Tips for trading in the age of Trump: an expert’s guide

With Donald Trump’s policy shocks already rippling through markets, three top experts explain how smart investors can trade defensively, find opportunity, and stay one step ahead of the noise.

On last week's Switzer Investing TV, we spoke to three experts about how they're trading during the new Trump administration:

Together, these three represent a driving force to be reckoned with when it comes to investing in Australia. We asked them how they're fronting up to tackle investing in an age of uncertainty.

The problem with trading during Trump

You would think - given we've seen him do the job once before - that we'd have something of a yardstick to measure and predict what Trump will do next in his current tenure as President. Not so, unfortunately, as markets have shown us in recent months since he took office.

You're not imagining it, either: markets are twitchier than usual. That's both thanks to global economic uncertainty and Trump in equal measure.

In the Trump era, headlines don’t just move the needle—they can flip entire sectors in a single session. Whether it’s tariffs, tax cuts, or a late-night post on Truth Social, the current former president has a track record of driving markets with speed and unpredictability. And with a possible second term on the horizon, investors are once again facing the chaos premium.

But this time, it’s not just Trump.

We’re navigating one of the most complex global environments in decades. Inflation remains sticky. Central banks are walking a tightrope between cooling prices and avoiding recession. Cost of living pressures are biting into discretionary spending. Supply chains are still vulnerable. And climate change is no longer a forecast—it’s a financial reality.

In short, the backdrop is noisy. And in noisy markets, strategy matters more than ever.

As Grady Wulff of Bell Direct puts it, “The market is trying to price in what a second Trump term means, but there’s a lot of chaos baked in.”

So how do smart investors cut through it?

Understand the chaos premium

Trump doesn’t just disrupt politics—he disrupts portfolios. That’s because markets don’t wait for policy—they react to tone, tweets, and trade talk instantly.

As Jun Bei Liu explains to Switzer Investing TV:

“The thing with Trump is that policy shifts can come out of nowhere, so you need to be prepared for very fast sentiment reversals.”

A recent example? Following Trump’s announcement of tariffs in April, almost every index across the board was in the red. Within a week, Australia's ASX 200 had dropped at speeds not seen since COVID-19.

 

It’s a reminder that volatility isn’t just back—it’s being invited in. And you need to be ready for anything.

Know where the money’s moving

Despite the uncertainty, there are clear beneficiaries of Trump-style economics.

Grady Wulff put it plainly:

“Anything exposed to US infrastructure spending or reshoring themes could benefit. That includes construction materials, defence contractors, and parts of the commodities supply chain.”

That puts companies like Caterpillar, Lockheed Martin, and Nucor in the US, and ASX-listed names such as Boral (ASX: BLD) and BlueScope Steel (ASX: BSL), on the radar of serious investors.

Be cautious on high-multiple growth stocks

The Trump market isn’t kind to overvaluation—especially in sectors that rely on long-duration growth narratives.

Jun Bei Liu warns:

“If we get more tariffs or more trade noise, growth stocks are at risk of a re-rating.”

And Grady Wulff reinforces the trend:

“The market doesn’t have the same tolerance for unprofitable growth like it did five years ago.”

Tech stocks that trade on high multiples but have yet to deliver sustainable profits could face the brunt of any policy shocks—especially those tied to global supply chains or exposed to China.

Anchor your portfolio with defensives

When everything else gets noisy, defensives provide the ballast.

Paul Rickard says it comes back to quality:

“Think healthcare, consumer staples—anything with pricing power and low debt.”

Grady Wulff adds:

“A strong balance sheet is your best friend.”

ASX investors have long turned to names like CSL (ASX: CSL), Woolworths (ASX: WOW), and Ramsay Health Care (ASX: RHC) in turbulent times. These businesses offer dependable cash flows, lower economic sensitivity, and predictable earnings.

Follow the fundamentals, not the headlines

While Trump’s style of politics lends itself to big swings, the long-term investor still plays a different game.

Paul Rickard sums it up best:

“Trump headlines might move markets short term, but earnings still drive share prices in the end.”

