Economic Update November 2025

In this month’s update, we provide a snapshot of economic occurrences both nationally and from around the globe.

Key points:

• – US Fed still in interest rate-cutting mode.
• – Trump claims a good deal with China over tariffs and supply of rare earth minerals.
• – US September quarter reporting season showing resilience in corporate earnings.
• – RBA now thought to be on hold until well into 2026 due to strength in inflation.

We hope you find this month’s Economic Update as informative as always. If you have any feedback or would like to discuss any aspect of this report, please contact your Financial Adviser.

The Big Picture

After more than six months of extreme uncertainty over President Trump’s trade and monetary policy settings, clarity is beginning to emerge.

The US Federal Reserve (“Fed”) is well into an interest rate cutting cycle that should take the Fed funds rate down to around 3% over the next 12 months or so. It might take interest rates even lower depending on who Trump replaces current Fed chair Jerome Powell with come the end of his term in May 2026.

The RBA too seemed to be on track to return rates to a neutral setting. Recent labour force statistics seemed to have convinced the RBA that it needs to focus more on the full employment target of its twin mandate. But then an ‘unexpected’ CPI inflation reading created confusion.

The aberrant Australian CPI number was due to an ABS ‘fudge calculation’ that produced an electricity-price inflation estimate out of government flat subsidies for the year of 33.9%. The ABS noted the estimate would have been 4.8% without the correction for the energy subsidies. There is no generally accepted way of converting a fixed per household subsidy into a modified price index.

There is no doubt that the CPI read would have been within the 2-3% target range without the ABS’ meddling with the energy index data. The difference between 33.9% and 4.8% for electricity price inflation is huge.

The US import tariff policy seems to be settling down. Trump claims he has even cut a deal with China that will bring the tariffs down to a more reasonable level. US inflation is about one percent higher because of tariffs and the tariff effect will dissipate as the imposition of a tariff is a ‘one off’ that will pass with time.

Stock markets should continue to feed off ‘cheaper money’ resulting from lower interest rates for a few months or more. A problem might start to arise from the middle of next year if it transpires that central banks eased interest rates too much. Cheap money could provide support for stock markets for the first half of 2026 – while bond yields start to become relatively less attractive. What then follows depends upon how central banks react.

Most official US macro-economic data was not produced during October because of the government shutdown. US debt has just surpassed $US 38Trillion and raising the debt ceiling to accommodate payments for government and military wages is becoming increasingly contentious.

Republicans have offered to push back the funding limits but that would lock in the reduced health benefits brought in under the ‘Big Beautiful Bill’ (“BBB”). The Democrats have been insisting on increasing the debt limits to accommodate restoring health benefits – at least to pre-BBB levels.

These stand-offs over debt limits occur frequently. Usually, they are settled before too much damage is done. But this is now the longest shutdown in recent history.

While Trump was reflecting in ‘the success’ of his meeting with China’s president Xi in South Korea, the China delegation did not attempt to corroborate Trump’s interpretation of the meeting for the Western media.

The ‘rare earth’ minerals trade between China and the US was meant to have been resolved many months ago at the Switzerland meeting – but here we are. Trump is saying that he just negotiated a 12-month deal that will be renewed each year.

Trump also did a $US8.5 bn ‘critical minerals’ deal with Australia. Lots of partial solutions to the trade impasse have been floated but the time taken to build mining infrastructure and processing plants could be as much as 10 years. Moreover, the known pollution problems from processing are not easily resolved – which is largely why China holds the whip-hand as it does the vast bulk of the processing of these minerals.

Trump has cut some proposed tariffs because of the progress China has made with fentanyl distribution. Except for a petulant additional 10% tariff levied on Canada because Trump didn’t like an advertisement Canada aired, tariff negotiations have been settling down. The Canada advert showed President Reagan’s objections to tariffs in general. In addition, the US Supreme Court is due to rule on whether Trump’s broad-brush executive orders that imposed the tariffs are legal.

China’s economic data were mixed in October but there were some promising signs. GDP for the September quarter came in at 4.8% which was below the previous 5.3% for the June quarter. However, retail sales came in on expectations at 3% and industrial output at 6.5% easily beat the 5% expectation. Exports were up 8.3% (against a forecast of 6.3%) and imports were up 7.4% (against a forecast of 1.5%).

Here in Australia, our labour force data did not seem too bad. The unemployment rate jumped two notches to 4.5% but the RBA governor pronounced that the difference could be due to randomness.

What is not random is the relentless upward trend from 3.4% in October 2022 to 4.5% now. Given the dominance of government employment in this market, a climb from 3.4% to 4.5% is a concern.

Total employment rose by 14,900 over the month – or 1.3% for the year. Given population growth, 1.3% is not a strong result but nor is it a sign of an imminent collapse.

Investment prospects for the remainder of 2025 are quite strong. The US September quarter company reporting season has produced many stellar results with well over 80% of companies on Wall Street beating expectations.

A lot of strength in the US market is due to the Artificial Intelligence (AI) boom – particularly to do with building data centres in the US and around the globe. Jason Thurman, a Harvard professor and a one-time senior adviser in the Trump administration has calculated that economic growth in the US without the data-centre boom would have been 0.1% in the first half of 2025 – rather than the published 1.6%. Since many of the estimates for data-centre investment are yet to be realised, questions can be raised about how strong the underlying US economy really is.

The AI investment boom has been further complicated by what seems to be a circular process. Companies are booking trades to other companies which, in turn, are booked back to the original companies.

