28.07.2025

In this episode of SB Talks, CEO Vincent O’Neill and CIO Nick Ryder unpack the latest US-EU trade deal and what it could mean for international markets. They break down the highlights from US earnings season, who is outperforming and where the cracks are showing.

Over in Australia, fresh employment data could shake up the Reserve Bank’s next decision. Plus, we’re gearing up for a big week of economic releases: US GDP, a closely watched Fed meeting, and Australia’s inflation readout.

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Transcript

Vincent: Welcome to SB Talks. Today is Monday, July 28th, and I am joined by our Chief Investment Officer, Nick Ryder. Welcome, Nick.

Nick: Thank you, Vinny.

Vincent: Today Nick and I will be discussing tariffs and trade deals. We’ll be talking about the US reporting season as we’re currently about one third of the way into that, and an important update on the key data to look out for in the week ahead. Welcome to all our listeners.

Let’s start this week with the US trade negotiations and the impending one August deadline. We’ve had a big announcement overnight, a deal with the European Union, with a 15% flat tariff as I read it.

Nick: Yeah, so in many ways it looks similar to the deal that was done earlier in the week with Japan. It’s a 15% tariff on European goods going into the US including cars. Remember that there was a 25% tariff on all cars going into the United States, and now that’s 15 for European Union and Japan. Obviously, a car industry, is very important to both those economies. The tariff of 15% according to trade negotiators, is about what they’re paying at the moment.

You might recall that during the negotiation period, the tariff rate was reduced to 10. And there were threats from Trump that it would go up to 30 if a deal wasn’t done by one August.  But that 10 stacked on top of pre-existing tariffs, so that was roughly 15. So, it’s a win. It’s the best deal that they can do.

Vincent: Seems to be become a bit of a template as well. This sort of number appears to be, these are their allies, their friends, these are the deals they’re potentially going to do with them. We know the UK got a 10%, but with some carve outs.

Nick: Yeah, there’s a few little, wrinkles in addition to the tariffs. The European Union’s required to buy $750 billion worth of US energy, which they’re obviously quite willing to do since they’re re diverting from Russian energy supplies. Also invest 600 billion in the US. So that’s quite similar to the deal that Japan did. There’s not a lot of details around that, but it does appear that, maybe some of that could be related to military purchases, equipment purchases, which we know that they’re largely already committed to.

So, it’s bit vague whether this is new money or sort of just, which is a similarity to the, the Japan deal as well.

Vincent: Yeah. Sort of some big headline numbers, but it’s a lot of the dabbles in the detail.

Nick: And there’s a bit of, I guess, there were two different spins on it. Trump was saying that there’s still an aluminium tariffs of 50%, whereas Ursula von der Leyen said, ah, no, there is a quota system, where there’ll be low tariffs on metal exports.

A bit like the UK they did a similar deal that had sort of tariff, that’s a, sorry, a quota. And there’s also in the details, what they call zero for zero tariffs, where, both countries can export to each other at zero tariff rate on certain items, including. Aircraft, aircraft, parts, chemicals, semiconductor equipment, and certain agricultural products.

Vincent: So potentially strategic, areas where they’re choosing to wave that tariff. And this week was the deferred deadline. And there was the question of, will we see another tackle? Will we see the can get kicked down the road? Is the rhetoric sort of ramping up that they’re not going to budge on this one August deadline?

Nick: Well, they’ve done the two main ones. Obviously, Japan and European Union, UK, we’ve also had Vietnam that has a 20% tariff, Philippines and Indonesia with 19% tariffs. So, they’re sort of a lot of the major ones. Obviously, there’s still Canada and Mexico.  But a lot of that’s covered by the U-S-M-C-A agreement.

It’s really the tariffs only applied to goods that are not covered by that. And then there’s China. The US negotiators a meeting with Chinese negotiators in Stockholm, Monday, Tuesday this week, and there’s talk in the Wall Street Journal that the 12 August deadline will be pushed back for another 90 days. They don’t want to go back to the situation, before where they had 140% odd tariffs. They escalate on either side and basically a complete, cessation of trade between the two countries. They don’t really want to risk that.

Donald Trump has indicated they are getting close to a deal with China. Obviously, there was that rare issue around rare earth metals, and magnets. Then also the Nvidia H 20 chips, which they’ve allowed back, into China. I think that’s encouraging. We are getting, I guess, a bit more certainty, a bit more certainty, a bit lower uncertainty which is good for markets. So, I would expect markets to have another good week early this week when they reopen.

Vincent: On the back of that news, those deals being done. Now speaking of markets, they seem to be just incredibly brushing off any of the uncertainty that you previously spoke about. We moved through another reporting season. Anything there giving cause for optimism or concern?

Nick: Well, we’ve got, 34% of companies in the US, S and P 500 index have reported so far, 80% of beaten estimates, which is pretty high. The long-term average is 67. Now, obviously that could shift as we go through the other two thirds of companies reporting, but so far, so good. Excluding the energy sector, the average, growth rate for companies is nine point a half percent compared to the same quarter last year. So that’s pretty good earnings growth across, the sector. We’ve seen a couple of the Mag Seven stocks have reported so far.

