Weak Retail Sales Cement Case for RBA Rate Cut as Consumers Stay Cautious

Economic

Summary:

Australian retail sales barely budged in May, rising just 0.2% and missing expectations. The soft spending data reinforces market conviction that the Reserve Bank of Australia (RBA) will cut interest rates again next week as household demand remains tepid and inflation pressures subside....

Subdued Consumer Spending Signals Broader Economic Fragility

Retail trade in Australia showed limited momentum in May, growing a mere 0.2% from the prior month, falling short of the 0.4% market consensus. This marks the fourth straight month of subdued retail activity and underscores persistent consumer caution despite earlier monetary easing. According to the Australian Bureau of Statistics (ABS), total retail sales reached A$37.3 billion in May, reflecting a modest 3.3% annual increase—the slowest pace since November 2024.

The details reveal a shift in consumer priorities. While apparel and department store spending rebounded 2.9% and 2.6% respectively after sharp declines in April, these gains were outweighed by a rare 0.4% fall in food retail sales—the first monthly drop in the category this year. Café and restaurant spending was flat, highlighting a broader reluctance to engage in discretionary spending.

Markets Fully Price In RBA Cut Amid Weak Growth and Tame Inflation

With economic growth nearly stalling in the first quarter and inflation pressures easing, investors have ramped up bets on a July rate cut. Market pricing now reflects a 97% probability of a 25 basis point reduction next Tuesday, which would bring the RBA’s cash rate down to 3.60% from the current 3.85%. Some economists have even revised their forecasts, moving up expected cuts from August to July.

Oxford Economics Australia’s Harry Murphy Cruise remarked that "households have banked earlier interest rate cuts rather than spend them," reinforcing the argument for further stimulus. Consumer sentiment remains fragile, and growth in household consumption continues to lag behind the RBA’s own forecasts.

Australian Dollar Drops as Rate Cut Bets Firm

In reaction to the data, the Australian dollar slipped 0.2% to $0.6569, reflecting growing expectations of looser monetary policy. The weakness in the currency mirrors the broader economic theme of cautious consumption, lackluster wage growth, and the absence of strong fiscal tailwinds.

The Reserve Bank has already cut rates twice this year amid signs that global risks and domestic inflation are easing. Analysts now forecast the cash rate to reach 3.10% by year-end, with some expecting a floor as low as 2.85%, which would move policy into clearly stimulative territory.

Looking Ahead: Will Stimulus Be Enough to Reignite Demand?

The RBA is relying on a mix of past tax relief, easing price pressures, and falling borrowing costs to eventually lift household consumption. However, the subdued reaction to previous cuts suggests that confidence remains low and that monetary policy alone may be insufficient to drive a robust recovery.

Unless stronger signals emerge from wage growth or fiscal support, continued consumer restraint may persist well into the second half of the year, placing the burden squarely on the RBA to maintain accommodative policy. The upcoming rate decision will therefore serve not just as a response to data, but as a broader signal of intent to support demand in an increasingly fragile economic climate.

Source: Reuters

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Daily News

[Quick Facts]

1. U.S. Senate passes "Big, Beautiful Bill".

2. Trump announces Israel agrees to 60-day Gaza Ceasefire Plan.

3. Fed Chair Powell: Tariffs delaying rate cuts.

4. Trump rules out extending tariff deadline.

[News Details]

U.S. Senate passes "Big, Beautiful Bill"

On Tuesday, U.S. Senate Republicans narrowly passed President Trump's sweeping tax and spending bill by the slimmest margin. Dubbed an "economic nuclear bomb," this proposal would enact massive tax cuts, shrink the social safety net, increase military and immigration enforcement spending, and cause the national debt to soar by $3.3 trillion.

The bill has now moved to the House of Representatives for a final vote, though some Republican lawmakers have publicly opposed provisions in the Senate version. Trump hopes to sign it into law by July 4th Independence Day, with House Speaker Mike Johnson pledging to push for timely passage.

Trump announces Israel agrees to 60-day Gaza Ceasefire Plan

On July 1st, U.S. President Trump posted on his social platform Truth Social that American representatives held a "long and productive" meeting with Israeli officials regarding Gaza that day. Israel has agreed to implement the conditions required for a 60-day ceasefire.

Trump stated that during this period, the U.S. will work with all parties to end the conflict. He noted that Qatar and Egypt have invested tremendous efforts in advancing peace and will present this final proposal.

