30.06.2025

In this episode of SB Talks, Stanford Brown CEO Vincent O’Neill speaks with Chief Investment Officer Nick Ryder.

They discuss:

• Where to After the Israel-Iran Ceasefire?
• NATO Ramps Up Defence Spending
• Trump’s ‘One Big, Beautiful Bill’ Scraps the Revenge Tax
• Will Trump Nominate Jerome Powell’s Successor Early to Pressure the Fed?
• Market Wrap-up: Financial Year in Review

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Transcript

Vincent: Welcome to SB Talks. Today is Monday, June 30th, and I’m joined, as always, by our Chief Investment Officer, Nick Rider. Welcome, Nick.

Nick: Thank you, Vinny.

Vincent: Today, Nick and I will be discussing the latest geopolitical picture in the Middle East, developments on Trump’s “one big, beautiful bill” and the Section 899 “revenge tax,” as well as a look back at market returns over the financial year. Welcome to all our listeners.

Let’s begin with a bridge from our last recording. When we last sat down, the Israeli airstrikes and Iranian rocket attacks were still fresh in the memory, and there was speculation about whether the US would get involved, raising fears of broader escalation. Ultimately, they did. But as things stand now, it’s fair to say we’ve seen some de-escalation. Hopefully, that will last. How do you read the situation?

Nick: Yeah, I guess I’m optimistic that the current ceasefire between Israel and Iran will hold. We haven’t really seen anything over the last week to suggest otherwise. I think Iran’s relatively soft response to the US strikes, with a telegraphed missile attack on the Qatar airbase, was their way of putting a bookend to it.

Vincent: There didn’t seem to be much of a reaction.

Nick: Yeah. There’s still a risk they might do something covert, maybe attempt to sabotage shipping through the Strait of Hormuz, or use proxies or allies in the region to carry out a terrorist attack.

Vincent: Let’s talk about the Strait of Hormuz quickly, because economically, that was considered one of the more significant threats. Why might Iran be reluctant to act there?

Nick: That’s what spooked the oil market, why we saw a spike in oil prices. About 20% of the world’s oil and gas exports travel through the Strait, a 33-kilometre-wide chokepoint.

Vincent: Iran exports through there as well, along with many of its Gulf neighbours.

Nick: Exactly. There are three reasons why Iran didn’t shut it down, even though their parliament voted to.

First, they rely heavily on shipping oil to China through the Strait, so shutting it would be economically self-destructive.

Second, it would antagonise their neighbours, members of the Gulf Cooperation Council like Oman, who also rely on that passage. Some of these neighbours are at least semi-cooperative diplomatically and may act as intermediaries between Iran and the US.

And third, the US Fifth Fleet is based in Bahrain and would step in to keep shipping lanes open. Iran’s navy is no match for the US, and any confrontation would likely result in severe consequences.

So, for all those reasons, they’ve held back, for now. But that’s not to say they couldn’t engage in low-level disruption, jam radar or GPS, send drones, and then deny involvement. That remains a risk. Modern warfare is increasingly fought in those grey zones.

Vincent: Exactly. And with over a week now since the US strikes, markets, both commodities and equities, have been remarkably relaxed.

Nick: Yeah. Oil has essentially returned to pre-Israel attack levels, around $67 per barrel for Brent crude. US equity markets hit fresh record highs on Friday, up 3.4% for the week, and now about 1% above the February 19 peak. So, if you’d been offline the last week, you’d think not much had happened.

Vincent: Right. You’d come back and assume it was just a quiet period, maybe a few tariff announcements. But there’s still a lot going on politically.

Nick: Absolutely. There’s still uncertainty around whether the US truly destroyed all of Iran’s nuclear facilities, particularly their stockpile of highly enriched uranium, whose location isn’t even clear. Trump has said he’d go back if needed, so it’s not necessarily over.

Vincent: There’s that overhang and geopolitical leverage. But things have cooled somewhat from the peak tension of a few weeks ago. Last week, we also had another NATO meeting, where Trump continued urging allies to contribute more to defence spending, and got commitments, including from Spain, to allocate 5% of their budgets.

Nick: Yes. NATO agreed to lift defence spending targets, up from around 2%, depending on the country, to 5% over the next decade. That includes 3.5% in direct defence and another 1.5% for things like cyber defence and infrastructure. It’s a significant step up.

Interestingly, Trump was more supportive of NATO at that meeting, he didn’t threaten to abandon Article 5, the mutual defence clause. So, from NATO’s perspective, it was a positive outcome.

Vincent: Almost a few days of international harmony! I won’t bring up the “Talks with Daddy” that’s one of your hot buttons. But last time, we talked about the “one big, beautiful bill,” especially Section 899 and the revenge tax. What developments have there been recently?

