After record highs in US and European shares a week ago, global shares pulled back in the last week reflecting concerns about rising bond yields, not helped by a further rise in oil prices and some continuing concerns about chip makers. The weak global lead along with mixed earnings reports also weighed on the Australian share market which is down around 0.6% for the week with falls led by retailers, banks, property and IT shares more than offsetting gains in health and resources shares.

Bond yields mostly rose, not helped by higher oil prices and despite US Treasury efforts to lower them.

Bitcoin broke decisively above its 200-day moving average, a move which confirmed the end of the last four crypto winters (which saw circa 80% falls) this time only after a fall of 53%. Technically Bitcoin looks like it’s on the way up again. If we have seen the bottom after a much milder winter than in the past it’s a positive sign that Bitcoin is maturing.

Similarly, gold also looks to be breaking higher after a 27% fall, although its currently right on its 200-day moving average. Both are benefitting from having had long positions and excessive optimism washed out and signs of renewed $US weakness. The latter is also seeing the $A hold above $US0.71. Meanwhile, iron ore prices also rose but metal prices fell.

Oil prices rose again with no resolution to the Strait of Hormuz. The past week saw mixed reports on how much shipping was moving through the Strait, the June interim peace deal expired, Trump indicated there are no talks with Iran, the UK reported a ship in the Strait had been hit and then Trump announced that the US will now use “Economic Warfare and Isolation on an unprecedented scale” against Iran with “TREMENDOUS Economic Consequences” for “ANY country” that supports it. The latter looks like a return to sanctions but its hard to see why these will work now when they haven’t for years or that the US will seriously ramp up pressure on China given the risk of blow back to the US economy. So the conflict looks as messy as ever with only bad options – return to war (which Trump knows will go down very badly back in the US) or agree a bad deal (giving Iran what it wants). Our base case remains that oil prices will stay in a $US70-100 range with Iran preventing it going lower and the US moving to try and calm things down whenever it gets above $US100….but the risk is high that with no resolution the world will have to face much higher oil prices (like $US150) as reserves run down.

Can the latest version of Operation Twist stop US (and hence global) bond yields rising? It’s doubtful. Quite clearly the US Government has become concerned about the rise in long term Treasury yields. They have been rising because of ongoing huge US budget deficits, surging corporate debt issuance to finance the AI boom, worries about higher inflation and rising Japanese bond yields. This has pushed the 30-year bond yield up to levels not seen for two decades – the main problem being that the level of Federal public debt to GDP is roughly double what it was 20 years ago and so the rise in bond yields in the last five years has seen net interest costs surge from 6% of tax revenue to 14% which is a record high in the context of the last 70 years. So, the US Treasury announced it is buying back more long term bonds presumably financed by issuing more short term Treasury bills. Since Treasury bills are anchored by the Fed Funds rate this helps bring down long term bond yields. It’s a bit like the Fed’s Operation Twists in 1961 and 2011. So far, the results are mixed with long term bond yields first down a bit but then reversing their fall. Since the operation does not change any fundamentals with the US still having to issue debt to finance its huge budget deficit of around 6-7% of US GDP and corporate borrowing still on the rise its likely only a temporary fix. Just like the recent interventions to push up the Yen. So, absent a recession the rise in bond yields is likely to continue. It could even backfire for the US Treasury if the Fed does have to raise rates and so Treasury has to pay even more to borrow long term down the track. If anything by easing US financial conditions this latest operation twist adds to the risk that the Fed with have to hike. Since US Treasuries are seen as the global risk-free rate upwards pressure on them is likely to result in upwards pressure on Australian long term bond yields which risks higher borrowing costs for Australian governments, companies and for mortgage holders borrowing with fixed mortgage rates.

