U.S. Tariffs Threaten Global Petrochemical Trade With Deeper Declines

Economic

Summary:

Executives at the APPEC conference in Singapore warned that U.S. tariffs could trigger a further 15% drop in global petrochemical trade, compounding a 34% contraction already recorded over the past five years...

Tariffs Intensify Industry Strains

According to Ganesh Gopalakrishnan, head of petrochemical trading at TotalEnergies, U.S. tariffs are worsening an already fragile environment in the global petrochemicals sector. The industry has faced a 34% fall in trade volumes over the last five years due to overcapacity, and tariffs could cause an additional 15% decline if they remain in place. The causal relationship is direct: higher tariffs restrict cross-border flows, pushing companies toward domestic production and undermining the viability of international trading houses.

Trading firms without significant asset ownership face the greatest difficulty. Overcapacity has eroded margins, leaving pure traders vulnerable. With tariffs restricting market access, these firms are increasingly squeezed out of the supply chain. The combination of structural oversupply and policy-driven barriers represents a double bind, weakening the competitive landscape.

Protectionism and Market Displacement

Industry executives also noted that tariffs are fostering protectionist policies worldwide. Sanjiv Vasudeva of Haldia Petrochemicals highlighted that volatility and overcapacity are complicating investment planning. Meanwhile, Petronas Chemicals’ Bahrin Asmawi stressed that tariffs are pushing surplus Chinese products into Southeast Asian markets, displacing traditional suppliers. This illustrates a cause-and-effect outcome: restrictions on U.S.-bound exports force Chinese producers to redirect supply, intensifying competition in alternative regions.

Despite the broader downturn, India’s petrochemical consumption remains a rare growth area. Vasudeva pointed out that demand growth in India has been stable, providing some relief to producers seeking to offset weaker global trade flows. This represents a correlation rather than a systemic solution: Indian growth helps mitigate losses but is not large enough to reverse global contraction.

The petrochemicals sector remains under pressure from structural overcapacity, weak global demand, and policy-induced barriers. U.S. tariffs, in particular, are amplifying these strains by directly suppressing trade flows and indirectly fostering protectionism and supply redirection. While India’s consumption offers a modest cushion, executives caution that without policy adjustments, the industry could face a prolonged period of volatility and declining profitability. The global petrochemical trade, once a cornerstone of industrial growth, now risks further contraction as tariffs reshape market dynamics.

Source: Reuters

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Daniel Carter

Economic

The US and South Korea are in a deadlock over details of a $350 billion investment fund the two countries agreed to as part of a broader trade deal, with a top Seoul official warning that even the shipbuilding partnership is at risk if they fail to narrow the differences.

Speaking at a forum on Tuesday, Kim Yong-beom, director of national policy at South Korea's presidential office, said Seoul has been emphasizing to US officials that it cannot accept the same terms as Japan's $550 billion investment pledge finalized last week, citing the disparity in the size of the two economies and the potential repercussions on the foreign exchange market.

"Without an agreement, it will be difficult for the MASGA project to even get off the ground," Kim said, referring to Make American Shipbuilding Great Again, a term Seoul coined for reviving the US shipbuilding sector. Kim said the US had presented South Korea with a draft similar to the one Japan accepted, but Seoul has maintained it cannot agree to those terms.

"The circumstances facing South Korea and Japan are fundamentally different," Kim said, pointing to Japan's currency swap arrangements and the yen's role as a reserve currency.

While it's important to determine who makes the fund's investment decisions and how the profits are shared, the more pressing issue for South Korea is figuring out how to secure and manage $350 billion from the foreign exchange market, he said.

The $350 billion fund is a central pillar of the trade deal that preserved a 15% tariff on imports from South Korea, but the two countries remain divided over how the fund will operate. Kim said last month that the investment pledge would be structured mainly as loan guarantees rather than direct capital injections.