Even when a Trump tweet knocks a stock down, it’s the earnings call—not the soundbite—that decides where it goes next.

What the smart money is doing now

So where’s the rotation headed?

Jun Bei Liu sees institutional behaviour shifting:

“The smart money is rotating out of overvalued tech and into things like energy, industrials, and selective financials.”

That’s a playbook built for a world where inflation sticks, policy risks rise, and fiscal spending fuels traditional sectors.

ETF flows, sector fund allocations and rebalancing activity all reflect this emerging bias—toward real assets and near-term earnings certainty.

Trade on insight, not fear

The Trump market rewards preparation, not panic.

When volatility returns, investors who know what to watch—and why—will be the ones who hold their ground. As our experts show, the strategy isn’t about reacting faster. It’s about reacting smarter.

Volatility is inevitable. But for switched-on investors, it doesn’t have to be a threat. It can be a tool.

 

Disclaimer:

This article does not take into account the investment objectives, financial situation or particular needs of any individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

Before acting on anything we discuss, we strongly recommend you seek the appropriate professional advice.

What are tariffs, anyway?

Thanks to the decisive victory of US President-elect Donald Trump, we’re now set to hear a whole lot more of his favourite word.

It’s something of a love affair. On the campaign trail in October, he said:

To me, the most beautiful word in the dictionary is tariff.

Previously, he’s matched such rhetoric with real policies. When he was last in office, Trump imposed a range of tariffs.

Now set to return to the White House, he wants tariffs of 10-20% on all imports to the US, and tariffs of 60% or more on those from China.

Most of us understand tariffs are some kind of barrier to trade between countries. But how exactly do they work? Who pays them – and what effects can they have on an economy?

What are tariffs?

An import tariff – sometimes called an import duty – is simply a tax on a good or service that is imported into a country. It’s collected by the government of the country importing the product.

How exactly does that work in practice?

Imagine Australia decided to impose a 10% tariff on all imported washing machines from South Korea.

If an Australian consumer or a business wanted to import a $1200 washing machine from South Korea, they would have to pay the Australian government $120 when it entered the country.

Employees work on an assembly line of washing machines
Tariffs are charged by the government of an importing country, and usually paid by the importer.
Cara Siera/Shutterstock

So, everything else being equal, the final price an Australian consumer would end up paying for this washing machine is $1,320.

If a local industry or another country without the tariff could produce a competing good at a similar price, it would have a cost advantage.

Other trade barriers

Because tariffs make imports more expensive, economists refer to them as a trade barrier. They aren’t the only kind.

One other common non-tariff trade barrier is an import quota – a limit on how much of a particular good can be imported into a country.

Governments can also create other non-tariff barriers to trade.

China suspended imports of beef from many Australian suppliers back in 2020, citing labelling and health certification problems.
William Edge/Shutterstock

These include administrative or regulatory requirements, such as customs forms, labelling requirements or safety standards that differ across countries.

What are the effects?

Tariffs can have two main effects.

First, they generate tax revenue for the government. This is a major reason why many countries have historically had tariff systems in place.

Borders and ports are natural places to record and regulate what flows into and out of a country. That makes them easy places to impose and enforce taxes.

Second, tariffs raise the cost of buying things produced in other countries. As such, they discourage this action and encourage alternatives, such as buying from domestic producers.

Protecting domestic workers and industries from foreign competition underlies the economic concept of “protectionism”.

The argument is that by making imports more expensive, tariffs will increase spending on domestically produced goods and services, leading to greater demand for domestic workers, and helping a country’s local industries grow.

Swapping producers isn’t always easy

Tariffs may increase the employment and wages of workers in import-competing industries. However, they can also impose costs, and create higher prices for consumers.

True, foreign producers trying to sell goods under a tariff may reduce their prices to remain competitive as exporters, but this only goes so far. At least some of the cost of any tariff imposed by a country will likely be passed on to consumers.

Simply switching to domestic manufacturers likely means paying more. After all, without tariffs, buyers were choosing foreign producers for a reason.