Fed Chair Powell: Tariffs delaying rate cuts

At a conference in Sintra, Portugal, Federal Reserve Chair Jerome Powell stated that the central bank likely would have lowered interest rates by now if not for President Donald Trump's tariffs and would currently be pursuing a more accommodative monetary policy.

When asked whether uncertainty caused by the U.S. administration's existing tariff system had led the Fed to delay rate cuts, Powell affirmed this view. He added that nearly all projections for U.S. inflation have risen significantly due to the tariffs' impact.

Powell acknowledged that despite increasing pressure from the U.S. administration, the Fed has entered a rate-holding pattern. He also noted that given the current economic uncertainties, the Fed is still observing developments to gather more information.

When asked about the likelihood of a July rate cut, Powell explained: "I wouldn't take any meeting off the table or put it directly on the table, " adding that a "solid majority" of the central bank's policymakers are forecasting rate cuts at some point this year.

Trump rules out extending tariff deadline

On Tuesday, U.S. President Trump made clear he would not consider delaying the July 9th deadline for reimposing reciprocal tariffs. He again threatened to terminate negotiations with countries like Japan and directly implement punitive tariffs. Trump added that the U.S. has already dealt with Japan and expressed uncertainty about reaching an agreement.

[Today's Focus]

UTC+8 17:00 Euro Zone May Unemployment Rate

UTC+8 19:30 US June Challenger Job Cuts Announcements (in 10K)

UTC+8 20:15 US June ADP Employment Change (in 10K)

UTC+8 22:30 US EIA Crude Oil Stocks Change (thousand barrels) through June 27th

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Samantha Luan

Economic

Political

Thailand’s ruling coalition was already fraying when a court suspended Prime Minister Paetongtarn Shinawatra on Tuesday, raising fresh doubts about her survival, the country’s economy and the future of a dynasty that has loomed over the Southeast Asian nation for decades.

In a blow to a country long plagued by political instability, the Constitutional Court sidelined the 38-year-old leader over a complaint linked to a leaked phone call in which she appeared to criticize the army and side with Cambodia in a border dispute — a potential breach of conduct under the constitution. She has 15 days to respond. For now, Deputy Prime Minister Suriya Jungrungreangkit leads a shaky coalition.

The developments couldn’t come at a worse time for Thailand: once feted as an Asian Tiger economy for its export-led growth, the country is mired in slow growth relative to its peers, with households burdened by debt, a budget bill outstanding and the imminent threat of Donald Trump’s tariffs weighing down expectations. The government slashed its 2025 growth forecast by a full percentage point to 1.3% in May.

Over at the central bank, Governor Sethaput Suthiwartnarueput is due to leave Sept. 30 and a successor has yet to be named.

“No one is at the helm and the Thai ship is going nowhere,” said Thitinan Pongsudhirak, a professor of political science at Chulalongkorn University in Bangkok. “The budget bill has to be passed, so that’s coming up with the wobbly, weak coalition government.”

Amid all the turmoil, the Bhumjaithai Party, the ruling coalition’s biggest partner, exited last month following weeks of infighting, and there’s no guarantee now others that had promised to stay won’t follow.

The court has yet to say how long it will deliberate, while a prolonged delay risks deepening the political vacuum, said Napon Jatusripitak, acting coordinator of the Thailand Studies Program at ISEAS-Yusof Ishak Institute.

“Thailand appears destined for a prolonged struggle to find a new prime minister and a political deadlock that could jeopardize the country’s already fragile economic situation,” he said.

Looming over everything is Thailand’s influential military, which has led about a dozen coups since the kingdom’s absolute monarchy was abolished in 1932 and has long been a key power broker in the country.

The military and pro-military political parties were the key forces behind Paetongtarn’s eventual ascension to power after a key opposition party couldn’t secure enough support to form a government following national elections two years ago. That uneasy alliance paved the way for Paetongtarn’s father, Thaksin Shinawatra, to return from a long exile.

Even with the court’s suspension, Paetongtarn isn’t totally sidelined from power. Hours before the ruling Tuesday, she was named culture minister in a reshuffle expected to keep her in government. The new cabinet will be sworn in Thursday. But the damage may be permanent. A recent poll showed Paetongtarn’s approval rating at 9.2%. Thousands have protested, calling for her resignation.

Paetongtarn said Tuesday she accepts the court’s ruling but gave little clarity on her future. “I’m still a Thai citizen,” she said. “I will continue to work for the country while my duties are suspended.”