Fortunately, public debt in Australia is a fraction of US levels (circa 55% of GDP here versus around 125% of GDP in the US, but its still well up from where it was before the GFC and Federally just went through $A1 trillion. While that’s just a big round number, as a share of GDP, which is more important, it’s projected to remain around the highest levels seen since the aftermath of World War Two. While the Budget projected a fall in public debt as a share of GDP next decade this depends on rather optimistic assumptions that the budget deficit will fall and turn into a surplus. More importantly, public debt interest is the fastest growing major spending item in the Federal Budget currently accounting for around 4.7% of tax revenue but set to rise further. The more bond yields rise the faster public debt interest will rise and the more tax revenue it will take up.

In terms of the Fed, the minutes from its last meeting were hawkish with “several” members favouring a hike and “many” members saying a hike would be needed if inflation did not decline. Inflation data released so far for July suggests that core private final consumption deflator inflation will come in at 0.2%mom or 3.3%yoy, which would probably leave the Fed on hold, but it’s a close call with unrounded forecasts coming in at 0.24%mom and if ticks up to 0.3% many at the Fed would likely support a hike.

In Australia, despite mixed economic data we continue to expect another rate hike from the RBA around November. RBA Deputy Governor Hauser reiterated the RBA’s concerns about inflation, that consumer spending and employment growth would need to slow further to get it down and that if upside risks materialise then the RBA will hike. Economic data in the last week provided a mixed bag regarding this with a bounce in consumer confidence, wages growth in the June quarter which was benign but likely to pick up this quarter and jobs data was softish in July but still consistent with a labour market that is a “bit tight”. All, up we continue to expect another RBA hike, probably in November as inflation is unlikely to slow to back to target quickly enough.

Seasonal weakness. After strong gains year to date left US shares overbought a pullback through the seasonally weak months of August and September is a high risk which would likely drag Australian shares down. Rising bond yields, a possible Fed rate hike, rising oil prices, worries about an AI bubble and political uncertainty ahead of the mid terms are potential triggers. But with earnings growth remaining strong we would see any pullback as a correction rather than the start of a new bear market.

Most would remember Johnny Young as the saccharine like host of Young Talent Time. But he was actually much more and gave Australia one of it’s best rock songs. In the late 1960s much Australian pop music was covers of overseas bands, but Johnny Young came up with The Real Thing which was sung by Russel Morris and produced by Ian (Molly) Meldrum into a psychedelic extravaganza lasting more than six minutes. Here’s a brilliant covid era version. Of course, Molly then went on to Countdown – so do yourself a favour and check out The Real Thing!

Major global economic events and implications

US housing indicators remained soft with housing starts down 12% and home builder conditions remaining weak. Industrial production rose less than expected in July but manufacturing conditions were strong, although price pressures remain elevated. Jobless claims remain low.

The US earnings reporting season has now seen 94% of S&P 500 companies report with 87.5% exceeding expectations. The consensus expectation for earnings growth has now risen to 33%yoy. Earnings growth is being led by energy and tech companies and 2027 earnings estimates have been upgraded by around 4% over the last two months.

Canadian CPI inflation rose to 3%yoy in July due to higher energy prices and some World Cup price hikes, and core inflation measures rose slightly to 1.9-2%yoy but since they are around target the Bank of Canada is likely to remain on hold in the near term.

UK CPI inflation also rose to 2.9%yoy in July due to higher energy prices, but core inflation was unchanged at 2.6%yoy, which along with unemployment still at 4.9% and wages growth cooling slightly to 4.1% probably leaves the Bank of England on hold for now. The money market still sees a rate hike by year end though.

Japanese June quarter GDP growth was weaker than expected at 0.3%qoq with falls in consumer spending, housing investment and business investment. Inflation rose to 1.9%yoy in July with core (ex food and energy) inflation rising to 1.4%yoy from 1.2%, partly due to soaring memory chip prices. Expect further gradual Bank of Japan rate hikes.