Because they make selling their products in the country less profitable, tariffs also cause some foreign producers to exit the market altogether, which reduces the variety of products available to consumers. Less foreign competition can also give domestic businesses the ability to charge even higher prices.

Lower productivity and risk of retaliation

At an economy-wide level, trade barriers such as tariffs can reduce overall productivity.

That’s because they encourage industries to shift away from producing things for which a country has a comparative advantage into areas where it is relatively inefficient.

They can also artificially keep smaller, less productive producers afloat, while shrinking the size of larger, more productive producers.

Foreign countries may also respond to the tariffs by retaliating and imposing tariffs of their own.

We saw this under Trump’s previous administration, which increased tariffs on about US$350 billion worth of Chinese products between 2018 and 2019.

Several analyses have examined the effects and found it was not foreign producers but domestic consumers – and especially businesses relying on imported goods – that paid the full price of the tariffs.

In addition, the tariffs introduced in 2018 and 2019 failed to increase US employment in the sectors they targeted, while the retaliatory tariffs they attracted reduced employment, mainly in agriculture.

Economists’ verdict

Tariffs can generate tax revenue and may increase employment and wages in some import-competing sectors. But they can also raise prices and may reduce employment and wages in exporting sectors.

Do the benefits outweigh the costs? Economists are nearly unanimous – and have been for centuries – that trade barriers have an overall negative effect on an economy.

But free trade does not benefit everyone, and tariffs are clearly enjoying a moment of political popularity. There are interesting times ahead.The Conversation

Scott French, Senior Lecturer in Economics, UNSW Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Who's in? Who's out? It's the 2025 Rich List

I love the smell of money in the morning. But not as much as these 200 Aussies, dubbed by the annual AFR feature as Australia's richest. Here's who's who.

The AFR’s annual Rich List has landed, spotlighting the 200 wealthiest Australians in 2025. This year’s list features 10 new names, including Michael Dorrell of Stonepeak, who debuted in seventh place with a $13.9 billion fortune.

Tech and pharmacy were the standout sectors. A surge in valuations for ASX-listed tech firms and the Chemist Warehouse-Sigma merger helped push the sector total near parity with property. Together, tech-linked fortunes now account for over $100 billion in wealth.

There are now 42 women on the list—up from 41 last year—with Margaret Dymond (Penrite) and Gail Fletcher (Fletcher International Exports) among the most notable new names. Annie Cannon-Brookes, now ex-wife of Atlassian's Scott Cannon-Brookes also debuts following the pair's split.

Three big takeaways:

 

Read the full 2025 Rich List on the AFR (you'll need a subscription, or you can just #buythepaper)

What the hell, CSL: is this big Aussie pharma about to storm back?

After a few months months in the doldrums, CSL (ASX: CSL) is showing signs it might be about to storm back.

What happened?

The Aussie health giant, which had been dragging under the weight of acquisition doubts and underperforming assets, might have suddenly found momentum.

After tipping a high for 2025 in February with a price per share of a little north of $309, the market has brought it off the boil. Since that high, shares have consistently slipped week-on-week in 2025. The stock closed Wednesday's session at $247.13 a share.

May has been a rollercoaster for CSL shareholders, with a brief rally followed by yet another steady decline, slumping to $234 per share.

But is the bad news now behind CSL investors as the line begins to trend northward again?

Plasma division to the rescue

It turns out one core business unit is currently the engine room for CSL.

“The plasma business is firing on all cylinders,” said Grady Wulff, senior market analyst at Bell Direct on this week's episode of Switzer Investing TV.

“They are seeing volume growth, margin expansion, and they’re also seeing revenues increase because they can increase the price.”

This turnaround is more than just good management. It’s a case of a company leaning into its strengths while other parts of the business falter.

“The reason it’s outperforming is because two of the three main CSL revenue drivers are not performing above market expectations,” Wulff said. “That is CSL Seqirus—so the influenza division—and CSL Vifor, the acquisition.”

