Rates, Revisions and Revolving Doors

11.08.2025

In this episode of SB Talks, CEO Vincent O’Neill and CIO Nick Ryder, unpack the latest US jobs shock, where a massive downward revision of 258,000 jobs has not only rattled markets, but also led President Trump to fire the head of the Bureau of Labor Statistics – raising fresh concerns about political interference in official data. They explore what this means for the Fed, as a key resignation opens the door for a Trump- aligned appointee and fuels speculation ahead of September rate decision.

Closer to home, where softer inflation and signs of labour market weakness have markets fully pricing in a rate cut at tomorrow’s RBA meeting.

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Transcript

Vincent: Welcome to SB Talks. Today is Monday, August 11^th, and I am joined by our Chief Investment Officer, Nick Ryder. Welcome, Nick.

Nick: Thank you Vinny.

Vincent: Now today, Nick and I will be discussing the US employment data and the revolving door at their Bureau of Labor Statistics. We will recap on the recent US earning season, as well as previewing tomorrow’s RBA rate decision. Welcome to all our listeners.

So, the top headlines since the last time we recorded, it has got to be the US employment data, and particularly the fallout that has occurred after that. So maybe you can take us through the numbers and just why, the US President felt so motivated to fire the head of the US Bureau of Labor Statistics following the numbers.

Nick: Yeah, well, the headline number for non-farm payrolls for June was 73,000, which was a bit weaker than the 110 expected by economists. The prior number had been reported at 147,000 jobs, but there was a substantial downward revision to that, to just 14,000. Also, the month before, so May and April’s collective downgrade was 258,000 jobs, which was I think the largest ever downward revision.

Vincent: So, not unusual to have revisions in the US numbers, and it’s something that happened a lot, even during the prior administration, but it probably has just tilted the view in terms of where the economy is at.

Nick: Yeah. It’s not unusual to have revisions. What happens is normally, about 60% of businesses report the numbers kind of in the month, and then you get a sort of slew of late filers. Over the sort of subsequent couple of months, and that’s what’s happened. There’s also been fewer companies that actually respond in a timely manner. So, I think the response rate was about 60%. It’s fallen into the forties, and so that’s one of the reasons why there’s been a substantial revision. There are also seasonal factors over the summer with education and things like that. That could also have come into play, but I think it did catch people by surprise.

Vincent: How does it alter, if at all, the view and how the US economy is traveling, because we also have this other argument behind the scenes that, where there’s a lot of pressure from the White House towards the Fed that they should be cutting rates and aggressively tomorrow.

Nick: Yeah, I mean it’s interesting that, it actually does favour the Fed to start cutting rates if they believe that the labor market is weakening,

Vincent: So, Trump should be happy about that.

Nick: He should be happy about it. But instead, he’s fired the head of the Bureau of Labor Statistics, Erica Macanta, saying, can’t trust the numbers, which is sort of counterproductive in some ways. We do have examples of places like Argentina, where they fired their head of their statistics, because they weren’t happy with the inflation numbers, and it became a disaster for their economy.

Vincent: Well, you’re heading down a path where then everyone begins to have a question mark over the numbers full stop, and that’s not what you want to be.

Nick: Well, that’s right. And what that happens then is people actually say, things like treasury inflation protected securities, that’s their inflation linked securities. If people question whether the inflation number is correct, right, they’ll actually start to demand a higher return premium, a premium. So, you might win on one hand that you’ve saved money at the Bureau of Labor Statistics, but then you pay for it in the form of higher interest costs on your debt that you’re issuing. It can be counterproductive, and I think, people are looking at who the replacement might be, and we will be closely watched.

I would say though, the downward revision to jobs numbers, at first blush, paints a picture of a weakening, labor market. But given how few immigrants are coming into the United States at the moment, the labor supply isn’t actually expanding very much. And the unemployment rate only rose from 4.1 to 4.2%. There’s some suggestion that the break even level of jobs that needs to be created to keep the unemployment rate steady is only about 30,000 a month. And fed officials have noted that. So, at first blush, yes, the labor market could be weakening, but maybe the unemployment rate is actually not drifting up as much.

Vincent: We’re just seeing a bit of a readjustment, as you’ve described previously, a lower hiring, lower firing sort of environment. Can we step across to the Fed now because that was a key topic of discussion the last time we sat here. A few more developments on that front.

Nick: Yeah. So we have had, one, fed Governor, Adriana Kler, retire early. Her term was due to expire at the end of January, and she’s decided to pull the pin now. Steven Miran, was likely to be appointed as a sort of a fill in until the end of January. He is the guy that wrote the Mar Largo Accord, calling for a weaker US dollar and, lowering the trade deficit and all that sort of stuff.