So, Alphabet reported last week. Their revenues came in better than expected. Fears around sort of search, the death of search due to search due to AI weren’t. Evident, and their cloud business continues to do very well. So, it was a good result. Their earnings were up 22% over the same quarter a year ago. I guess the one thing that analysts were a little concerned about was they, upgraded the amount of money capital that they’re going to spend this year, on building out more cloud services, data centres and things like that from 75 billion to 85 billion, which is a large number.\

Vincent: But as consistent with what we’re seeing across the tech space as they’re making huge investments in data centres to fund their AI investment and they continue to report that, that’s a constraint on their growth. That they, they need that, they need to spend that to meet the demand. So, it was a good result.

Nick: Tesla was at the other end of the extreme. Their report to earnings and revenue were below estimates, even though those estimates have probably been chopped a fair bit. Their earnings were down 23%, on the same quarter a year ago. And I think, everyone knows the problems that they’ve been going through with fewer car sales.

Some of the fallout from the political side of things. This week we get Microsoft Apple Meta and Amazon reporting, and I think, markets will be interested to hear what they might say, particularly companies like Amazon, and Apple around the tariffs. Now that there’s a bit more certainty whether they give any guidance.

Vincent: I was going to ask that question because there’s been a lot of this. Seeking of the data, where are we going to see, the tariffs show up in the data? And we haven’t seen anything of a huge materiality yet, but perhaps too early. We keep saying too early, too soon. But the more certainty we get around the deals, the more that we should be able to see proper earnings forecasting around it.

Nick: Yeah, we did get about a week ago the US inflation data, which was pretty benign. So, inflation for June rose 0.2%, which was below the 0.3 expected. But if you sort of look very hard, there was, for example, appliance costs had the largest monthly rise on record. So, there was some evidence that tariffs are starting to hit things like appliances.

Vincent: So, just to put some context in that, what was the level of the rise? It was a 1.9% monthly rise, so it’s a lot for one month, knowing that not all appliances are imported, and of those that are on the shelves, some of them, you know, a lot of them. Potentially could be import in the future but aren’t yet under the tariff regimes. So yeah, it was something to keep an eye on.

Nick: Yeah. So, the Fed, even though the overall number was pretty low, they were looking at those little bits of detail. To see evidence that tariffs are starting to have an impact on prices, and for that reason, they’re largely expected to keep rates on hold when they meet this week. There’s no expectation despite what Mr. Trump is trying to do and pressure the fed to cut rates, three percentage points, they unlikely to do anything.

Vincent: What’s your take? Another pause?

Nick: There’ll be a pause. I think what will be interesting is there’s a couple of Fed officials, of the 12 voters who have indicated they’ll be pushing for a cut who may be Joscelyn for a promotion.

So, Governor Waller and Bowman, are both likely, or they’re on the record of saying they think the Fed should be cutting rates in July. But the other 10 members are probably not in that camp. They want to see more evidence and the reality is the US economy’s in a good place. It doesn’t really need rate cuts. Unemployment remains low, inflation’s kind of still hot, still above their target, but coming down. So, there’s not really a rush to cut rights despite protestations from the White House.

Vincent: Since we last recorded, we a bit closer to home. We’ve had some June employment data. Has that given any or any more food for thought to the RBA?

Nick: Yeah, at a headline level, it did prompt the market to price in a greater chance of a rate cut in August. So, unemployment rate jumped from 4.1 to 4.3. And it was quite a weak employment, so we lost two and a half thousand jobs a prior month, and this month in June, only 2000 jobs were created.

Across the two months, no job creation effectively. That said, when you look at the detail, there was what they call sample rotation. Every month they rotate one eighth of the sample out and bring in a new batch of people and the people coming in. The people leaving had a 3.3% unemployment rate and the people coming in had a 4.6. So that accounts for a bit of it.

Vincent: We might get a reverse, could be a statistical anomaly, for example.

Nick: Yeah, we might see that reverse. At the Anica Foundation speech last week, Governor Bullock played down chances of a, well she, hedged her bets basically about a rate cut in August. She said they still think the labour market is, there’s other evidence saying it’s still pretty tight. When they look at things like vacancies and stuff like that. She didn’t seem to put too much weight on that, that soft labour market report and a lot will depend on the June quarter inflation numbers that we get on Wednesday.  If they’re fairly soft then, I think there’s a good chance of a gives, gives them the confidence to make the move.

Vincent: So, data dependent. Anything else that we’re looking out for this week? What’s coming up?

Nick: We’ve got a fed meeting, this week. As I mentioned the CPI number. Those companies reporting with us, GDP for the June quarter and non-farm payrolls on Friday night. They’re sort of the key things this week.

Vincent: Big week for information coming through and, as you said, we will watch closely. Thank you very much as always Nick. And thank you to all our listeners.

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