What’s not working

CSL Vifor, acquired in 2022 for A$17 billion, was seen as a strategic play to broaden CSL’s portfolio into iron deficiency and nephrology treatments. But so far, it hasn’t lived up to the hype.

“They acquired Vifor a couple of years ago and unfortunately, that has not yet hit the mark,” said Wulff. “It hasn’t delivered the sort of revenue growth the market was hoping for.”

Seqirus, CSL’s flu vaccine business, has also underwhelmed. “The Seqirus division didn’t perform as well in the latest results either,” Wulff noted.

In other words, CSL’s recent gains are not the result of a company firing across all units—but of one star division doing the heavy lifting.

Why the market still loves it

Despite the uneven performance, analysts are warming back up to CSL.

“They’re seeing really good [plasma] donor numbers coming through, which is a leading indicator for revenue,” Wulff explained. “We’re seeing a really strong performance and a beat on expectations.”

That word—beat—is key. The plasma division didn’t just improve; it surprised to the upside. And in this market, surprises are rewarded.

“There’s also confidence that margins can keep expanding, particularly in the US, which is their core plasma collection market,” Wulff added.

Paul Rickard from the Switzer Report was even more direct: “CSL’s the type of company where you don’t worry too much about the short term. You’re backing the quality of the management team and the long-term story.”

What’s next?

CSL is still facing questions over whether Vifor will ever deliver the growth it promised, and whether Seqirus can rebound. But for now, the market seems willing to forgive those weaknesses as long as plasma keeps pulling ahead.

And if all three engines start to fire?

As Wulff put it: “If Vifor and Seqirus get back on track, then CSL’s earnings profile could look materially different—and in a good way.”

 

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The good, the bad and the ugly: three ASX stocks to watch today

Get ready for a session of ups-and-downs for some big names on the ASX today, as news emerges of big revenue growth, cost blowouts and potential regulatory probes hit the headlines. (more…)

US consumer confidence goes through the roof in May

What tariff anxiety? US consumer confidence numbers came in overnight and blew analysts away. (more…)

How should central banks respond to Trump tariffs? The RBA has some ideas

With the return of Donald Trump to the White House, the United States has signalled a return to aggressive tariff policies, upending economic forecasts around the world.

This leaves central banks with a tricky dilemma: how to respond when inflation and global growth are being shaped by political decisions rather than economic fundamentals?

Tariffs lift import prices and disrupt trade, which could lead to higher inflation. But they can also dampen consumer demand and undermine business confidence, which would slow economic growth.

This leaves central banks balancing two opposing forces – do they raise interest rates to control inflation, or cut interest rates to support growth?

Three big shocks in a row

Last week, Reserve Bank of Australia (RBA) Governor Michele Bullock addressed this challenge in a press conference after cutting interest rates for the second time this year.

She described the current period as one of “shifting and unusual uncertainty”.

Central banks, she noted, have faced three major shocks in succession: the global financial crisis, the COVID pandemic, and now the fallout from Trump’s trade policies.

Each, she said, is different – this latest one being political in nature and harder to categorise. Bullock stressed the difficulty of judging whether such shocks are supply-driven or demand-driven, or both, and emphasised the need to prepare for a range of outcomes.

So, the Reserve Bank took the unusual step of outlining three alternative global scenarios – trade war, trade peace, and a central baseline. Each one has distinct implications for Australian monetary policy.

It’s a clear example of how central banks can remain flexible and forward-looking in a world where the next shock may look nothing like the last.

Looking at three global scenarios

1. Trade war (escalation)

In this scenario laid out in the Reserve Bank’s quarterly statement on monetary policy, the US imposes sweeping new tariffs. That prompts retaliation and a slowdown in global trade. Supply chains are hit and business confidence falls.

Australia would feel the consequences quickly: weaker export demand, rising import prices, and a difficult mix of slower growth and temporary inflation. Here, the Reserve Bank would likely look past short-term price increases and focus on deteriorating demand. A rate cut would become more likely, despite inflation being above target in the short run.

2. Trade peace (de-escalation)

If the US backs away from new tariffs and tensions ease, global confidence improves and trade stabilises. Australia benefits from stronger global demand, a rebound in commodity exports and rising investment.