The deadlock comes amid other points of tension between the two nations. The detention of hundreds of South Koreans in a US immigration raid on a Hyundai Motor Co.-LG Energy Solution Ltd. battery plant in the state of Georgia threatens to make Korean companies more reluctant to invest in the US even as they are encouraged to do so as part of the trade deal.

Last week, President Donald Trump finally signed an executive order implementing his trade agreement with Japan, with a maximum 15% tariff on most of its products.

The deal, including the investment pledge, was struck in July. But it has taken weeks to be formalized as Washington and Tokyo haggled over its terms. A memorandum of understanding detailing the funding pledge showed that Japanese imports may face higher tariffs if the country doesn't fund Trump's selected investments.

Trump has yet to sign an executive order to lower auto tariffs for South Korea as agreed, so the two countries have also been holding working-level talks to follow up on their July deal.

"The auto industry is important, and narrowing tariff differences is also important, but a figure of $350 billion could deal too great a shock to our entire economy that we cannot rush just to secure a tariff reduction in the auto sector," he said.

Source: Bloomberg Europe

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Stocks

Asian Markets Track Wall Street Gains

Investor sentiment in Asia mirrored Wall Street’s optimism, with most regional benchmarks advancing. Japan’s Nikkei 225 gained 0.3% to 43,763.96, South Korea’s Kospi climbed 0.6% to 3,238.07, Hong Kong’s Hang Seng surged 1.2% to 25,949.48, and the Shanghai Composite added 0.1% to 3,831.45. Australia’s S&P/ASX 200 was the notable outlier, slipping 0.5% to 8,806.60.

The causal driver was clear: expectations of multiple Fed rate cuts before year-end. Markets are now pricing in nearly three reductions, transforming policy speculation into a global equity catalyst. As Stephen Innes of SPI Asset Management observed, optimism about Fed easing is “washing through global markets like a spring tide.”

Wall Street Rally Lends Momentum

On Wall Street, the S&P 500 rose 0.2% to 6,495.15, just shy of last week’s record, while the Dow added 114 points (0.3%) and the Nasdaq advanced 0.5% to a fresh all-time high of 21,798.70. Tech-linked stocks drove much of the move.

Robinhood and AppLovin surged 15.8% and 11.6% respectively after being added to the S&P 500, while Emcor dipped 0.6% despite also joining the index. Index reshuffling created a correlation-based flow effect: passive investment funds benchmarked to the S&P 500 boosted demand for entrants while pressuring demoted firms like MarketAxess, Caesars, and Enphase.

Elsewhere, EchoStar soared nearly 20% after striking a $17 billion spectrum deal with Elon Musk’s SpaceX, which also agreed to shoulder $2 billion in interest payments. The news weighed on traditional telecoms, with Verizon and AT&T down more than 2%.

Fed Policy in Focus Ahead of Data Releases

Markets are universally betting that the Fed will cut rates at its September meeting, with debate now centered on the size of the move. Weakening U.S. labor market data has shifted attention from tariff-driven inflation fears to the risk of slowing employment.

A series of upcoming reports jobs revisions Tuesday, wholesale prices Wednesday, and consumer inflation Thursday will shape expectations. The relationship is cause-and-effect: softer labor or inflation data increases the likelihood of deeper cuts, while stronger price pressures could constrain the Fed’s hand.

Treasury yields reflected this dynamic, with the 10-year note yield falling to 4.04% from 4.10% Friday and 4.28% a week ago, underscoring markets’ conviction in looser monetary policy.

Commodities and Currencies React

Oil prices extended modest gains, with U.S. crude at $62.51 per barrel and Brent crude at $66.29. The moves were tied to expectations that stronger global demand would accompany monetary easing.

In currencies, the U.S. dollar weakened to 147.24 yen from 147.51, while the euro firmed to $1.1780 from $1.1765. Dollar weakness here is directly tied to rate-cut expectations: lower yields reduce dollar demand, creating space for other majors to strengthen.