Chinese economic activity indicators for July were soft. Retail sales growth slowed to just 0.6%yoy, industrial production slowed to 4.5%yoy and investment fell further with property investment, sales and home prices continuing to slide. China requires more stimulus measures to boost consumer spending.

Australian economic events and implications

Australian business conditions PMIs for August fell slightly but to a still okay 52.5 with a fall in services, employment and orders. Output price pressures fell particularly in services suggesting some easing in inflationary pressures, but input prices rose and remain relatively high.

Jobs data for August was softer than expected but is not as weak as it looks. Employment fell by 15,800, hours worked fell and unemployment rose to 4.5% again. However, it’s not as soft as the headline numbers suggest as the fall in employment followed several strong months and so a soft month was inevitable sooner or later, full-time employment rose, the unemployment rate only rose from 4.43% to 4.46%, labour underutilisation fell slightly and the weakness was concentrated in NSW.

Forward looking labour market indicators like job ads and hiring intentions point to jobs growth remaining around current levels. This is highlighted in our Jobs Leading Indicator in the next chart and should keep unemployment hovering around current levels for the time being. All of which will likely see the RBA continue to characterise the jobs market as a “bit tight” whereas it needs to see jobs growth slow further for inflation pressures to recede.

Wages growth was unchanged at 0.8%qoq or 3.2%yoy in the June quarter.

There was a further slowing in the proportion of jobs with 3% or more wages growth, but wages growth will pick up this financial year as the 6% and 4.75% increases in minimum and award wages impact, & some seek compensation for higher inflation. This will remain a concern for the RBA given low productivity growth.

Cost of living pressures remain, although they are maybe not quite as severe as some comparisons suggest. Over the year to the June quarter real wages fell 0.8% as inflation was 4%yoy. And since 2020 prices in the CPI rose 27% compared to the wage price index that rose 21%, resulting in a real wage fall of 6%. However, a broader measure of average earnings in the national accounts – which allows for people moving jobs, promotions, hours worked, etc – shows that total labour earnings have kept up with inflation. The truth is probably in between.

Consumer confidence rose another 6% in August, which is surprising, but the rise was concentrated in mortgage holders relieved at the RBA decision to hold rates this month. This is of course leaves it very dependent on what the RBA does going forward. And its worth noting that it remains weak with the alternative ANZ/Roy Morgan consumer sentiment survey even weaker.

The Westpac/MI consumer survey also showed a further sharp fall in home price expectations, but falling prices have led to a sharp rise in perceptions of whether now is a good time to buy a dwelling.

The HIA reported that new home sales fell for the third month in a row in July as rate hikes impact and falling home prices make building new homes less viable. Tax policy uncertainty around the impact of the investor tax changes may also be impacting. Expect another year with home completions running well below the Housing Accord target for 240,000 homes a year.

The Australian June half earnings reporting season is now around 60% complete, and while profits are up nicely its narrowly based with results on the soft side. Profits are seeing a rebound after three financial years of falls, but it remains subdued compared to the AI enhanced profit boom being seen in the US, where profits are up more than 30%, and elsewhere. The consensus expectation for 2025-26 earnings growth of 12% has already been revised down to 11.7% with 2026-27 earnings growth expectations also revised down slightly to 10.5%. Strength is narrowly based on a rebound in mining sector profits which was confirmed by good results at BHP and solid growth for financials with profits in the rest of the market only likely to see growth of 2.5%. So far banks have been under pressure on concerns about slowing housing finance, and stocks exposed to the consumer (eg JB HiFi) and housing (eg Temple and Webster) have had difficult results.

• The proportion of results beating expectations are running ahead of misses but only marginally at 33% versus 30%. And the number of beats was less than the norm of 40%, but so too was the number of misses where the norm is 41%.

• 71% of companies have seen earnings rise on a year ago, and this is better than the norm of 56% and confirms the rebound in profits but as noted above its coming in a bit weaker than expected in aggregate.
• 59% of companies have increased their dividends on a year ago which is in line with the norm, but down slightly from the last reporting season. The failure of dividends to match the rise in earnings suggests a degree of corporate caution about the outlook.