In this setting, inflation rises gradually due to higher activity – not import price shocks. The Reserve Bank might hold rates steady, or even consider hiking rates if inflation pressures build. But this scenario also carries risk: if the recovery is faster than expected, interest rates may be left low for too long.

3. Baseline scenario

In the bank’s central case, trade tensions persist but do not escalate. Global growth slows moderately and firms adjust to ongoing strain in supply chains.

Australia sees subdued but stable economic growth. Inflation remains within the 2-3% target band in the near term, and the Reserve Bank would stay open to either raising or lowering interest rates, depending on how risks evolve.

Other central banks face similar choices

Australia’s central bank is not alone in navigating these challenges.

At the Bank of England, the decision to cut rates in May showed a divided Monetary Policy Committee. While the majority supported a 0.25% cut, two members – including trade expert Swati Dhingra – called for a larger 0.5% move to better support growth. The split highlights the difficulty of gauging how aggressively to respond in an uncertain environment.

In the US, Federal Reserve Chairman Jerome Powell has warned of the risks posed by Trump’s new tariffs. Speaking in April, Powell said the impact could be “larger than expected”, threatening both growth and inflation.

With trade policy largely out of the Fed’s hands, he noted, the central bank must still monitor developments on tariffs closely because of their potential to disrupt both employment and prices.

The road ahead

The re-emergence of US tariffs adds to the complexity facing central banks. As Bullock noted, this is not just another economic shock – it’s a politically driven one, which is harder to model and forecast.

The Reserve Bank’s response offers a practical framework: map out potential scenarios, weigh their implications and stand ready to move. In an uncertain world, monetary policy must be based not just on data, but on judgement, flexibility and contingency planning.The Conversation

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Gen Z stand to be the biggest winners from the new $3 million super tax

As debate rages about the federal government’s plan to lift the tax on earnings on superannuation balances over A$3 million, it’s worth revisiting why we offer super tax breaks in the first place, and why they need to be reformed.

Tax breaks on super contributions mean less tax is paid on super savings than other forms of income. These tax breaks cost the federal budget nearly $50 billion in lost revenue each year.

These tax breaks boost the retirement savings of super fund members. They also ensure workers don’t pay punitively high long-term tax rates on their super, since the impact of even low tax rates on savings compounds over time.

But they disproportionately flow to older and wealthier Australians.

Two thirds of the value of super tax breaks benefit the top 20% of income earners, who are already saving enough for their retirement.

Few retirees draw down on their retirement savings as intended, and many are net savers – their super balance continues to grow for decades after they retire.

By 2060, Treasury expects one-third of all withdrawals from super will be via bequests – up from one-fifth today.

Superannuation in Australia was intended to help fund retirements. Instead, it has become a taxpayer-subsidised inheritance scheme.

The tax breaks aren’t just inequitable; they are economically unsound. Generous tax breaks for super savers mean other taxes (such as income and company taxes) must be higher to make up the forgone revenue. That means the burden falls disproportionately on younger taxpayers.

The government should go further

The government’s plan to increase the tax rate on superannuation earnings for balances exceeding $3 million from 15% to 30% is one modest step towards fixing these problems. The tax would only apply to the amount over $3 million, not the entire balance.

This reform will affect only the top 0.5% of super account holders – about 80,000 people – and save more than $2 billion a year in its first full year.

Claims that not indexing the $3 million threshold will result in the tax affecting most younger Australians, or that it will somehow disproportionately affect younger generations, are simply nonsense.

Rather than being the biggest losers from the lack of indexation, younger Australians are the biggest beneficiaries. It means more older, wealthier Australians will shoulder some of the burden of budget repair and an ageing population. Otherwise, younger generations would bear this burden alone.

The facts speak for themselves: a mere 0.5% of Australians have more than $3 million in their super, and 85% of those are aged over 60.

