Monthly Market Commentary
As at 31 May 2025
Economic Overview
Australia
Reserve Bank of Australia cuts the cash rate by 0.25% in May
The RBA reduced the cash rate by 0.25% to 3.85%, as anticipated. It noted that inflation has significantly decreased since its peak in 2022, with the core CPI now at 2.9% which is back in the RBA's target band, and that the labour market remains tight. However, the RBA was more concerned with international developments and uncertainties in the domestic economy, especially with slower household consumption growth than expected. This shows a shift in tone from the more hawkish stance at the previous RBA meeting.
Australian retail sales in April fell by -0.1%, against market expectations for a 0.3% increase. Sales remain weak, as consumers continue their pessimism about the economy, even after the RBA interest rate cuts and signs that the labour market remains stable.
Australian labour market data showed a significant increase, with 89,000 jobs added in April, far exceeding market expectations of 22,500 jobs. The unemployment rate remained steady at 4.1%. Wage growth data for Q1’25 halted its decline and slightly increased to 3.4% from 3.2%.
International
US Court of International Trade rules against US tariffs
The US Court of International Trade ruled against all US tariffs implemented via the International Emergency Economic Powers Act. This ruling covers all tariffs on Canada, Mexico, China and the 10% baseline Liberation Day tariffs, but sectoral tariffs (Steel/Autos) are unaffected. Following this decision, the US Court of Appeals issued a stay pending the appeal case.
President Trump’s “One Big Beautiful Bill Act” was passed by the House of Representatives and will now progress to the Senate. This Bill extends the tax cuts from President Trump’s first term and includes additional tax cuts on overtime and tips.
The US trade deficit for goods in April was much lower than in March ($87.6b vs $162b). March experienced a surge in imports, leading to the largest goods trade deficit in history. This decline in the goods trade deficit is expected to result in a positive impact on Q2 GDP.
Market Review
Shares: Strong month for International and Australian Shares
Australian shares rallied on the back of positive international tariff news and US tax cuts, ending the month up 4.2%.
International shares (hedged) were up 6% in May, following a significant de-escalation in tariff threats between the US and China.
International shares (unhedged) were up 5.3%, with the AUD rising slightly over the month.
The Magnificent 7 shares (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla) experienced another solid month, increasing by 13.4%.
Fixed interest: Markets performance was mixed
The Australian fixed interest return was flat in May, despite the volatility in Australian sovereign bond yields throughout the month due to fluctuating global trade tensions.
International government bond returns declined by 0.6%, as international bond yields rose in May. The US 10-year sovereign bond increased by 24 basis points over the month, reaching 4.40%.
Currencies: Australian Dollar (AUD) stable in May
Currency markets were relatively quieter in May, with the AUD climbing 0.5% against the US Dollar.
Commodities: Oil prices rose in May
Most commodities were higher; crude oil was marginally higher, up 1.2% to US$65.
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