We do not subscribe to there currently being an AI bubble however, that does mean that it does not become one. We believe the AI theme is still in its infancy but that does not mean that the price of shares in AI companies cannot get ahead of earnings and profits and lead to a correction for these stocks and potentially the market in general. We note lots of mega cap tech companies are producing output with associated revenues and profits. The dotcom bubble of 1999 – 2000 was based on companies listing on the stock market with no more than a mere idea of what they might produce.

Asset Classes

Australian Equities 

The ASX 200 reached another all-time high in October – at 9,095. The gains over the month were modest at +0.4%.

The resources sector – Energy (+3.7%) and Materials (+4.3%) – led the way. Consumer Discretionary ( 6.9%), Health ( 4.8%) and IT ( 8.4%) delivered poorer returns.

International Equities 

The S&P 500 posted its sixth consecutive month of gains in October and included a new all-time high. At +2.3% for the month and +16.3% for the year, the gains have led some to believe that the market is heavily over-priced. However, earnings expectations have been improving – particularly in the ‘mag 7’ stocks. Monetary policy has shifted towards easing, which is supportive of continued gains on Wall Street.

Japan’s Nikkei recorded a gain of +16.6% in October, part of which has been attributed to Sanae Takaichi having been sworn in as first female prime minister. The Nikkei has posted gains of +31.4% over the year-to-date.

The UK’s FTSE (+18.9%), German DAX (+18.9%), China’s Shanghai Composite (+18.0%) and Emerging Markets (+28.4%) all gained substantially over 2025 albeit with more modest gains in October compared to the Nikkei.

Bonds and Interest Rates

The Fed cut the Fed funds rate by 0.25% (25 basis points) to a range 3.75% to 4.0%. Before the meeting, interest rate cuts in the October and December meetings were priced in as almost certain. Powell poured cold water on the prospect of an interest rate cut at the December meeting, but he did not rule it out. The odds of a December cut now stand at 62%.

The Bank of Canada also cut by 0.25% but to 2.25%. The Bank of Japan and the European Central Bank (ECB) were both ‘on hold’. The RBNZ cut its rate by 50 bps.

An interest rate cut by the RBA on Melbourne Cup Day appeared to be almost certain until the recent CPI Inflation data were released. The odds of a November cut fell sharply to 7%. We believe that the RBA has misinterpreted the unemployment and CPI data and an interest rate cut is appropriate given the outlook.

Other Assets 

Brent Crude ( 2.9%) and West Texas Intermediate (WTI) ( 2.2%) oil prices were down moderately in October.

The price of gold fell 8.4% from an all-time peak at the end of October but still gained +3.8% over the month. The price of gold is up 51.6% over the year-to-date.

The price of copper (+6.6%) grew strongly in October. The price of iron ore gained +3.8% over the month.

The US S&P500 VIX ‘fear’ index finished October just above normal levels at 17.4.

The Australian dollar was down 0.8% against the greenback in October.

Regional Review

Australia

The Treasurer has finally walked back from imposing a capital gains tax on unrealised profits in superannuation. Most commentators believed that taxing unrealised gains is fraught with all sorts of unintended consequences. Simply increasing the tax take on superannuation is less contentious.

The Australian jobs market remains weak, but it is not seemingly heading towards a recession. The growth in part-time employment following the pandemic has stabilised. However, growth in employment at 1.3% is not sufficient to match population growth.

China 

China has played a very strong opposition to Trump’s trade tariff policies. It stopped importing soybeans from the US – now sourcing its demand from Brazil and Argentina instead.

China also brought in export licence controls for its rare earth sector. Processed rare earths play a central role in building advanced goods such as magnets in Electric Vehicles (EV), aircraft, and defence equipment. Since China holds a significant monopoly in rare earths and their processing, it could be said that it was holding the US and the rest of the world to ransom in relation to their availability.

At the end of October, Trump announced that exports of rare earths will flow again but with annual updates on licencing. Trump also stated that China will import US soybeans again. China has not yet confirmed any of these conditions.

China’s economy is in a state of flux as it tries to accommodate the impact of US import tariffs. After a promising improvement over several months in the Purchasing Managers’ Index, the October read slipped back to 49.0 when 49.8 had been expected. The 50 level demarcates expected expansion from contraction.

US

With most government data not being published in October due to the government shutdown, it is not possible to fully assess the health of the US economy.

The Fed can rely on state and private data to fill some of the gaps. The ADP private payrolls data was weak. 22,000 jobs were lost when the market expectation was for an increase of +45,000.

The August ADP data was revised down to 3,000 from +54,000. The weakness of these data is in line with what we observed in the official payrolls data leading up to the government shutdown.

The US CPI data were published as they are necessary to update government benefits data. Not surprisingly, inflation remains above the Fed 2% target. However, inflation in CPI less housing rose from 1.4% in April 2025 to 2.7%. We attribute much of this gain to the impact of import tariffs. We do not see the tariff component increasing much further before the contribution will become negative as tariffs have only a one-off impact on prices.

Europe

The British unemployment rate rose to 4.8% which is the highest since Q2 in 2021. Economic growth came in at 0.1% following a 0.1% in the previous period. Inflation was steady at 3.8% and is expected to peak at 4.0%.

Rest of the World

Japan swore in a new prime minister – the first female in that position. Relevant markets rallied on the news. The Nikkei made a new high above 50,000 for the first time. Japan inflation rose to 2.9% from 2.7%.

The political tussle between the US and Canada continues. A TV advert was aired in the province of Ontario that used an edited clip of President Reagan speaking negatively about tariffs. As a consequence, Trump slapped on an additional 10% tariff on Canada. He was irked that Canada did not pull the ad until after it played at a major sporting event.

We acknowledge the significant contribution of Dr Ron Bewley and Woodhall Investment Research Pty Ltd in the preparation of this report.