Even in the unlikely scenario where the threshold remains fixed until 2055 – or for ten consecutive parliamentary terms – it would still only affect the top 10% of retiring Australians. Treasurer Jim Chalmers has rightly pointed out that it is unlikely the threshold will never be lifted.

Far from abandoning the proposed $3 million threshold, the government should go further and drop the threshold to $2 million, and only then index it to inflation, saving the budget a further $1 billion a year.

There is no rationale for offering such generous earnings tax breaks on super balances between $2 million and $3 million.

At the very least, if the $3 million threshold is maintained, it should not be indexed until inflation naturally reduces its real value to $2 million, which is estimated to occur around 2040.

Sure, it’s complicated

Levying a higher tax rate on the earnings of large super balances is complicated by the fact existing super earnings taxes are levied at the fund level, not on individual member accounts.

And it’s true that levying a 15% surcharge on the implied earnings of the account over the year (the change in account balance, net of contributions and withdrawals) will impose a tax on unrealised capital gains, or paper profits.

Taxing capital gains as they build up removes incentives to “lock in” investments to hold onto untaxed capital gains, as the Henry Tax Review recognised. But it can create cash flow problems for some self-managed super fund members who hold assets such as business premises or a farm in their fund.

Yet there are seldom easy answers when it comes to tax changes.

Most people with such substantial super balances are retirees who already maintain enough liquid assets to meet the minimum drawdown requirements.

Indeed, self-managed super funds are legally obligated to have investment strategies that ensure liquidity and the ability to meet liabilities.

In any case, the tax does not have to be paid from super. Australians with large super balances typically earn as much income from investments outside super. And the wealthiest 10% of retirees today rely more on income from outside super than income from super.

Good policy is always the art of the compromise

Australia faces the twin challenges of big budget deficits and stagnant productivity. Tax reform will be needed to respond to both.

Good public policy, like politics, always requires some level of compromise.

Super tax breaks should exist only where they support a policy aim. And on balance, trimming unneeded super tax breaks for the wealthiest 0.5% of Australians would make our super system fairer and our budget stronger.The Conversation

Brendan Coates, Program Director, Housing and Economic Security, Grattan Institute and Joey Moloney, Deputy Program Director, Housing and Economic Security, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Corporate tax reform and less green tape? The Productivity Commissioner is on it

As we know, Australia has a productivity problem, and it’s starting to bite.

Strong productivity and good growth is the engine that powers an economy. Right now though, the "check engine" light is shining through the proverbial dashboard.

The rate of productivity growth in Australia has slowed to its lowest rate in 60 years. And without a course correction, that's trouble for overall economic growth, wage growth, and living standards in our years ahead.

Good thing we have a government commission looking into it then! Economist-turned Productivity Commissioner Danielle Wood has her marching orders from Treasurer Jim Chalmers to get these numbers up from their anaemic state into something more healthy-looking.

It launched a national ideas drive where businesses could have their say on what they wanted to see in Australia to make life easier. Now the ideas have been tabulated and areas that need fixing are coming into sharper focus.

Among those areas is:

Reducing the corporate tax rate

One reform bound to catch the attention of business owners is a review of Australia’s 30% corporate tax rate. You don't need me to remind you that it's one of the highest in the developed world.

For small and medium businesses grappling with rising costs and softening consumer demand, the prospect of targeted tax incentives is welcome news. But the focus of the Productivity Commissioner is not on wholesale tax cuts across the board lest it impact the federal budget.

Instead, the focus is on targeted incentives for new capital expenditure for businesses.

Productivity Commission Chair Danielle Wood said this week:

“To get bang for buck we are interested in stimulating new investment in plant, capital, tools and technology,” she told The Australian Financial Review.

There’s good reason to look at tax. Australia’s current rate significantly exceeds the OECD average of around 23%, and critics have long argued it puts Australian firms — especially exporters — at a disadvantage.

Budget neutral or bust

There’s one guiding principle behind all of this new work: the reforms can’t blow a hole in the federal budget.

“We are very conscious of the budget impact of any move,” Wood told The AFR. “So we are thinking of a package that is broadly revenue neutral or doesn’t produce too much of a hit to the budget.”

