Australian Bond Exchange Weekly Update
20th June 2025
Key Points
- Australia: The Reserve Bank of Australia (RBA) lowered the cash rate by 25 basis points to 3.85% p.a. Headline inflation remained steady at 2.4% in April, while core inflation (excluding volatile items) edged higher to 2.8%.
- United States: The Federal Reserve held its target cash rate steady at 4.25%–4.50% p.a. Headline inflation for May came in at 2.4% year-on-year, while core inflation (excluding food and energy) was 2.8%.
- United Kingdom: The Bank of England (BoE) left its Bank Rate unchanged at 4.25%. The April inflation for April rose to 3.5%, up from 2.6% in March.
- Eurozone: The European Central Bank (ECB) lowered interest rates by 25 basis points to 2.00% p.a. Inflation in May declined to 1.9%, falling below the ECB’s 2% target for the first time since 2024.
Market Insights
- US retail sales down 0.9% in May
- US Fed leaves rates unchanged
- Australian unemployment rate steady at 4.1%
- Oil prices spike on geopolitical tensions
US Retail Sales Down 0.9% in May
US retail sales fell by 0.9% in May (equivalent to -11% annualised), though this is a highly volatile measure, especially in periods of elevated and uncertain trade tariffs.
Personal spending stood at 5.5% in April, which still did not provide the Fed with sufficient reason to cut rates. May’s personal spending data is due on 27 May, along with the critical Core PCE deflator.
US Fed holds cash rate steady amid ongoing economic uncertainty
As expected, the US Federal Reserve kept the target range for the federal funds rate unchanged at 4.25%–4.50% (real rate ~1.9% vs Core PCE). In its latest projections, the FOMC lowered its 2025 year-end real GDP growth forecast to 1.4% (from 1.7%; Q1: 2.1%), raised its inflation estimate to 3.0% (from 2.7%; April Core PCE: 2.5%), and maintained its unemployment forecast at around 4.5% (May: 4.2%). The Fed emphasised that the economy remains resilient, providing a constructive backdrop for credit fundamentals and supporting tight spreads.
While the updated dot plot still indicates two rate cuts by the end of the year—implying a target rate of around 3.875% (real rate ~0.9%)—Chair Powell noted in the press conference that there is low conviction these cuts will materialise. This caution reflects heightened uncertainty surrounding trade tariffs, fiscal policy, and the geopolitical impact of the Israel–Iran conflict, particularly its influence on oil prices and inflation. Powell also noted that a lower real interest rate could limit the Fed’s ability to control inflation effectively. Against this backdrop, stagflation risk remains a key concern for credit markets.
Australian unemployment rate steady at 4.1% in May
Australia’s unemployment rate remained unchanged at 4.1% in May, despite the economy unexpectedly shedding 2,500 jobs, according to the Australian Bureau of Statistics. This marked the fifth consecutive month at the same unemployment rate. Notably, female employment reached a record high, with 60.9% of the female population employed. The under-utilisation rate—which captures both unemployed and underemployed individuals—fell to 9.9%, equalling its lowest level since 2023.
Oil prices spike due to Middle East conflict
Oil prices remained near five-month highs as geopolitical tensions in the Middle East escalated. Despite concerns, Iran’s crude-exporting infrastructure appears to have been unaffected so far. The big concern of course is a further escalation, with the Strait of Hormuz remaining a potential flashpoint which is a vital supply route for oil and gas.
*Data accurate as at 20.06.2025
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