Nick: Over the weekend, Treasury Secretary Scott Bessant asked the Senate to remove Section 899 from their version of the bill. That’s encouraging. There seems to be an agreement with G7 countries to exempt the US from the 2021 international minimum tax agreement, which is also positive, if it goes through.

Vincent: Trump also said he was halting negotiations with Canada over their digital services tax. What’s that about?

Nick: From what I understand, Canada’s digital services tax is similar to what we call the “Netflix tax” in Australia. But theirs is retrospective, it goes back to 2022. So, companies are about to be hit with large tax bills for revenue earned in previous years. That’s likely why Trump called it “egregious.”

Vincent: So perhaps some of Trump’s business allies started calling him…

Nick: Exactly. It’s put a damper on things. But elsewhere, negotiations are progressing, India, Japan, the European Commission are reportedly close to deals. The US and China are hashing out details on rare earth mineral exports. And Scott Bessant said the July 9 deadline might be pushed to Labor Day, September 1, so things are moving.

Vincent: That July 9 deadline was looming, but sounds like it’s getting pushed back.

Nick: That’s right. The bill is currently being debated in the Senate. They’re trying to pass it before the 4th of July holiday on Friday. Then it has to go back to the House. With narrow Republican majorities in both chambers, there’s pressure to get it done in time for a celebratory 4th of July.

Vincent: Trump seems keen to celebrate it as his “big, beautiful bill.” Beyond the controversial elements, it’s still a massive spending proposal, right?

Nick: Absolutely. It includes a $5 trillion lift to the debt ceiling. The overall impact on the deficit over the next 10 years is estimated between $3.5 and $4 trillion. So, we’re talking about a huge increase in US government debt.

Vincent: With that level of debt, interest rates become a serious concern. We’ve seen some barbs thrown at the Fed and Jerome Powell in recent weeks.

Nick: Right. There’s been a concerted effort to pressure the Fed to lower short-term rates. The Wall Street Journal reported that Trump may try to name Powell’s successor early, his term ends in May next year. If that happens, Powell becomes a lame duck, and the successor could start shaping Fed policy even before officially taking office.

Vincent: Some names have already surfaced?

Nick: Yes, just rumours for now. But one Fed Open Market Committee member who’s been floated has already suggested a rate cut could happen as early as July, signalling his stance publicly.

Vincent: While we’re on the Fed, what’s their current position?

Nick: Powell testified before Congress last week and reiterated the “wait and see” approach. We don’t yet know how much tariffs will be passed on to consumers. For example, the May PCE inflation reading was a bit stronger than expected, 0.2% vs. 0.1%. Annual inflation ticked up to 2.7% from 2.6%.

We’re not yet seeing much tariff impact, that’s expected to show up in June data. So, Powell’s caution makes sense.

Fed Governor Waller has said a July cut is possible, but markets aren’t pricing that in, only about 4 basis points are priced for July.

Vincent: What about for the rest of the year?

Nick: The market is pricing the first cut for September. By December, expectations rise to around 63 basis points in cuts. It’s more a question of timing and pace.

Vincent: But the Fed’s control is mostly on the short end of the curve, right?

Nick: Yes, and the US Treasury issues a lot of longer-term bonds. We’ve seen steepening in the yield curve, short-term rates may come down, but longer yields are rising as investors worry about long-term debt sustainability and demand higher yields.

Vincent: The bond market remains a powerful force, a potential check on this administration’s fiscal plans.

Nick: That’s right. Even if Trump installs a loyalist as Fed Chair, the bond market could still push back by demanding higher yields.

Vincent: Now, as we sit here on June 30, happy end of financial year, by the way, let’s look back on the last 12 months. It’s been a solid one for markets, all things considered.

Nick: Definitely. As of last Friday, the ASX was up 13.4% for the financial year. The MSCI World (unhedged) gained 18.5%. Global bonds returned 5.3%, and Australian bonds 6.9%. A strong year across most asset classes.

The US market is up 24% from the post-Liberation Day lows in early April. It’s actually the fastest recovery on record between two record highs. After a 15% fall, we bounced back above the previous high within just 89 days.

Vincent: Fast-moving markets in every direction. Anything else on your radar?

Nick: This week is the ECB’s annual central bank conference in Sintra, Portugal.

Vincent: Are you going?

Nick: Sadly, no. But all the major central bank figures will be there, Jay Powell, Andrew Bailey from the Bank of England, Kazuo Ueda from the Bank of Japan, Christine Lagarde from the ECB. We’ll be watching to see if anything new comes out of it.

Vincent: I imagine we’ll hear the word “uncertainty” quite a bit.

Nick: Without a doubt.

Vincent: Thanks, Nick. Happy end of financial year, and thank you to all our listeners.

Nick: Thanks.

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