Cutting the corporate tax rate for big business from 30% to 25% could cost the Treasury around $79 billion over four years. The Commission’s approach is to find ways to offset that — for instance, by pairing any cuts with structural reforms or closing outdated loopholes.

Cutting green tape

The Commission is also taking aim at Australia’s environmental approval system — or “green tape.”

Businesses are being asked to weigh in on how to make it quicker, easier, and cheaper to build clean energy infrastructure, while still meeting national climate goals.

That could mean streamlined approval processes for renewable energy projects, clearer planning frameworks, and new ways to encourage private investment in emissions reductions — all designed to help businesses decarbonise without sinking under compliance costs.

What else is on the table?

Inquiries are also open into:

Public consultation on all five inquiries is open until 6 June. You can make a submission via the Productivity Commission website.

 

Here’s the catch

While business groups may be eager for change, the process won’t be quick.

The Commission’s interim reports won’t land until July and August. Then there’ll be another round of public consultation before final recommendations go to Treasurer Dr Jim Chalmers MP in December.

Even then, these are recommendations — not binding policy. The Productivity Commission is an independent advisory body. It can’t make or change laws on its own.

Its job is to put forward evidence-backed ideas. What happens next is entirely up to the federal government, which can act, ignore, or stick the report in a drawer if it doesn't like what it says.

5 things the RBA is watching as it cuts rates

The Reserve Bank of Australia lowered the cash rate by 25 basis points to 3.85% today following its May meeting. Not the bumper rate cut we all thought might eventuate, but a cut nevertheless. Here’s what the RBA called out as key risks within its current forecast period.

By the numbers

First, the all-important numbers.

Following the 25bps rate cut announcement at 2:30pm AEST, the market gently pivoted back northwards from 8325 points to close at 8343 points. Overall for the session the market saw a gain of just over 0.5%.

Materially, the cut - if fully-passed on by banks - should help ease the cost of living for many Australians. In March 2025, the average Australian variable loan balance was around $666,000 nationally. That amount is financed at an average rate of 5.97%. That works out to an average repayment of $3981 a month.

If that average Australian saw their bank pass on the rate cut in full, they'd be looking at a $3874 repayment, putting a little over $100 a month back in their pocket.

Of course, those consumers may just be swayed by banks who are currently looking to grow their margins and gain a little more certainty by cutting fixed loan rates last week.

Thankfully, the national boogeyman of inflation is back inside the target band for the first time in years, and today’s rate cut reflects a policy pivot for the watch-and-see RBA board, but it’s not a green light for growth.

Beneath the Board’s decision lies a deepening concern about demand, productivity, and global risk. 

Here’s what the RBA is watching most closely.

1. Consumers are pulling back on spending way harder than expected

After a long period of elevated inflation, Australian households are finally seeing relief. 

Headline CPI inflation came in at 2.4% for the March quarter, while trimmed mean inflation (the RBA’s preferred core measure) fell to 2.9%, its lowest level since 2021. But relief hasn’t translated into renewed economic confidence for Aussies just yet. 

The RBA noted that household spending is growing more slowly than previously forecast, citing signs of consumer caution and suppressed demand. Disposable incomes are improving as real wages rise, but savings buffers are thin, and households remain highly-leveraged.

2. Everyone’s watching Trump’s next move

The RBA is closely watching rising international volatility, triggered by a mix of escalating tariff tensions, geopolitical instability, and slowing global trade. In a nutshell, it’s the Trump effect spooking the RBA Board. 

While financial markets rebounded following recent tariff announcements, the central bank made it clear: “there is still considerable uncertainty about the final scope of the tariffs and policy responses in other countries.”

These global developments have already impacted the overall outlook for growth, inflation and employment in Australia. 

With world trade and investment flows weakening, and China still facing structural headwinds, the RBA sees conditions that historically lead to slower capital expenditure, reduced hiring, and flatter earnings.

3. Weak demand means businesses are at risk

Although inflation has fallen, it hasn’t been replaced by pricing strength for businesses. In fact, some sectors are now struggling to pass on cost increases, pointing to soft underlying demand.

