Market Rally Stalls as Washington Works on Tax Changes: May 20, 2025

Stocks are losing steam today as Wall Street turns its focus to Washington and progress on proposed tax legislation. Equities are indeed on their way to breaking their 6-day winning streak with market participants considering the growth, inflation and deficit dynamics of the expected changes to the nation’s taxation policies. The stateside economic calendar could have provided a bullish catalyst, but today’s list was uneventful, although there were plenty of Fed speakers announcing their concerns about a reignition in price pressures as well a decent amount of international data releases. Asset prices are moving indecisively against this backdrop, with investors scooping up shares in the small-cap space, short-end Treasuries, commodities ex lumber. But traders are trimming their exposures to long-end government debt and the greenback.    

International Roundup

Australia Cuts

Citing increased global trade uncertainty, Australia policymakers lowered the country’s key interest rate by 25 basis points to 3.85%, a two-year low and the second reduction this year. The bank also considered an unclear outlook for domestic demand, wages and pricing. In a press conference, Governor Michele Bullock said the board initially discussed holding the benchmark steady, but the discussion quickly shifted to cutting alongside a debate on if a quarter- or half-point move would be the most appropriate.

Canada CPI Declines Following End of Carbon Tax

Canada’s Consumer Price Index declined 0.1% month over month in April, above the -0.2% consensus expectation and reversing from the 0.3% gain in March. On a year-over-year basis, the headline number rose 1.7%, surpassing the 1.6% estimate but easing considerably from March’s 2.3% print. The negative m/m metric resulted, in large part, from the country terminating its carbon tax on gasoline, according to Statistics Canada. Additionally, higher oil production from OPEC nations pushed down gasoline costs. The core CPI, which excludes volatile prices for fuel and food, climbed 0.5% m/m and 2.5% y/y compared to 0.1% and 2.2% in March.

Hong Kong Unemployment Increases

Hong Kong’s unemployment rate during the February through April period reached 3.4%, up from 3.2% throughout the three-month timespan ended in March, according to the special administrative region’s Census and Statistics Department. In the recent interval, the number of employed individuals declined from 3.682 million to 3.671 million. The most significant increases in unemployed folks occurred in the following sectors:

• Construction
• Accommodation services
• Financing
• Food and beverage service activities

Sectors that added workers included information and communications, insurance, arts, and the entertainment and recreation category.  

Consumer Sentiment in Europe Improves

Consumer confidence in Europe climbed slightly this month after falling considerably in April, but it is still well below the historical average, according to the European Commission. After falling from -14.5 to -16.6 in April, this month’s result climbed to -15.2 for the eurozone. Economists anticipated a result of -16.