What to watch over the next week?

In the US, expect to see a fall in consumer confidence and soft growth in home prices (Tuesday) but continued solid gains in underlying capital goods orders (Wednesday). July consumer data is likely to show modest growth in spending. Meanwhile, the core PCE deflator inflation rate for July is likely to be 0.2%mom leaving it at 3.3%yoy. A 0.2% monthly rise would be consistent with the Fed holding but if it tips over to 0.3%mom it will increase pressure on the Fed to hike next month. Comments by Fed Chair Warsh at the annual Jackson Hole Symposium (Friday) will be watched for any clues regarding whether the Fed might raise interest rates but its doubtful he will give much away.

In Australia, the July CPI (Wednesday) is expected to rise 0.8%mom reflecting higher prices for fuel, travel, water, clothing and computers offsetting some fall in electricity prices but because of the base effect of a very strong rise a year ago dropping out it’s likely to see annual inflation fall back to 3.2%yoy (from 3.8%). Trimmed mean inflation is also likely to fall slightly but only to 3.5%yoy (from 3.6%) due to base effects with the monthly increase remaining too high at 0.3%mom. In other data, expect just a 2.5% rise in June quarter construction (Wednesday), a 1% rise in June quarter business investment and a 0.7%mom rise in July household spending (both due Thursday). The minutes from the last RBA meeting (Tuesday) are likely to reiterate the RBA remains hawkish and biased towards another rate hike.

The Australian June half profit reporting season will wrap up with about 85 major companies reporting including Bendigo Bank, Woodside, Woolworths, Qantas, South32 and Harvey Norman.

Outlook for investment markets

Global and Australian share markets are likely to remain volatile with the lack of any resolution to the Iran War and hit to global oil supplies, stretched valuations, sticky inflation, political uncertainty associated with Trump & the midterm elections and worries about the impact of AI and whether there is an AI bubble. However, returns should still be okay for the next 12 months as a whole thanks to continuing economic growth with recession avoided and strong global profit growth and likely rate cuts next year.

Bonds are likely to see returns around running yield or a bit less.

Unlisted commercial property returns are likely to be solid helped by strong demand for industrial property associated with data centres.

Australian home prices are expected to fall around 7% top to bottom, of which they have already done around 2%, out to the June quarter next year as a result of poor affordability, RBA rate hikes, reduced investor demand flowing from the winding back of negative gearing and the capital gains tax discount and poor confidence.

Cash and bank deposits are expected to provide returns around 4-5%.

The $A is likely to rise reflecting the wider interest rate differential to the US, although a move to Fed hikes may limit this. Fair value for the $A is around $US0.72.

By Shane Oliver

The post Weekly economic and market update – week ending 21 August, 2026 appeared first on AdviserVoice.

Households continue to face the cumulative impact of three interest rate increases this year.

“Sales of new homes declined for a third consecutive month in July, falling by 3.7 per cent as higher interest rates and policy uncertainty continued to weigh on consumer confidence,” stated HIA Senior Economist, Tom Devitt.

The HIA New Home Sales report is a monthly survey of the largest volume home builders in the five largest states and is a leading indicator of future detached home construction.

“The recent decline in sales reflects households becoming more cautious in response to higher borrowing costs and increased uncertainty, rather than a reduction in Australia’s underlying need for new homes,” added Mr Devitt.

“Sales of new homes in the three months to July were 13.5 per cent lower than in the previous quarter but remained 17.1 per cent higher over the last 12 months compared to the previous year, supported by the momentum built earlier in the year.

“Households continue to face the cumulative impact of three interest rate increases this year. At the same time, uncertainty surrounding recent housing policy changes has encouraged many prospective purchasers to delay, or cancel, major financial decisions.