Input cost pressures (the cost of the stuff it takes for them to make something to sell) remain high, especially in retail and hospitality where margins are now really being squeezed. Businesses report that customer price sensitivity remains elevated (see point 1) and that sales volumes haven’t meaningfully improved (again, point 1).

This imbalance matters: it signals that demand is not yet strong enough to support a sustained recovery, despite lower inflation. It also limits earnings growth and puts pressure on future hiring and investment decisions. 

4.Strong employment numbers hiding weaker productivity problems

The RBA acknowledges that employment growth remains strong and labour underutilisation is still near multi-year lows. But the underlying picture is more complex.

The bank notes that while wages growth has softened modestly over the past year, productivity growth has failed to improve. The result? Unit labour costs remain high, which could entrench inflationary pressure if demand unexpectedly rebounds.

Data from the ABS shows that in the year to December 2024, labour productivity fell by 0.9%, while the Wage Price Index rose 3.9%. That means businesses are paying more for each hour an employee works but not getting the return on that investment into their businesses (see point 3).

The RBA will certainly keep an eye on this mismatch. 

5. We live in ‘interesting’ times

Traders are always trying to learn what’s about to happen tomorrow. With market-sensitive news happening at what feels like the speed of light in 2025, the RBA is conscious that risks are everywhere.

RBA Governor Michelle Bullock has always repeated that the Board is data-driven. It’s not about to take its hands off the wheel because we got a few good inflation numbers. 

It’s keeping an eye on household consumption, drags on growth and the labour market. Pressures are still happening everywhere in the Australian and global economies.

Why it might be time to start looking at resource stocks

With Commonwealth Bank shares recently touching a record high of $175.23, many investors are asking the obvious question: what’s keeping Australian bank stocks elevated in the face of economic uncertainty, stubborn inflation, and looming rate cuts? Is it time to look elsewhere?

Between a rock and a hard place

According to Shaw and Partners Senior Investment Adviser Adam Dawes, the answer lies in the flow of capital, not the fundamentals. On Switzer Investing TV this week, Dawes pointed out that large financial institutions and ETFs simply don’t have anywhere better to go.

“It’s a dichotomy we’re really struggling with at the moment,” he said. “No matter how much negativity you want to push into the banking sector, it just continues to stay really nice and full.”

Passive investment flows are a key part of the puzzle. As money moves into index funds and exchange-traded funds (ETFs), those funds must allocate to the largest stocks in the index. That means the big four banks, Commonwealth Bank (CBA), Westpac (WBC), NAB and ANZ, are consistently bid up, regardless of valuation concerns.

“It’s got a lot to do with passive investing, the index buying, the ETFs,” Dawes said. “And where else is a big institution going to put money?”

Even for advisers and fund managers with a more active approach, the decision to lighten bank exposure has been difficult. Despite CBA’s price-to-earnings (P/E) ratio pushing into the mid-20s and dividend yields trending lower, the trade has continued to work.

“It’s probably been the wrong call to sell Commonwealth Bank all the way higher,” Dawes admitted. “I’m guiltier than anyone. I’ve tried to get clients to do it, but they never do, which has probably worked out well for them.”

The banks’ strong capital positions, high return on equity, and consistent dividends make them hard to ignore, particularly when alternative sectors like tech, resources or small caps offer more volatility without guaranteed upside.

Time to look elsewhere, but where?

That said, Dawes believes the conversation is starting to shift.

“We do see on a day-to-day basis the resources getting bid up, then the banks getting sold, and vice versa,” he said. “I think it’s probably time for the resources to do some more heavy lifting in the market.”

He points to iron ore prices still holding above US$100/tonne and early signs of a Chinese fiscal response to US trade tariffs as reasons to watch the commodities space more closely. If the US dollar weakens and China increases infrastructure stimulus, Australian miners could be poised to re-rate.

In contrast, the banks may already be priced for perfection. Investors expecting further outperformance from here may be relying more on momentum than margin.

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