Global markets
Financial markets struggled over the week, with rising bond yields and higher global cash rates continuing to weigh on markets and investor sentiment.
The Fed and inflation
As expected, the US Federal Reserve raised the Fed Funds Rate by a further 0.25% to 4.0%, with all Fed Governors voting in favour — highlighting the extent of the Fed’s concern about inflationary expectations. With oil above US$100 per barrel and the conflict in the Middle East continuing to escalate with increased Houthi involvement, the scope for inflation to move lower is limited. The price of diesel — the global workhorse fuel — has also risen at an exponential rate in recent weeks, adding to costs across every industry segment. We expect the Fed will raise rates again through the fourth quarter of 2026.
AI and trade — the Trump–Xi meeting
The meeting between President Trump and President Xi this week in the US provides an opportunity for a broader reset, with a focus on maintaining the tariff truce that expires in November. For the US, China’s ability to pressure Iran on the conflict — while China seeks greater access to the US auto market — may also form part of the wider discussions. This week also brings a raft of US economic data, with PMI (forecast 54.7 points), jobless claims, housing and sentiment indicators the main releases.
The Australian outlook
Recent comments by the RBA continue to point to September and November rate rises of 0.25% each, taking the cash rate to 4.85%. While we see a further two rate rises, we believe there is some optionality for the RBA to move in November and December. This week brings August labour data — the unemployment rate is forecast at 4.5%, no change — and PMI, while European markets will focus on consumer confidence (forecast −16 points) and PMI (forecast 51.8 points) following the election fallout in Germany.