Asian and global markets are being steered less by political noise and more by the near-certainty of U.S. monetary easing. While inflation remains a potential constraint and President Trump’s tariff policies continue to cloud outlooks, investors are focused on liquidity conditions. With Wall Street pushing record highs and Treasury yields falling, the balance of risks suggests markets expect the Fed to prioritize growth support over inflation containment in the months ahead.

Source: AP

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Conditions Return to Long-Run Average

The National Australia Bank survey showed the business conditions index rose two points to +7 in August, matching its long-run average. While the business confidence index slipped four points to +4, it remained within historical norms, suggesting firms are cautiously optimistic despite global uncertainties.

The gains were driven by steady sales momentum, with the survey’s sales measure holding at +12, and profitability rising two points to +4. These improvements reflect a causal link between stronger household spending supported by lower borrowing costs and easing inflation and better corporate performance.

Sectoral Strength and Regional Recovery

Cyclically sensitive industries such as manufacturing and retail recorded notable gains, highlighting that consumer-driven demand is beginning to flow into business activity more broadly. NAB chief economist Sally Auld noted that regions and sectors facing headwinds in recent years have shown encouraging signs of recovery, pointing toward a healthier growth trajectory in the second half of 2025.

The correlation between consumer demand and business sector resilience is particularly evident here: as inflationary pressures recede, sectors most exposed to household spending are seeing conditions improve first.

Labour Market and Forward Orders Improve

Employment conditions rebounded by three points to +6 in August, fully reversing July’s decline. Forward orders also ticked into positive territory at +1, the first increase in two years. These indicators suggest firms are increasingly confident about sustaining output levels, which may support continued hiring.

The causal mechanism is straightforward: improved profitability and stable sales encourage businesses to expand workforce capacity, bolstering labour market stability.

Cost Pressures Ease to Multi-Year Lows

One of the most promising signs came from the cost side. Purchase costs rose at just 1.1% on a quarterly basis, the slowest increase since 2021. Retail price growth halved to 0.5%, while labour costs eased to 1.5% from 1.9%.

This easing of input costs both relieves corporate margin pressure and supports broader disinflation. The decline in cost growth demonstrates a direct causal relationship: as input prices slow, firms face less need to pass higher costs to consumers, reinforcing the cooling trend in inflation.

Stable Growth Outlook Into Late 2025

Australia’s August survey results point to an economy gaining momentum. Business conditions have rebounded to their long-run average, consumption remains firm, and cost pressures are softening. Together, these factors suggest that the economy is better positioned heading into the second half of 2025, with growth underpinned by healthier demand and stabilizing inflation.

For policymakers, the survey offers reassurance that rate cuts are transmitting effectively into the real economy. For businesses, the easing of cost pressures provides space to rebuild margins while cautiously expanding capacity in anticipation of sustained recovery.

Source: Reuters

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Commodity

Record-Breaking Rally Fueled by Fed Outlook

Bullion gained 0.3% on Tuesday to reach a fresh record, extending a 2.5% rally in the previous two sessions. The catalyst was the unexpectedly soft U.S. payrolls report, which has led traders to price in three Fed rate cuts this year, beginning with a 25-basis-point reduction next week. Because gold yields no interest, lower borrowing costs reduce the opportunity cost of holding bullion, creating a direct cause-and-effect boost to demand.

This year, gold has already surged nearly 40%, a move amplified by speculation on easing monetary policy and the perception that central banks, especially in Asia, continue to accumulate reserves as a hedge against financial instability.

Political Pressure and Haven Flows Add Support

Gold’s strength is also tied to rising political risks. President Donald Trump’s aggressive tariff regime has heightened fears of global economic fragmentation, while his repeated attacks on Federal Reserve independence have unsettled investors. This dynamic fosters a correlation between political stress and increased bullion demand: investors shift away from Treasuries into gold when policy credibility comes into question.

Geopolitical tensions, including conflict spillovers in Ukraine and Asia, have also bolstered safe-haven flows. Central bank purchases and retail accumulation reflect this dual role of gold as both a hedge against inflation and a geopolitical insurance asset.

