Weekly recap
What happened in markets
The Australian sharemarket softened 0.3% last week, with market sentiment driven by tariff talks and the RBA’s decision to keep interest rates on hold at 3.85%. Markets were betting on a 98% chance that rates would be cut by 0.25%, which caused interest rate sensitive sectors like Real Estate (-3.1%) and Consumer Discretionary (-0.5%) to fall, following the cash rate hold. The Materials sector saw a volatile week, with gold and copper hit earlier in the week on tariff fears, while the price of iron ore added 0.54%, helping sector heavyweights BHP and Rio Tinto advanced 1.6% and 2.0% respectively.
US sharemarkets ended mostly lower last week, falling back from the previous week's record highs. Trade headlines dominated markets, causing the downward momentum, after Trump announced new tariffs set to begin 1 August. The new tariffs include 25% on Japan and South Korea, 50% on Brazil and copper and 35% on Canada. Big tech was also another focus point, with NVIDA rallying 4.3%, as it became the first ever company with a market capitalisation of US$4 trillion.
European sharemarkets closed in positive territory last week, despite the renewed tariff concerns, as Trump floated 15-20% tariffs on any unsettled Europe trade talks. The Autos, Basic Resources and Financials sectors all outperformed, while Real Estate and Telecommunications were the key laggards. In economic news, UK GDP contracted in May and the European Central Bank reaffirmed its 2% inflation target and continued to remain cautious around further interest rate cuts.
Stock & sector movements
What caught our eye
Washington’s latest fiscal drama centres on the ‘One Big Beautiful Bill’ (OBBB), a sweeping reconciliation package that would tack roughly US$3.3 trillion onto the federal deficit through 2034, and two-thirds of that amount arrives in the first five years. At face value, such a hefty splurge might feel stimulatory. In practice, however, some economists reckon it will only add around 0.2% to US GDP in 2026 and then even turn contractionary by 2028, as front-loaded tax cuts expire and back-loaded spending cuts kick-in. Right around when US President Donald Trump’s term as President comes to an end…
Rather than a dramatic fiscal splurge, economists estimate the OBBB will create only a modest net change in the fiscal balance relative to current law. Much of the package simply pushes out the timing of tax payments, rather than delivering permanent rate cuts. In fact, according to Goldman Sachs, the bill adds less than US$300 billion to the deficit in its first year, and tariffs are expected to more than offset any subsequent deficit widening. In short, policymakers get extra breathing room without fundamentally upending the fiscal outlook.
For the sharemarket, the real story lies in corporate cash flows and earnings. The OBBB’s headline corporate tweaks offer a few modest sweeteners. By extending generous research and development and capital-expenditure expensing, loosening interest-deductibility caps and softening foreign-income levies, analysts at Goldman Sachs project S&P 500 cash flows and earnings will be about 5% higher in 2026, before fading thereafter. That boost, while temporary, is sizeable enough to brighten the earnings outlook for companies with heavy investment programmes, especially in Industrials, Materials and certain parts of Technology. Small-caps, too, may enjoy an extra dose of relief via expanded interest deductibility, given their typically higher leverage.
Of course, the Bill’s growth injection must be weighed against other policy forces. Tariffs and immigration restrictions are likely to sap some momentum from the US economy, or at the very least cause disruption. The net effect of these forces will be crucial to how bond markets ultimately feel about the US debt situation. If the spending from OBBB proves too much, or new tariff revenue too little, US Government Bond yields could climb higher as bond buyers want compensation for higher risk, putting downward pressure on asset valuations. For now though, the equity market seems largely unphased, with the CBOE Volatility Index down around 30%, and the S&P 500 up 12%, since the end of March.
For now, the OBBB arguably serves up more positives than the deficit figures suggest. It buys a window of firmer growth next year, bolsters corporate cash flows and nudges earnings forecasts higher, key ingredients for a constructive equity backdrop. In a market still hungry for incremental catalysts, the fleeting fiscal impulse of the Bill may yet prove the spark that keeps the bull market running into 2026.
The week ahead
This week is relatively quiet in economic news locally, with the main focus on the monthly consumer confidence indicator and labour force data, which is expected to see the unemployment rate remain at 4.1%.
Overseas, the US has multiple inflation updates, including the consumer price index, producer price index and retail sales. All three data points are expected to lift slightly. In China, annual GDP growth of 5.1% is expected.
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Wade is the head of the Investment Services division at Cutcher & Neale and has over 10 years of industry experience in accounting and investment advisory roles.
Ryan is our Portfolio Manager, bringing over 15 years of experience in managing multi-asset investment portfolios with a specialisation in fundamental equity analysis.