“In the three months to July, house prices nationally declined by 2.0 per cent, the largest quarterly fall since 2022. Because the new and established home markets are linked, a decline in established prices will lead a decline in new home sales and a slowing in home building.

“The adverse shock to established home prices, due to the Federal Budget, is likely to be one factor slowing sales of new homes.

“Despite this, the structural drivers of housing demand remain firmly in place. Unemployment remains very low, migration remains elevated, household formation continues, and Australia’s shortage of homes will continue to support underlying demand.

“The goal of building 1.2 million homes will become increasingly unachievable if governments continue to restrict who can build, invest in, or finance new homes.

“Policies that add uncertainty, reduce investor participation, or constrain finance will only make it harder to deliver the homes Australians need,” concluded Mr Devitt.

By state, New South Wales was the only state to record a monthly increase, rising by 2.1 per cent. The largest decline was seen in Queensland (-10.9 per cent), followed by South Australia (-7.6 per cent), Victoria (-2.0 per cent), and Western Australia remaining relatively unchanged (-0.4 per cent).

In the year to July 2026, new home sales in Victoria were 27.6 per cent higher compared to the previous year, followed by South Australia (+26.3 per cent), New South Wales (+16.6 per cent), Queensland (+10.0 per cent) and Western Australia (+3.3 per cent).

The post New home sales decline for the third consecutive month appeared first on AdviserVoice.

Global share markets mostly rose over the last week helped by good earnings results and some moderation in expectations for Fed rate hikes. US and Eurozone shares rose to new record highs and Japanese shares also rose. The Korean share market has broken its down trend after long positions were washed out into a 39% fall, with a similar story in semi conductor stocks. Chinese shares fell slightly though.  Despite the positive global lead Australian shares fell around 1.7%, which was partly a correction after a 5.6% rise in the prior two weeks left them overbought but earnings reports are off to a mixed start with worries about slowing housing finance commitments weighing on the banks and sharp falls in industrial, property and material shares also weighing on the market. And of course, the Australian share market doesn’t have much exposure to the AI related stocks that are back in favour again.

Bond yields were flat to up over the last week. Metal and gold prices fell slightly, but iron ore rose slightly. Bitcoin fell slightly and is managing to hold above support around $US60,000 but has yet to confirm the latest crypto winter – which has seen a 53% fall from the high in October last year – is over. While the $US rose slightly the $A was little changed.

Oil prices had another bounce as there is still no deal to re-open Hormuz (to get up back to where we were before the War started), let alone regarding Iran’s nuclear ambitions (which was the key point of the War in the first place).

While there is still no resolution to the Iran/Hormuz impass, our base case remains that oil prices will stay in a $US70-100 range with Iran preventing it going lower and the US moving to try and calm things down whenever it gets above $US100. While shipping through Hormuz remains depressed, reports from US sources suggest that it is helping more shipping get through (with transponders turned off), but this is unclear. The risk remains that there will be no sustainable peace deal, the flow of oil out of the Middle East remains down 10-15% on normal levels and that we will have to face higher oil prices as reserves run down. This risk may escalate if Trump determines he has got nothing to lose by going a lot harder on Iran, maybe after the midterm elections.

The next chart highlights the slump in the supply of oil since the War began. The global economy has been able to weather this by running down reserves which had built up ahead of the War with a large spike in supply and by some cutback in demand. Note though that some the fall in demand shown in the chart reflects countries like China cutting their purchases of oil as they dipped into reserves so may exaggerate the true fall in oil use. There was a bounce in supply with the brief reopening of Hormuz but there is a limit to how long the world can dip into reserves.

On the geopolitical front another issue to watch is the whether the escalation in the Russia/Ukraine war, marked by increasing attacks in Russia, leads to an aggressive Russian response like a “provocation” of NATO. Ukraine has been increasingly successful in bringing the war into Russia by attacking its energy industry and more than 20 Wildberries warehouses (which is similar to Amazon) to deprive it of export revenue and bring the war home to ordinary Russians. Ukraine’s aim is to bring Russia to talks but Russia may react by provoking NATO to try and get Europe to put pressure on Ukraine. Russia is unlikely to ultimately succeed but it could still briefly unnerve investment markets.

