MLC Economic Update with Bob Cunneen – August 2025

Key events in July 2025

• Global share prices made strong gains in July with optimism that US President Trump’s tariff proposals will not be as severe as feared. Europe and Japan have agreed to 15% tariffs being applied to their exports to the US ahead of the August 1 deadline.
• US share prices made new historic highs in July with encouraging profit reports. Investors are confident that US corporate profit margins should benefit from strong productivity gains with Artificial Intelligence (AI). US economic activity has been modest with American consumers being more cautious about their spending. The immediate prospect of lower interest rate settings by the US central bank has faded with the Federal Reserve being cautious about the future impact of tariffs on inflation.
• Chinese shares made solid gains with activity data. China’s tariff negotiations with the Trump Administration remain a potential concern ahead of the July 9 deadline.
• Australian shares also made new historic highs in July. The Health Care sector led the charge higher with an 8.7% monthly gain. The Energy sector made a very strong 5.4% gain given President Trump’s threat of increased sanctions on Russian oil supplies. There were also strong 5% gains in July for the Information Technology and Utilities sectors. There was a notable exception to this positive run with Financial sector shares disappointing with a -1% decline in July. However, this weakness comes after a very strong performance from Australia’s major banks this year.
• Australia’s economic data remains modest with slowing jobs growth and the unemployment rate edging up to 4.3% which is its highest level since November 2021. Retail spending has revived in June but this was due to mid-year discounting. There was positive news with Australia’s Consumer Price Index (CPI) for the June quarter showing annual inflation at 2.1%. This is the lowest annual inflation result since March 2021. Given this mild inflation result, there is elevated expectations for another 0.25% interest rate cut by the Reserve Bank of Australia (RBA) in August.

Asset class summary

Asset class returns in Australian dollars – periods to 31 July 2025

Past performance is not a reliable indicator of future performance.

Sources: Australian shares – S&P/ASX 300 Total Return Index; Global shares (hedged) – MSCI All Countries World (A$ hedged, Net); Global shares (unhedged) – MSCI All Countries World in A$ (Net); Emerging markets – MSCI Emerging Markets in A$ (Net); Australian property securities – S&P/ASX 300 A-REIT Accumulation Index; Global property securities – FTSE EPRA/NAREIT Developed (A$ hedged, Net); Global listed infrastructure – FTSE Global Core Infrastructure 50/50 (Hedged $A); Australian bonds – Bloomberg AusBond Composite 0+ Yr Index; Global bonds (A$ hedged) – Barclays Global Aggregate (A$ hedged, Gross); Global high yield bonds (A$ hedged) – Barclays US High Yield Ba/B Cash Pay x Financials ($A Hedged); Australian inflation-linked bonds – Bloomberg AusBond Inflation Government 0+ Yr Index; Cash – Bloomberg AusBond Bank Bill Index; AUD/USD – WM/Reuters Daily (4 pm GMT).

Key events in global markets over the last three months to July 2025

Global shares (hedged) experienced a rollercoaster ride but ultimately posted an exceptionally strong 12.1% return for the quarter. President Trump’s aggressive agenda of sharply raising tariffs saw share markets fall in early April. A strong recovery with the announcement of a ‘90 day pause’ on tariffs then allowed a strong global share recovery. For global shares (unhedged), the stronger Australian dollar has modestly reduced the quarterly return to 11.3%.

Wall Street’s benchmark S&P 500 Index ended the quarter at an historic high. Optimism on the potential of AI and solid profit growth by US technology companies continue to be the key drivers for US share gains.

Investors are also confident that the US central bank will be cutting interest rates later this year despite the significant inflation risk from tariffs.

Asian share markets delivered impressive performances. Korea (28.6% return), Hong Kong (22.7%) and Taiwan (21.1%) posted very strong returns, in local currency terms, over the past three months. The Japanese share market delivered a 10.1% return, in local currency terms, with the central bank taking a more cautious

stance on raising interest rates given President Trump’s tariff agenda. China delivered a very strong 12.7% return, in local currency terms, with hopes that China’s government will provide more stimulus to counteract US tariffs and a weak residential property market.

