -25bp RBA rate cut in July and a cumulative -66bp of rate cuts between now and year-end. 

US stock markets fell on Friday at the end a turbulent week following President Trump’s threat to impose a 50% tariff on the EU starting June 1st, due to slow progress in trade negotiations, and a potential 25% levy on Apple if it does not relocate production to the US.

For the week, the S&P500 fell -2.61%, the Nasdaq dropped- 2.39%, and the Dow Jones Industrial Average lost 1,051 points or -2.47%.

In our Traders View note on the 14th of May we said the recent rebound in US equity markets gave President Trump the chance to re-take a hawkish stance on tariffs and trade policy i.e. the “Trump Call” after seeing the “Trump Put” revealed during the April sell-off.

While Trump’s threat to impose a 50% tariff on the EU is most likely a bargaining tactic, it adds pressure to finalise multiple trade agreements before the July 9 expiry of the reciprocal tariff pause, while continuing to complicate business decisions regarding capital expenditure and hiring.

Finally, the unveiling of the “Trump call” on top of surging bond yields and the Moody’s downgrade is likely the nail in the coffin of hopes that US equity markets could make new highs on this run higher. 

Looking ahead, chip maker Nvidia is scheduled to report its earnings after the market closes on May 29th, becoming the last of the “Magnificent Seven” to report for this period.

Nvidia shares are currently down -2.23% this year at US$131.29, after reaching a high of US$153.13 and a low of US$86.62 in 2025.

The market is expecting EPS of $0.88 on US$43.26 billion in revenue. The options market is pricing in a possible +/- US$11.00 move, which, based on Friday’s close, could see the stock fall to US$120 or rise to US$142.00 post its earnings release.

Beyond Nvidia’s earnings and tariff news, investors will closely watch commentary from Federal Reserve officials and the FOMC meeting minutes.

Key US economic indicators to be released include the Fed’s preferred measure of inflation, the Core PCE price index, as well as personal income and spending, durable goods orders, and the second estimate of Q1 GDP growth. The US rates market begins the week with an 80% probability of a -25bp rate cut in September, with a total of -55bp of Fed rate cuts expected between now and year-end.

Don’t get thrown off the bull market: Extract Ed Yardeni

President Donald Trump is frustrated about his trade negotiations with the European Union: “Our discussions with them are going nowhere!”

He said so on Friday morning and threatened to slap a 50% across-the-board tariff on America’s largest trading partner in terms of imports starting next Sunday, June 1.

The master of the art of the deal is imposing the deal. “I’m not looking for a deal,“ said Trump. “I mean, we’ve set the deal. It’s at 50%”.

Treasury Secretary Scott Bessent added he hopes the tariff will “light a fire under the EU” in negotiations with Washington. He also said he expects to announce more deals with America’s other trading partners, who are negotiating in good faith.

Stock investors seem to be getting jaded about Trump’s Tariff Turmoil (TTT). Investors must be assuming Trump might change his mind again, or maybe postpone this latest threatened tariff for 90 days.

Our mantra for dealing with TTT is still: “This too shall pass.” We are maintaining our 6500 year end target for the S&P500. But stock investing is likely to continue to be like riding a mechanical bull in rowdy sports bar. Keep focused on not getting thrown off the bull!

We still believe that Trump needs to declare victory in his trade war before the end of the summer to avoid a recession later this year that might threaten the Republicans’ current slim majorities in both houses of Congress come next year’s midterm elections.

The risk is that he won’t do so and that TTT will continue to weigh on S&P500 forward earnings per share, which have stalled at a record high around US$278 for the past several weeks.

To get to 6500 on the S&P500 by the end of this year, we need forward earnings to climb to US$300 with a forward P/E of 21.7x.

Trump’s latest Reign of Tariffs boosted the price of gold on Friday by US$62.60 an ounce. Friday morning, Goldman Sachs Research predicted the gold price will rise to US$3,700 an ounce by the end of 2025.

We’ve been bullish on gold since the January 30 QT, when it broke out to a new record high of US$2,851. Since our April 17 QT, we’ve been targeting US$4000 by the end of 2025 and US$5000 by the end of 2026, driven by global economic uncertainty and central bank gold purchases.

On the other hand, we are somewhat puzzled by the recent strength of the price of copper given that TTT is weighing on global economic growth prospects, which the copper price usually reflects. Copper’s recent strength might be signaling a strong outlook for AI infrastructure, which requires lots of electricity carried over copper wires. Furthermore, on Friday, Trump signed four executive orders aimed at accelerating the construction of nuclear power plants to generate more electricity.

Finally, we note the US imported a record $656.6 billion of merchandise from the European Union over the past 12 months. That was boosted in recent months by US importers’ front-running Trump’s tariffs. The EU currently accounts for 18.7% of US merchandise imports.

Corporate news in Australia

-Northern Star Resources ((NST)) has been flagged as the probable buyer of Bellevue Gold ((BGL)).

-WiseTech Global ((WTC)) has secured $4.7bn in funding to acquire US e2Open, the biggest transaction for the company.

-a2 Milk ((A2M)) is planning a $350m plus expansion of Chinese manufacturing.

-Speculation of a possible takeover of Nufarm ((NUF)) post the worse than expected earnings with the Seed division under review, alongside debt concerns.

-The Mongolian Government has filed a lawsuit in the British Courts regarding claims of political corruption associated with RioTinto ((RIO))

On the calendar today:

-UK Public Holiday

-US Public Holiday

-ELDERS LIMITED ((ELD)) earnings report

-NEWMONT CORPORATION REGISTERED ((NEM)) ex-div 27.35c

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

The Australian share market over the past thirty days

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

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