Archive

US Inflation Skips Several Months

• July’s US inflation print reversed all of the increase built in from tariffs over the past several months, despite matching expectations prevailing into the release.
• Core goods inflation eased slightly, suggesting ongoing corporate success in avoiding the tariff shock. But service inflation is stuck too high to be consistent with the target.
• Anti-avoidance measures and belated pass-through will drive further rises. We doubt they will be as severe as many fear, yet still not create much space to cut rates.

By Philip Rush

RBA Cuts as Productivity Concerns Grow

• The RBA cut rates by 25bp to 3.60%, as expected, in the third reduction of 2025, with unanimous board support following July's surprise 6-3 hold pending inflation data.
• The central bank downgraded its productivity growth assumption to 0.7% from 1.0%, lowering medium-term GDP forecasts and signalling structural economic challenges ahead.
• The Governor signals that a "couple more" cuts are likely, with the cash rate path expected around 3.0% by 2026, while maintaining a data-dependent approach to future policy decisions.

US/Taiwan: Xi Calls The Shots

• In stark contrast to its dealings with other trade partners, Washington is firmly in the position of supplicant in its dealings with Beijing.
• This reflects not only Xi Jinping’s carefully prepared and strong hand but also Donald Trump’s seeming determination to strike a deal with China at more or less any cost.
• Increasingly, therefore, Taiwan stands to be “a pawn in a bigger game”.

By Alastair Newton

HEW: Hawks Overruled

• The BoE Governor overruled his Chief Economist and Deputy Governor to deliver a rate cut, while Donald Trump appointed a dovish patsy in the hope of achieving the same.
• Whether poor payrolls presage a flow of data that breaks our resilience narrative is more important to the policy outlook. Europe stayed strong, with a retail rebound.
• UK unemployment (4.3%), GDP (0.1% q-o-q) and US inflation are the data highlights next week, with the RBA (cut) and the Norges Bank (unchanged) holding the policy ropes.

By Philip Rush