Global bonds (hedged) delivered a mild 0.4% quarterly return given concerns about the immediate upside inflation risks with tariffs. Australian bonds delivered a solid 0.9% return as the recent lower inflation results has seen investors become more optimistic that the RBA will continue to cut interest rates this year..

Key events in Australia over the last three months to July 2025

Australian shares delivered an exceptionally strong 8.2% return. The sharpest gain was in the Information Technology sector with a 25.6% return largely due to a recovery in WiseTech. The Energy sector also performed favourably with a 24.7% gain on rising oil prices and geo-political risks. There were also notable positive returns for the Property Securities (10.3%) and Financials (8.5%) which are seen as key beneficiaries of the RBA cutting the cash interest rate by 0.25% to 3.85% in May.

Australia’s economy continues to experience slow economic activity in terms of retail spending and housing construction. However, there are encouraging rays of sunshine with lower inflation. Australia’s annual inflation rate declined to 2.1% in June which offers the prospect for further interest rate cuts in 2025.

Global prospects

Enthusiasm for AI and technology have been the key factors supporting rising share prices in recent years. Lower global inflation which has allowed central banks to selectively cut interest rates has also been supportive. Typically, a lower interest rate environment can boost corporate profits and thereby share prices.

However, President Trump’s return to the White House has generated alarm over the prospect for large tariffs imposed on America’s key trading partners. Given that tariffs are a tax that increases consumer prices, the risk of a sharp rise in US inflation is a major threat to both global share prices as well as bond yields.

Hence President Trump’s aggressive policy agenda – higher tariffs that impose more difficult trading conditions for the global economy, lower US immigration and population growth with “mass deportations” as well as higher US budget deficits with tax cuts – is a recipe for economic and financial instability.

Global share markets are also likely to be challenged by considerable global political risks. The continuing Russian-Ukraine war is still casting a shadow over Europe which has generated insecurity and motivated large increases in defence spending. The brief and brutal conflict between Israel and Iran in June may prove to be a forewarning of a chaotic Middle East that may threaten global oil supplies.

Given these complex and significant risks, investors should maintain a disciplined and diversified strategy.

Important information This communication is provided by MLC Investments Limited (ABN 30 002 641 661, AFSL 230705) (MLC), part of the Insignia Financial Group of companies (comprising Insignia Financial Ltd, ABN 49 100 103 722 and its related bodies corporate) (‘Insignia Financial Group’). An investment with MLC does not represent a deposit or liability of, and is not guaranteed by, the Insignia Financial Group. This information may constitute general advice. It has been prepared without taking account of an investor’s objectives, financial situation or needs and because of that an investor should, before acting on the advice, consider the appropriateness of the advice having regard to their personal objectives, financial situation and needs. Past performance is not a reliable indicator of future performance. Share market returns are all in local currency. Any opinions expressed in this communication constitute our judgement at the time of issue and are subject to change. We believe that the information contained in this communication is correct and that any estimates, opinions, conclusions or recommendations are held or made as at the time of compilation. However, no warranty is made as to their accuracy or reliability (which may change without notice), or other information contained in this communication. This information is directed to and prepared for Australian residents only. MLC may use the services of any member of the Insignia Financial Group where it makes good business sense to do so and will benefit customers. Amounts paid for these services are always negotiated on an arm’s length basis. MLC relies on third parties to provide certain information and is not responsible for its accuracy, nor is MLC liable for any loss arising from a person relying on information provided by third parties. Bloomberg Finance L.P. and its affiliates (collectively, “Bloomberg”) do not approve or endorse any information included in this material and disclaim all liability for any loss or damage of any kind arising out of the use of all or any part of this material. The funds referred to herein is not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds.