Geopolitics and Energy Markets
A tougher week for financial markets as the peace talks between the United States and Iran looked to be on the brink of collapse as both countries resumed military action, while tanker traffic through the Strait of Hormuz also slowed to a standstill.
Energy prices responded to the new outbreak of hostilities with Brent oil up 9.0% week-on-week and now seemingly set to push back towards United States Dollar $85 to $90 per barrel.
With inflationary pressures remaining elevated, further instability across energy markets will only add to central bank pressures to increase cash rates in the second half of 2026. With the recent Federal Reserve minutes highlighting that the Federal Open Market Committee remains open to further rate tightening, a worsening outlook for a resolution in the Middle East will only add to that pressure.
For the United States Administration, the ability to find an "off ramp" is becoming increasingly more challenging. If Trump loses the ability to negotiate with Iran, the potential for a widening of the conflict cannot be ruled out and will add to market nervousness in the near term.
United States Economic Data
This week sees the release of United States Consumer Price Index and Producer Price Index data alongside retail sales, building and housing starts, and University of Michigan consumer surveys.
While the Consumer Price Index is set to decline (-0.4% compared to the previous corresponding period), Core Consumer Price Index is forecast to remain at 2.9% year-on-year, while Producer Price Index is forecast to increase by 0.3% to 5.2% year-on-year.
All up, the numbers will not take the heat off the United States Federal Reserve, despite a softening labour market outlook.
Australian Economic Outlook
Domestically, the release of both consumer and business confidence data will be the focus.
Previous reports highlighted the sharp drop in consumer sentiment to a multi-decade low, so it will be an important barometer to household discretionary spending through the second half of 2026 given that further rate rises by the Reserve Bank of Australia remain in play given the persistent inflationary pressures.
China Economic Outlook
In China, the release of second quarter 2026 Gross Domestic Product data is expected to show a slowing economy (4.5% year-on-year, -0.5% compared to the previous corresponding period).
With the malaise in the property market continuing and showing few signs of a rebound, domestic consumption is set to remain flat.