Even so, fears are growing the government could collapse before the next budget passes. The 2026 fiscal plan, due by August, is at risk. Burin Adulwattana, chief economist at Kasikorn Research Center, said a lame-duck government would add uncertainty, hurting the baht and stocks.

“A key impact will be felt if the political turmoil leads to a budget delay,” he said. “Without it, the economy will have big trouble.”

The baht fell 0.2% on Wednesday morning. The yield on Thailand’s benchmark 10-year bonds was little changed after declining three basis points a day earlier. The benchmark stock index, the world’s worst-performing major equity market globally this year, rallied 1.9% Tuesday on expectations that Paetongtarn’s suspension will help reduce political tension.

Whether things play out that way is far from certain.

“This suspension exerts further downside risk to a growth outlook already mired in uncertainty from US tariffs,” said Lavanya Venkateswaran an economist at Oversea-Chinese Banking Corp. in Singapore. “The real question is what next. That needs to be answered sooner rather than later considering the stakes.”

If the court ultimately rules against Paetongtarn, she will be removed from office, triggering a parliamentary vote to pick a replacement from a list submitted before the 2023 election. Along with her father and aunt, Yingluck, Paetongtarn would be the third of the Shinawatra clan to be removed from office.

Possible successors include the Pheu Thai party’s Chaikasem Nitisiri, Bhumjaithai’s Anutin Charnviraku, United Thai Nation’s Pirapan Salirathavibhaga, and the Democrat Party’s Jurin Laksanawisit.

Former Prime Minister Prayuth Chan-ocha — who led the last coup — is also eligible. And while a military takeover is always possible in Thailand, frustration over the country’s economic performance under Prayuth ultimately pressured his government to allow for elections.

“The decision by the court today has heightened the coup risk a bit,” said Thitinan of Chulalongkorn University. But “the last time they had a coup, they did not do well.”

Source: Bloomberg Europe

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Gerik

Economic

Market Sentiment: Fragile Risk Appetite in Asia

Asian markets opened the second half of 2025 on a weak note, with MSCI’s Asia-Pacific index ex-Japan falling 0.23%, slightly off its 2021 highs. Japan’s Nikkei shed 0.78%, dragged lower by tech stocks, as U.S. technology shares also corrected after June’s strong rally. Taiwan and South Korea followed suit with similar declines.

Investor caution reflects growing unease over Trump’s firm stance on trade negotiations. With the president stating he will not extend the July 9 deadline, and expressing skepticism over talks with Japan—while remaining optimistic about India—market participants are pricing in heightened uncertainty and potential disruptions to supply chains.

Currency Markets: Dollar Slides Further as Cuts Priced In

The dollar remains under pressure, with the dollar index lingering around 96.649—its weakest since March 2022 and marking its worst half-year performance since the 1970s, down more than 10% year-to-date. The euro was last seen near $1.1793, close to Tuesday’s 3.5-year high, while the yen held steady at 143.52.

Traders are pricing in around 64 basis points of rate cuts by the end of 2025, with only a 21% chance of easing in July. Fed Chair Jerome Powell has pushed back against political pressure from Trump for immediate cuts, repeating that the Fed will “wait and learn more” before reacting to tariff-driven inflation.

Carol Kong of the Commonwealth Bank of Australia noted that any disappointment in upcoming data—such as Thursday’s non-farm payrolls—could lead to “further dovish repricing” and spark another wave of dollar selling. The intersection of fiscal uncertainty and unclear trade outcomes has amplified downside pressure on the greenback.

Fiscal and Geopolitical Risks: The 'OBBBA' and Beyond

The so-called “One Big Beautiful Bill” Act (OBBBA), which narrowly passed the Senate and now heads to the House, is also casting a long shadow over markets. With $3.3 trillion in added national debt projected, fiscal stability concerns are growing. U.S. 10-year Treasury yields were little changed at 4.245%, but the term premium may stay elevated due to long-run debt sustainability fears.

Aninda Mitra of BNY Investment Institute described the bill as “hard-wiring” fiscal deterioration, warning that U.S. yields are unlikely to materially decline over the next 6–12 months, even with expected rate cuts.

This mix of fiscal fragility and geopolitical unpredictability, especially around Trump's tariff policies, is driving investors to shift out of U.S. assets. A weak dollar, combined with better returns and political predictability elsewhere, is reshaping capital flows globally.