Market Positioning and ETF Inflows

Exchange-traded funds (ETFs) added significantly to their holdings on Monday, marking the largest daily inflow in nearly three months. The trend reflects institutional investors reallocating into bullion following Fed Chair Jerome Powell’s Jackson Hole comments signaling readiness to cut rates. However, ETF holdings remain below the peaks seen during the Covid-19 pandemic and the early stages of the Russia-Ukraine war, suggesting scope for further inflows.

Goldman Sachs has projected that if even a modest share of Treasury holdings is redirected to bullion, prices could approach $5,000 an ounce a forecast that underscores how sensitive gold’s trajectory is to shifts in global portfolio allocations.

Data-Dependent Path Ahead

Whether gold’s rally continues will hinge on upcoming U.S. data. Revisions to job figures, as well as consumer and producer inflation reports later this week, could reinforce or temper expectations for aggressive Fed easing. Treasury auctions are another focal point, as weak demand for U.S. government debt could accelerate reallocations into precious metals.

Gold’s new record reflects a confluence of factors: Fed rate-cut expectations, political interference concerns, and persistent safe-haven demand. The rally is not solely speculative it rests on both policy-driven catalysts and structural demand from central banks and institutional investors. With monetary easing likely on the horizon and geopolitical risks unresolved, bullion’s upward momentum remains firmly in place, positioning it as one of the strongest-performing assets of 2025.

Source: Bloomberg

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IC Markets

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Forex

Economic

What happened in the U.S session?

The U.S. session was dominated by reactions to weak jobs data and surging expectations of aggressive Federal Reserve easing, prompting equities (especially tech), Treasuries, and gold to sharply higher, while the dollar and yields slumped. The market is now intensely focused on the coming inflation data and the likelihood of a major rate cut at the September FOMC meeting.

What does it mean for the Asia sessions?

On 9 September 2025, Asian markets will be shaped by US monetary policy signals, Japanese political and growth developments, and key economic trends from China and India, while regional events like the Asia Summit and major forums will offer further insights on investment and policy. Traders should expect volatility in FX, gold, and Asian indices, and closely track these unfolding catalysts.

The Dollar Index (DXY)

The US Dollar faces a challenging environment on September 9, 2025, with the DXY trading defensively around 97.60 ahead of crucial NFP revision data. The combination of weak labor market conditions, growing Fed rate cut expectations, and political tensions regarding central bank independence continues to weigh on the greenback. While technical support levels around 97.40-97.70 remain in focus, a break below could accelerate dollar weakness toward the mid-96 range. The upcoming FOMC meeting on September 16-17 will be pivotal in determining the dollar’s near-term trajectory.Central Bank Notes:

● The Board of Governors of the Federal Reserve System voted unanimously to maintain the Federal Funds Rate in a target range of 4.25% to 4.50% at its meeting on July 29–30, 2025, keeping policy unchanged for the fifth consecutive meeting.

● The Committee reiterated its objective of achieving maximum employment and inflation at the rate of 2% over the longer run. While uncertainty around the economic outlook has diminished since earlier in the year, the Committee notes that challenges remain and continued vigilance is warranted.

● Policymakers remain highly attentive to risks on both sides of their dual mandate. The unemployment rate remains low, near 4.2%–4.5%, and labor market conditions are described as solid. However, inflation remains somewhat elevated, with the PCE price index at 2.6% and a core inflation forecast of 3.1% for year-end 2025, up from earlier projections; tariff-related pressures are cited as a contributing factor.

● The Committee acknowledged that recent economic activity has expanded at a solid pace, with second-quarter annualized growth estimates near 2.4%. However, GDP growth for 2025 has been revised downward to 1.4% (from 1.7% projected in March), reflecting expectations of a slowdown in the coming quarters.

● In the revised Summary of Economic Projections, the unemployment rate is expected to average 4.5% in 2025, and headline PCE inflation is forecast at 3.0% for the year, with core PCE at 3.1%. Policymakers continue to anticipate that inflation will moderate gradually, with ongoing risks from tariffs and global conditions.