Vincent: So he certainly nailed his colours to the mast on that one.

Nick: Yeah he’s very much a Trump appointee. The question remains whether he will be appointed in time for the next meeting in the middle of September. Given that you normally need a Senate confirmation hearing beforehand for these sorts of roles. So, whether the senate’s in recess until the 2nd of September and the meeting’s on the 16th and 17th of September. Maybe there isn’t enough time to get him confirmed before that. But we know there are a couple of Fed officials that did vote at the most recent meeting for a cut.

Vincent: And he would obviously be the third one, potentially arguing for a cut so he could, and a little bit of jostling for position, potentially for who could be the next chair.

Nick: Yeah, so the list according to Wall Street Journal is quite long. There’s about 10 people that are being considered to replace Jerome Powell in May of next year. There’s a few names that have been put forward such as current Fed Governor, Waller, and James Bullard, who was the St. Louis Fed president. There’s a few names that are sort of being thrown around at the moment, but it’s probably a bit too early to tell.

Vincent: And tariffs Rumble on India has been caught in the crosshairs.

Nick: Yeah, so India got a 25% tariff rate, so fairly high. They’re not a big exporter, um, to the US. And then they got copped a 25% additional tariff, as part of the sort of sanction package against buying Russian oil.

Vincent: Now let’s talk to that one because, you’ve spoken previously that. This has been a sort of a, a well-known secret, if you will, that they’re sort of buying the Russian oil and the West is sort of borderline being quite happy to let them do it. What’s changed?

Nick: Well, so the Indians, say that they’re encouraged to buy Russian oil to keep oil prices lower in 2022. After, Russia invaded Ukraine and, oil prices went up quite a lot. So they were able to buy it at a discount to prevailing Brent crude prices. I think it’s like $15 a barrel cheaper. For them to buy the Russian oil

Vincent: Versus the alternative, them buying from the mainstream market and pushing the prices higher.

Nick: That’s right, and then they’re saying that also currently that they’ve got long-term contracts to buy that oil. It’s quite difficult for them to divert that to the UAE or Saudi, and it would probably push up the price of oil.

Vincent: What’s the motivator behind it? What’s your take in terms of, why now?

Nick: Well, I think it’s obviously related to President Trump trying to pressure the Russians to come back to the negotiating table. General frustration by the lack of progress in Ukraine. There is apparently a meeting between Trump and Putin this Friday in Alaska. High level of uncertainty as to what that might entail, particularly given Zelensky is not invited.  And he’s saying, well, if it doesn’t involve Ukraine in that sort of negotiation, then it’s stillborn as he terms it.

Vincent: So, it’ll be interesting to see, you know, what does come out of that. Over the last few weeks, we continue to have earning season in the US So, anything particular catching your eye there?

Nick: It’s been pretty good. So, the annual growth rate in earnings is about 12% currently. Pretty strong growth, part of that’s due to US dollar weakness. It’s obviously boosted the value of offshore earnings. But underlying earnings growth has been reasonably good. I think that’s definitely healthy. That’s one of the reasons why the market continues to make new record highs. I think the other thing that’s interesting is those companies that have been exposed to the tariffs, so Caterpillar, Ford and GM, have had to wear significant, costs of absorbing those tariffs so far.

Vincent: We’re talking about stuff that’s in their supply chain, typically coming through to them, that they’ve been wearing the increased cost of those supplies.

Nick: Yeah, they’ve been absorbing it during the 90 day pause, during sort of post liberation day. Like obviously all the tariffs haven’t come through and they want to, I guess they wanted to see how it might play out. A lot of them now have indicated that they will be under pressure to pass on some of those tariffs in the form of higher prices. Particularly firms like Proctor and Gamble, have said that. I think they’re the sort of key takeaways,

Vincent: but overall, the market continues to ride along.

Nick: Nvidia $4.4 trillion. I think we mentioned that on an earlier call. Microsoft bit briefly touched 4 trillion. So, some good numbers that, particularly from the magnificent seven and AI.

Vincent: Enthusiasm is clearly continuing,

Nick: Absolutely.

Vincent: Now, a couple of days after we last recorded, we got the latest quarterly Australian inflation data and there’s a lot of, attention around that because that was, seemed to be one of the, probably the last key, levers required to be switched to allow the RBA resume, a cutting pattern. The result generally pleasing.

