Australian Bond Exchange Weekly Update
16th May 2025
Key Points
- Australia: The Reserve Bank of Australia (RBA) has kept the cash rate steady at 4.10% per annum. Headline inflation for the March quarter stands at 2.4%, with the trimmed mean at 2.9%.
- United States: The Federal Reserve maintained its target cash rate in the range of 4.25%–4.50% per annum. April inflation rose 2.3% year-on-year, while core inflation (excluding food and energy) increased 2.8%.
- United Kingdom: The Bank of England (BoE) cut its Bank Rate by 0.25% to 4.25% per annum. March inflation eased to 2.6%, down from 2.8% in February.
- Eurozone: The European Central Bank (ECB) lowered interest rates by 0.25% to 2.25% per annum. March inflation moderated to 2.2%, down from 2.3% in February..
Market Insights
- US inflation for April rose less than expected
- The US and China are de-escalating trade tensions
- Australian consumer confidence improved slightly in May
US Inflation for April Rose Less Than Expected
Headline inflation in the US rose by 0.2% month-on-month in April, below the expected 0.3%. Core inflation also came in at 0.2% (0.235% unrounded), versus consensus expectations of 0.3%. On an annual basis, headline inflation was 2.3%, while core inflation was 2.8%. The latter aligned with forecasts, while the headline figure was 0.1% lower than expected. Used car prices fell 0.5% during the month, and apparel dropped 0.2%, contributing to the subdued reading. This marks the third consecutive month in which US CPI has come in below forecast. Brian Coulton, Chief Economist at Fitch Ratings, commented: “Core goods prices have yet to reflect the impact of the tariff hikes that have taken place since February, while services inflation continues to gradually ease. Core goods inflation is likely to pick up in the next few months as inventories of goods imported pre-tariff hikes get depleted.”
US and China Are De-Escalating Trade Tensions
Trade tensions between the US and China appear to be easing. China has announced it will suspend certain non-tariff barriers on US imports, a move seen as an effort to stabilise relations amid slowing global trade and economic uncertainty. This follows recent diplomatic engagements and a pause in new US tariffs, suggesting a shift toward negotiation.
Domestically, both countries have incentives to ease tensions—China is managing a slower-than-expected recovery, while the US is focused on curbing inflation without further disrupting supply chains.
Australian Consumer Confidence Improves Slightly in May
The Westpac–Melbourne Institute Consumer Sentiment Index rose 2.2% to 92.1 in May, up from 90.1 in April. The modest rebound follows a sharp decline in April tied to tariff-related concerns. Financial market strength and post-election clarity also contributed to the recovery.
Westpac noted that the 2.2% lift may understate sentiment gains, as April’s survey period coincided with the announcement of reciprocal tariffs by the US. Sentiment among those surveyed after the announcement averaged just 86.6. In that context, May’s 92.1 reading suggests a rebound of closer to 6%. Nonetheless, the index remains 3.9% below March levels and still reflects a broadly pessimistic consumer mood.
*Data accurate as at 16.05.2025
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