Safe Havens and Commodities: Gold Shines Amid Dollar Decline

Gold prices retreated slightly to $3,332.19/oz after a strong 1% rally in the previous session, though the yellow metal remains up 27% this year. The dollar’s decline, combined with persistent geopolitical tensions and concerns about monetary and fiscal discipline, has fueled consistent demand for safe-haven assets.

The broader commodity complex is now seen as a hedge against not just inflation, but broader systemic risk—especially if political pressure continues to compromise institutional independence in the U.S.

Markets on Edge as Trump Trade Clock Ticks Down

With just days remaining before Trump’s trade deadline, investors are caught in a delicate balancing act: weighing soft Fed rhetoric and upcoming jobs data against the disruptive potential of U.S. fiscal and trade policy. Market resilience in the first half may be tested in the weeks ahead, particularly if geopolitical risks materialize or domestic political tensions over the OBBBA bill intensify.

The dollar’s weakness, coupled with Asian equity volatility, underscores a fragile global sentiment—one highly sensitive to both data releases and political developments out of Washington.

Source: Reuters

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Gerik

Economic

Forex

Dollar Under Pressure

The U.S. dollar index (DXY) edged up slightly to 96.677 in early Wednesday trading in Asia, but remained near its overnight low of 96.373—the weakest level since February 2022. The greenback's continued weakness reflects a confluence of factors, including growing expectations for Federal Reserve rate cuts and increased fiscal uncertainty under the Trump administration’s proposed legislation.

Against the euro, the dollar stayed near its weakest point since September 2021, while also trading at levels not seen since January 2015 against the Swiss franc. Sterling rose modestly to $1.37435, closing in on its October 2021 highs. Meanwhile, the dollar managed a mild rebound against the yen, up 0.1% to 143.59 yen, after a 0.4% decline in the previous session.

Fed Signaling Patience but Doesn’t Rule Out July Rate Cut

Fed Chair Jerome Powell’s speech at the ECB conference in Sintra continued to lean dovish. While Powell emphasized a “patient” approach to monetary easing, he notably did not eliminate the possibility of a rate cut in July, keeping the focus firmly on incoming economic data.

This puts Thursday’s U.S. non-farm payrolls report in the spotlight. A stronger-than-expected jobs number could temporarily ease rate cut expectations, though markets are still pricing in roughly 68 basis points of easing by year-end, and 135 bps by October 2026, according to LSEG data.

Overnight, the JOLTS job openings data showed unexpected labor market resilience, providing a modest lift to the dollar from its lowest levels but not enough to reverse the broader downward trend.

Trump’s Spending Bill Adds to Dollar Weakness

Beyond monetary policy, the dollar’s weakness is being compounded by concerns over Trump’s $3.3 trillion tax-and-spending bill, which has cleared the Senate and is heading back to the House for final approval. Analysts fear that the bill will dramatically increase U.S. Treasury issuance, adding pressure to bond yields and undermining long-term confidence in U.S. fiscal discipline.

Rodrigo Catril of National Australia Bank summarized market sentiment, stating, “An increase in government spending well beyond its means is not necessarily good news for the Treasury market... one of the reasons the dollar’s going down.”

Fed Independence Questioned as Trump Intensifies Attacks

Another layer of volatility stems from growing concerns over the Federal Reserve’s autonomy. President Trump’s latest public critique of Powell—this time via a handwritten note comparing global central bank rates and urging lower U.S. rates—has reignited fears that political interference could damage market confidence in the Fed’s policy credibility.

Trump’s note reportedly said the U.S. rate should fall between Japan’s 0.5% and Denmark’s 1.75%, with a jab at Powell for being “as usual, too late.” This unusual and personal pressure on the Fed Chair is viewed by many as undermining the institution’s independence, adding further downside to the dollar outlook.

Outlook

With downward pressure from both macroeconomic and political sources, the U.S. dollar appears set to remain subdued in the near term. Upcoming data, particularly Thursday’s payrolls report, could introduce volatility, but markets are likely to remain cautious as long as rate cuts and fiscal expansion dominate the U.S. outlook.

If the Trump administration continues to pursue aggressive fiscal policies and applies public pressure on the Fed, the greenback may face further erosion, especially if global risk appetite holds and alternative currencies like the euro and franc remain strong.

Investors should remain cautious on long-dollar positions. EUR/USD could retest resistance around 1.1830 if jobs data disappoints, while USD/CHF risks deeper losses below 0.7870 if U.S. fiscal credibility deteriorates further. Risk-off triggers may offer only short-term dollar relief given the structural headwinds in place.

