Market overview
Financial markets rebounded over the week as the potential for a truce in the Middle East (ME) and the reopening of the Strait of Hormuz gather pace as negotiations between Iran and Oman continued. However, while signs are positive, the lack of any concrete agreement will see energy prices continue to oscillate. While markets have attempted to look through the events in the ME and remain focused on the AI thematic, which continues to be the main game, we believe that no resolution will eventually impact negatively on markets.
Global oil supply and outlook
While we have seen some level of demand decline amongst a constricted level of global supply, key energy (i.e. diesel) cannot be easily replaced or refined with Persian Gulf oil. With global economy short ~4mn b/pd, and China continuing to remain on the sidelines, we believe the lack of a longer term solution will be negative for both the economic outlook as well as markets.
Central banks and inflation
The key around this outlook is the ongoing inflationary pressures that will see central banks remain hawkish through 2h26. While we expect the RBA to remain on hold (@ 4.35%) when it meets this week, a further rate hike cannot be ruled out if inflation remain above the 3.0% target. Additionally, in the US, Europe and Japan the pressure on central banks remains elevated given current inflationary expectations. While weaker jobs numbers over the week in the US should support the Fed remaining on hold, the CPI and PPI numbers set for release this week will be focus of markets. While the inflation data is set to be benign (on a pcp basis), it remains above the Fed's target, but another soft (July) number in addition to the June CPI release will afford the Fed some flexibility in the near term.
What to watch this week
Locally, the NAB Business confidence/conditions survey will also be released. As we begin the reporting season in earnest this week, company outlook statements will be closely scrutinised alongside the ongoing weakness in the domestic housing market.