Nick: Yeah, so headline inflation, fell from, I think it was 2.4 to 2.1%, so that was pretty good. Obviously, some of that, been helped by subsidies. So, for electricity and rent and things like that, it’s cost of living support mechanisms. The more important core inflation number came in at 0.6% for the quarter after 0.7. Previously, core inflation was 2.7% year on year. That’s roughly where the RBA wants it to be. If you think about those two numbers, the two quarterly numbers, that’s what 1.3 annualise, that’s about 2.6.

It’s about bang in line with the RBA’s two-point half percent target for inflation. I think the RBA should take some comfort from those numbers, that inflation is sort of moving sustainably back towards their target. Help support the case that they can and make the moves. And we’ve had, Deputy Governor Hauser speak since then and say, oh yes, the inflation numbers were pretty good. The debate had been more about the labour market and how strong that was, and we’ve seen a little bit of, you know, sort of softness there.

Vincent: Where was the, in the market price, the Australian, rate cuts from here to the end of the year?

Nick: So, tomorrow’s decision is a hundred percent price for rate cut. Just lock it in. So, if we, if we got them pausing again, that would really shock. That would really spin the market. Then we have, another cut by November. So that’s two this calendar year, and then another one in March is what’s priced. So, there’s three cuts price, and then that sort of takes us back to that neutral level of around 3.1%.

Vincent: Really, we’ve just kind of seen three cuts, but just. It’s pushed out slightly by recent months.

Nick: Yeah. Sort of like a quarterly pace after they get each, each of these inflation prints.

Vincent: Which sounds pretty prudent to be honest

Nick: Yeah, I think there’s, no need to hurry the economy’s, gradually improving, real spending powers improving as inflation comes down. People’s wages are still growing above inflation. And so, we’re seeing a little bit of improvements in sort of household spending.

Vincent: What’s, catching your eye? What are you looking out for over the next seven days?

Nick: Yeah, so as I said, there was the RBA meeting tomorrow, so that’ll be key. We’ve got wages data on Wednesday and employment data for Australia on Thursday. In the US we get their CPI numbers, which will be closely watched. There’s some expectation that maybe there’ll be another, reasonably strong print. Inflation in the US, it hasn’t really been coming down as quickly as they would’ve liked, so that, will have implications for the Fed meeting in September. Particularly with this whole tariff overlay across the top of it. It’s quite a messy picture. I think that they’re the key things for me this week.

Vincent: And how do you feel as an investor right now? We sort of coming towards the end of another earning season, the tariff situation makes some progress but still remains Not completely resolved. Do you feel more confident still sort of fairly neutral, balanced on the risks versus the opportunities?

Nick: Yeah, I would characterise my views as sort of glass half full. I think the number earnings numbers that I’ve spoken about are sufficient to continue to underpin the equity market just to justify the prices that where stocks are at right now. And, where are bonds, they’re sort of in a good place. I think we’re getting a decent real yield from those. So, I’m happy being neutrally positioned. I wouldn’t be, buying the market with my ears pinned back. Nor would I be selling. I don’t think there’s any sort of particular catalysts that I can see that would cause a sort of significant pullback in equities. It’s always the, what we call known knowns or known risks, you know.

Vincent: What we see out there is all largely priced in, and the market certainly seems to get quite comfortable in how it’s pricing, the whole unfolding, tariff negotiations, even with each of the sort of curve balls that come our way, it’s not reacting particularly significantly either way.

Nick: Yeah, I think we largely know what the tariffs are going to be, assuming that there’s no changes. We’ve got the US-Europe trade deal, the US-Japan trade deal, the US-South Korea trade deal, we know what India’s tariffs are, Vietnam, Indonesia, Australia, they’re all largely sort of locked in now, so there’s not a huge amount of additional uncertainty around some of those tariffs.

I guess there’s still, potentially pharmaceuticals and semiconductors and things like that. The sector specific.

Vincent: Yeah, some, so I, I watering numbers quoted there for pharmaceuticals.

Nick: And then there’s still the court of appeal, considering whether these tariffs are even legal, and what happens about that.

Vincent: So, I think, and whether there’s authority to impose them that’s right by the administration. And that’s sitting way in the background that no one’s really still paying much attention to.

Nick: I think I read that we’re taken until November to be resolved. But that’s positive potentially. Well, it could create additional confusion, I suppose, around the garage.

Vincent: Yeah, I guess it could sort of potentially dissolve certain towers, but then you could probably see them quickly, try to find a way around that and, and more uncertainty again, on and on we go. But excellent summary as always. Thank you very much Nick. And thank you to all our listeners.

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