● The Committee reaffirmed its data-dependent and risk-aware approach to future policy decisions. Officials stated they are prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede progress toward the Fed’s goals.

● As previously outlined, the Committee continues the measured run-off of its securities holdings. The pace of balance sheet reduction, which slowed since April (monthly redemption cap on Treasury securities reduced from $25B to $5B, while holding agency MBS cap steady at $35B), was left unchanged this month to support orderly market functioning and financial conditions.

● The next meeting is scheduled for 16 to 17 September 2025.

Next 24 Hours Bias

Medium Bearish

Gold (XAU)

Gold’s breakthrough above $3,600 per ounce represents more than a simple price milestone; it reflects a fundamental repricing of global monetary and geopolitical risks. The convergence of dovish Federal Reserve policy expectations, sustained central bank buying led by China, currency debasement concerns, and persistent geopolitical tensions has created an exceptionally supportive environment for the precious metal.Next 24 Hours Bias

Strong Bullish

The Australian Dollar (AUD)

Tuesday’s Australian Dollar outlook appears constructive, supported by today’s expected strong consumer confidence data, robust domestic economic fundamentals, and continued US Dollar weakness. The currency has established momentum above key technical levels, with the 0.6600 barrier coming into focus as the next significant target. However, traders should monitor China’s economic performance and commodity price movements, which remain critical drivers for the AUD’s medium-term trajectory.Central Bank Notes:

● The RBA held its cash rate steady at 3.60% at its September meeting on 8–9 September 2025, following a 25 basis point reduction at the August meeting. This maintains a cautious yet supportive stance, with the decision largely anticipated given recent evidence of inflation settling within the target band.

● Inflation readings continue to ease, with headline CPI most likely tracking near 2.1–2.3%—comfortably within the 2–3% target range. September quarter figures are pending, but leading indicators show further moderation in non-housing components, even as insurance and housing-related costs remain sticky.

● The RBA’s preferred trimmed mean inflation is estimated at around 2.7%–2.9%, further reflecting progress toward the midpoint of the target range. Energy and food volatility still create some short-term uncertainty, but underlying inflation is broadly on track.

● Global conditions are a key source of risk. While U.S.–EU trade tensions have stabilized slightly, volatility in equities and commodities persists, with uncertainty feeding through to Australia’s trade and export outlook.

● Domestic demand shows tentative improvement. Real household incomes and a stabilizing housing sector have underpinned modest consumption growth, though business investment remains uneven—service sectors outperforming manufacturing and construction.

● Labour market tightness persists, but momentum continues to slow from earlier in the year. Employment gains remain, but job vacancies and hiring intentions have softened, with underutilization rising marginally for the second straight month.

● Wage growth has slowed in line with easing labour pressures, but unit labour costs remain elevated due to weak productivity. The RBA continues to flag subdued productivity as a medium-term cost risk.

● Forward indicators suggest household consumption may be softer than previously forecast. Elevated rents and high borrowing costs are dampening discretionary spending, despite modest income recovery.

● The Board continues to highlight the risk that household spending could underperform, potentially weighing on business investment and job creation if confidence remains subdued.

● Monetary policy remains mildly restrictive, in line with greater inflation control and ongoing economic rebalancing. The decision to hold rates recognizes both progress and ongoing uncertainties, with future moves explicitly tied to incoming data.

● The Reserve Bank reinforced its goals of price stability and full employment, stating readiness to adjust policy if economic or inflation outcomes diverge from baseline projections.

● The next meeting is on 29 to 30 September 2025.