Source: Reuters

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Damon

Economic

Australia’s retail sales grew slightly below forecasts in May, as a decline in food spending offset a rebound in clothing purchases, though overall growth improved from the previous month.

Retail sales rose 0.2% month-on-month in May from a 0.1% decline in the prior month, but came in below expectations of a 0.3% growth, data from the Australian Bureau of Statistics showed on Wednesday.

Clothing, footwear, and personal accessory sales rose by 2.9%, while department store sales increased by 2.6% in May, with both sectors rebounding from sharp declines in April.

"‘Clothing retailers and department stores were boosted by people buying winter clothes, having held off on those purchases with the warmer-than-usual weather last month," Robert Ewing, ABS head of business statistics, said in a statement.

However, spending on food fell for the first time this year, driven by food retailing businesses.

Consumers appeared to tighten spending amid rising uncertainty from U.S. tariffs and concerns over the Australian economy.

A subdued retail spending figure supports bets of more interest rate cuts by the Reserve Bank of Australia. Markets widely expect the central bank to cut rates again at its July policy meeting.

Source: Investing

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Devin

Stocks

Nvidia stock is back in the market's good graces after plunging earlier this year. Despite reassurances from management, investors were worried about the company's future when China's DeepSeek chatbot came out and further concerned about impact of new tariffs. As Nvidia continues to report stellar earnings results and upgrade its technology amid a pause on many of the new tariffs, investors are feeling more love toward Nvidia stock.

As of this writing, Nvidia stock trades just north of $150, and it's back to beating the market. Can it reach $200 before the end of the year?

AI is a huge opportunity

Nvidia makes the semiconductor chips necessary to drive generative artificial intelligence (AI), or the apps that "think" and create. There are two basic stages to that process: training and inference. The large-language models that run the data and produce output need a tremendous amount of power for these processes, training on millions of data points that are constantly updated and running through tons of algorithms to create accurate content and images. Nvidia's chips make that happen.

Since so many tech companies want to use generative AI in their operations today, Nvidia's chips are in great demand. Although there are alternatives, Nvidia has between 70% and 95% of the market, depending on who you ask. Even at the lower end, that's a huge lead over the competition. As the gold standard, Nvidia is relied upon by the biggest companies like Microsoft and Amazon as a partner. This is where the greatest opportunity is. Amazon, for one, has its own line of budget options for smaller companies, but the large, brand-name clients it services need Nvidia's powerful chips.

The demand is only expected to increase. According to Statista, the AI opportunity is expected to increase at a compound annual growth rate of 26.6% over the next five years, reaching $1 trillion. A huge portion of that is likely to go to Nvidia.

Management continues to launch new products that can handle higher data loads, making them more attractive to clients. Its Blackwell technology, which launched last year to replace the Hopper architecture, is already moving into Blackwell Ultra, and management is planning to release a new range of chips next year under the Rubin name.

Nvidia is unstoppable

In the near term, Nvidia continues to report phenomenal results despite serious setbacks. U.S. regulations mean it can't ship its best chips to China, stymying progress in that market, and Nvidia took a hit to its earnings in the fiscal 2026 first quarter (ended April 27) related to a charge for orders it couldn't fulfill.

Yet the first-quarter results were outstanding. Revenue increased 69% year over year, and earnings per share (EPS) were up from $0.60 last year to $0.76 this year, inclusive of the one-time charge.

Management is guiding for growth to decelerate in the second quarter but remain high at a 50% increase year over year. Wall Street is looking for EPS of $1, up from $0.68 last year. For the full year, Wall Street is expecting $200 billion in revenue and $4.29 in EPS, up from $130 billion (a 54% increase) and $2.99 (a 43% increase) over last year.

The valuation can handle it

If the valuation remains constant, Nvidia stock will rise along with its earnings. If it rises 54% from where it started out this year, it will reach $212. If it rises 43%, it will reach $197. If nothing much changes and Nvidia meets Wall Street's expectations, the stock should surpass $200 by the end of the year.

However, Nvidia tends to beat expectations. If that happens, it could rise further. High-growth stocks can also carry higher valuations. If Nvidia's valuation rises, the price could also rise further. At the current price, Nvidia stock trades at a price-to-earnings ratio of 50 and a price-to-sales ratio of 26. Those aren't cheap numbers, but they're pretty reasonable for Nvidia's growth.

The likelihood is that Nvidia hits at least $200 before the end of the year, or shoots 27% higher than the price at the time of this writing.