The Australian sharemarket lost 0.5% last week, as investor sentiment turned cautious. The pullback was driven by geopolitical tensions, particularly the escalating conflict between Israel and Iran, which sent oil prices sharply higher over six consecutive sessions. Markets were further unsettled by US President Donald Trump's comments suggesting potential American military involvement in the region within a fortnight. The Materials sector (-3.4%) lost ground, as the price of iron ore slipped to its lowest level since October 2024. Elsewhere, the Utilities (-1.7%) and the Consumer Staples (-0.2%) sectors lagged, while the Information Technology (+0.7%) sector enjoyed gains.
US sharemarkets were also lower last week, as the S&P 500 lost 1.1%. Geopolitical risks remained front and centre as President Trump indicated a decision on military action against Iran would come within two weeks, following intelligence disputes over Iran's nuclear ambitions. In economic news, the US Federal Reserve held rates steady at 4.25%-4.50% and reaffirmed its forecast for two cuts this year, while raising its inflation outlook. Over the course of the week, all of the industry sectors, except for Energy (+1.4%) finished lower. The Health Care (-2.3%) sector led the losses, while the Materials (-2.0%) and Consumer Discretionary (-1.9%) sectors lost ground. Within the Information Technology sector, NVIDIA lost 0.6%, while Microsoft gained 0.3%.
European sharemarkets posted their second straight weekly decline, weighed down by escalating Middle East tensions and renewed trade uncertainty with the US. The STOXX 600 pulled back to levels not seen since May 2025, driven by sharp rises in oil and gas prices following Israel’s attack on Iran and precautionary energy disruptions around the Strait of Hormuz. The Retail sector was the hardest hit last week, as it dropped 3.8%, while the Travel & Leisure (-3.2%) and Technology (-2.9%) sectors both posted declines. Similar to the above, the Oil & Gas sector posted the only notable gain of the week following the increase in the price of oil.
We, like other market participants, spent time last week poring over the latest US Federal Reserve’s monetary policy meeting. As largely expected, the world’s most watched central bank held its cash rate target steady at 4.25%-4.50%. The Fed, chaired by Jerome Powell, continued to sit on its hands, juggling the twin risks of tariff‑fuelled inflation and a cooling jobs market. Notably, the central bank signalled two modest cuts later this year in October and December, though only 10 out of 19 policymakers actually agree on that path.
The meeting was more significant than others this time around though, as it included the Fed’s updated economic projections in the form of a 'dot plot'. The dot plot can give insight into the central bank’s mindset about the economy and signal where interest rates could be heading next.
Given the amount of uncertainty in the US, we will take these latest economic projections with a grain of salt. Often, they can provide a false sense of certainty. Even Fed insiders admit the dot plot can mislead when forecasts are this murky. Minneapolis Fed President Neel Kashkari recently confessed he “often regrets” having to place his dot at all. A growing chorus is pushing for the tool to be scrapped or at least watered down, arguing the market’s obsession with the median overwhelms the broader message.
Regardless, the Fed’s projections now show slower GDP growth (1.4% for 2025, down from March’s estimate of 1.7%) and stickier headline inflation (up from 2.7% to 3.0%). The actual results all really contingent upon what happens with Trump’s tariffs and the impact of other policy reform, like the deregulation of the financial system and whether government spending is truly reigned-in.
The bigger story is now beginning to shift toward who will sit in the chairman’s seat next year. Powell’s term expires in May 2026, and advisers are already floating names. Former Fed Governor Kevin Warsh remains the bookies’ pick, but Treasury Secretary Scott Bessent has emerged as the dark‑horse contender, given deep support on Wall Street and inside the Oval Office. Though, choosing a loyalist risks denting the Fed’s hard‑won independence precisely when that credibility anchors bond yields.
Independence certainly wasn’t top of mind at the White House press podium. Trump labelled Powell “a stupid person” for refusing to slash rates by a full percentage point, before joking he might appoint himself to the role. While colourful rhetoric is nothing new, the episode underlines just how politicised US monetary policy has become.
Locally, another quiet week of economic data will see the monthly Consumer Price index being released.
Overseas, investors will gain an insight into Consumer Confidence levels in the US and Europe, along with first quarter Gross Domestic Product figures in both the US and UK.