Next 24 Hours Bias

Weak Bullish

The Kiwi Dollar (NZD)

The New Zealand dollar is experiencing a modest recovery in early September 2025, supported by improved Chinese manufacturing data, domestic economic resilience, and expectations of US Federal Reserve rate cuts. While the RBNZ continues its easing cycle due to domestic economic challenges, the currency has found near-term support from external factors. Key levels to watch include resistance at 0.5940 and support around 0.5835, with the currency’s direction heavily dependent on Chinese economic data and US monetary policy developments in the coming weeks.Central Bank Notes:

● The Monetary Policy Committee (MPC) agreed to cut the Official Cash Rate (OCR) by 25 basis points to 3.00% on 20 August 2025, marking a three-year low and continuing the easing cycle after July’s pause. The vote was split 4-2, with two members advocating a 50-basis-point cut, highlighting diverging views within the Committee.

● Policymakers indicated that significant uncertainty and a stalling economic recovery prompted this move, leaving the door open for further rate cuts later in the year, with a possible trough around 2.5% by December.

● Annual consumer price index inflation rose to 2.7% in the June quarter and is expected to reach 3% for the September quarter—at the upper end of the MPC’s 1 to 3% target band—but medium-term expectations remain anchored near the 2% midpoint..

● Despite the near-term uptick, headline inflation is projected to return toward 2% by mid-2026, as tradables inflation pressures ease and significant spare capacity continues to dampen domestic price momentum.

● Domestic financial conditions are broadly aligning with MPC expectations, as lower wholesale rates have translated into reduced borrowing costs for households. However, declining consumption and investment demand, higher unemployment, and subdued wage growth reflect ongoing economic slack.

● GDP growth stalled in the second quarter of 2025, contrasting with earlier projections. High-frequency indicators point to continued weakness driven by rising prices for essentials, weakening household savings, and constrained business lending.

● The MPC cautioned that ongoing global tariff uncertainties and policy shifts, especially recent changes in US trade regulations, could amplify market volatility and present both upside and downside risks to New Zealand’s recovery.

● Subject to medium-term inflation pressures continuing to ease as projected, the MPC signaled scope for further OCR cuts, possibly down to 2.5% by year-end, consistent with the latest Monetary Policy Statement outlook.

● The next meeting is on 22 October 2025.

Next 24 Hours Bias

Medium Bearish

The Japanese Yen (JPY)

The Japanese Yen faces significant headwinds from Prime Minister Ishiba’s resignation, which has introduced substantial political uncertainty despite stronger-than-expected economic growth data. Market participants are closely watching the LDP leadership race, as the choice of successor could significantly influence Japan’s fiscal and monetary policy direction. The combination of political instability, rising bond yields, and delayed BoJ tightening expectations continues to pressure the yen, with USD/JPY trading near 148 levels as markets await clarity on Japan’s political and policy future.Central Bank Notes:

● The Policy Board of the Bank of Japan decided on 31 July, by a unanimous vote, to set the following guidelines for money market operations for the inter-meeting period:

● The Bank will encourage the uncollateralized overnight call rate to remain at around 0.5%.

● The BOJ will maintain its gradual reduction of monthly outright purchases of Japanese Government Bonds (JGBs). The scheduled amount of long-term government bond purchases will, in principle, continue to decrease by about ¥400 billion each quarter from January to March 2026, and by about ¥200 billion each quarter from April to June 2026 onward, targeting a purchase level near ¥2 trillion in January to March 2027.

● Japan’s economy is experiencing a moderate recovery overall, though some sectors remain sluggish. Overseas economies are generally growing moderately, but recent trade policies in major economies have introduced pockets of weakness. Exports and industrial production in Japan are essentially flat, with any uptick largely driven by front-loaded demand ahead of U.S. tariff increases.

● On the price front, the year-on-year rate of change in consumer prices (excluding fresh food) remains in the mid-3% range. This reflects continued wage pass-through, previous import cost surges, and further increases in food prices, particularly rice. Expectations for future inflation have begun to rise moderately.

● The effects of the earlier import price and food cost increases are expected to fade during the outlook period. There may be a temporary stagnation in core inflation as overall growth momentum softens.

● Looking forward, the economy is likely to see a slower growth pace in the near term as overseas economies feel the pinch of ongoing global trade policies, putting downward pressure on Japanese corporate profits. Accommodative financial conditions are expected to buffer these headwinds somewhat. In the medium term, as global growth recovers, Japan’s growth rate is also expected to improve.

● With renewed economic expansion, intensifying labor shortages, and a steady rise in medium- to long-term expected inflation rates, core inflation is projected to gradually pick up. By the latter half of the BOJ’s projection period, inflation is forecast to move in line with the 2% price stability target.

● There are multiple risks to the outlook, with especially elevated uncertainty regarding the future path of global trade policies and overseas price trends. The BOJ will continue to closely monitor their impact on financial and foreign exchange markets, as well as on Japan’s economy and inflation.

● The next meeting is scheduled for 17 to 18 September 2025.

Next 24 Hours BiasMedium Bearish

Oil

Oil markets face a complex landscape in September 2025, balancing short-term geopolitical support against medium-term oversupply concerns. OPEC+’s measured production increase signals confidence in market fundamentals, but the group’s strategy of prioritizing market share over price support continues to cap upward momentum.With U.S. production at record highs, Libya recovering, and Venezuelan exports rising, supply growth is outpacing demand expansion despite ongoing geopolitical tensions. The coming months will test whether inventory builds and economic headwinds ultimately push prices toward the EIA’s bearish $58 forecast, or whether geopolitical risks and production disruptions provide sufficient support to maintain current levels around $62-66 per barrel.Next 24 Hours Bias

Medium Bearish

Source: IC Markets

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Business Conditions Rebound to Long-Run Average

The National Australia Bank (NAB) survey showed the business conditions index rose two points to +7 in August, returning to its long-term average. This reflects firmer momentum in sales and profitability, with the sales sub-index holding steady at +12 and profitability climbing two points to +4. Business confidence, though down four points to +4, remains aligned with long-run trends, suggesting sentiment is stable despite external uncertainties.

The improvement points to a cause-and-effect chain between macroeconomic policy easing and business performance. Lower borrowing costs and a slowdown in inflation seen earlier in official June quarter GDP data have clearly supported consumption, which in turn has lifted corporate revenues.

Sectoral Strength in Manufacturing and Retail

Cyclically sensitive sectors such as manufacturing and retail saw notable gains in both confidence and conditions. This aligns with the broader pattern of improved domestic demand: households, having faced headwinds in recent years, are beginning to re-engage in spending as inflationary pressures cool.

The correlation between stronger household demand and sectoral improvement suggests that stimulus from consumer recovery is filtering through more broadly, rather than being confined to isolated industries.

Labour Market Indicators Point to Stability

Employment conditions rebounded three points to +6 in August, offsetting the dip recorded in July. Forward orders also edged up one point to +1, the first time they have entered positive territory in two years, signaling potential stability in hiring and production plans.

This rebound suggests a causal relationship between stronger domestic demand and firms’ willingness to expand their workforce. As profitability improves and cost pressures ease, businesses appear more confident in maintaining or increasing headcount.

Cost Pressures Ease to Multi-Year Lows

A critical highlight from the survey is the sharp slowdown in input costs. Purchase costs grew at a quarterly rate of just 1.1%, the lowest since 2021. Retail price growth halved to 0.5%, while labour cost growth moderated to 1.5% from 1.9%.

These trends represent a causal link to inflation relief: lower cost growth directly reduces pricing pressures across the economy, offering both businesses and households more breathing room. It also creates conditions for sustained profitability, as margin compression eases.

Positive Trajectory Into Second Half of 2025

Australia’s August business survey reinforces signs of a durable economic rebound. Firms are benefiting from improved demand, profitability, and hiring, while easing cost pressures support both margins and inflation control. The combination of stronger domestic momentum and subdued input growth suggests the economy is entering the second half of 2025 with healthier underpinnings.

For policymakers, the data provides reassurance that rate cuts are transmitting effectively, bolstering activity without reigniting inflation. For businesses, the challenge ahead lies in sustaining confidence and investment as external risks such as global trade uncertainty continue to loom.