Benign July US CPI means less pressure on the Fed for a rate hike (for now). The core CPI rose an as expected 0.2%mom seeing the annual rate drop back to 2.5%yoy. Producer price inflation also fell but key components were a little bit stronger. Together this implies that the more important core private final consumption deflator will also rise around 0.2%mom and remain at 3.3%yoy. This is still too high but key Fed officials have nominated 0.2%mom or less as required to stay on hold so along with mixed jobs data and benign wages growth means that the Fed will probably stay on hold at its September meeting with the money market’s probability of a hike then dropping to 32%. However, it’s a close call though as projections for the core PCE are running around 0.24% unrounded so it could easily click up to 0.3%mom which is too high for many Fed officials and in any case there is another round of inflation and jobs data before the next Fed meeting. The money market continues to fully price in a hike by year end.

In Australia, the RBA left rates on hold as widely expected, but it signalled a clear tightening bias. Softer than expected readings for underlying inflation, jobs and house prices enabled it to remain in wait and assess mode. But it doesn’t see inflation back to target until late next year, sees the risks as being on the upside to this with Governor Bullock noting that it will raise rates further “if required”, that its “thinking very hard about when to raise” rates and that it only considered a hold or a hike in rates at the August meeting, not a cut. Of course, this could just be jawboning but it’s clear the RBA’s tolerance for more upside disappointment on inflation is low. And rightly so, as the credibility of the inflation target and the RBA is now at risk.

Against this background we expect another RBA hike by year end, possibly in September but probably in November, taking the cash rate to 4.6% as underlying inflation is likely to take too long to fall back to target and the RBA will need to do more to reinforce its credibility. The money market is now seeing a 56% chance of another hike by year end, albeit this is bouncing around with the oil prices.

After spiking to around $2.10 a litre in early August on the back of the removal of the final half of fuel tax relief along with a spike in oil prices petrol prices in Australia have fallen back to around $2 a litre – well above their pre-War levels. They are now around roughly where you would expect them to be given the level of world oil prices.

This leaves the weekly petrol bill for an average Australian household (of $70) at the high end of the range from the last five years, excluding the March high ($90.3). It’s about $8 a week above where it was over the year prior to the War.

The roller coaster ride in US tariff revenue. Last year tariffs were the big story globally as Trump ramped them up into the so-called Liberation Day in particular. This saw custom duty revenue push above $US30bn a month in the second half of last year. But it’s gone negative this year as the Supreme Court ruled many of the tariffs illegal and so the US Government has had to pay out refunds. New “forced labour” tariffs of 10% and 12.5% depending on the country and soon to be announced “excess capacity” tariffs – both under a different laws – will see tariff revenues bounce back but probably only to around $US20-25bn a month.

16th August marks the 49th anniversary of Elvis leaving the building (or so I was told) so here’s my new favourite Elvis song Spinout again. And from a decade later a new take on his last hit while he was alive, Moody Blue.

Major global economic events and implications

US economic data was mostly consistent with solid growth. Small business conditions rose and jobless claims remain low, but existing home sales remain weak.

The US earnings reporting season has now seen more than 90% of S&P 500 companies report with around 87% exceeding expectations. The consensus expectation for earnings growth has now risen to 33%yoy. After adjusting for one off asset revaluations at Alphabet and Amazon its now blown out to 50%yoy. Earnings growth is being led by energy and tech companies. Capital spending by the top five hyperscalers has now been revised up by around 50% and while it initially caused some concerns, those concerns appear to have faded for now.

Eurozone and Japanese earnings growth is also up strongly.

Chinese inflation fell more than expected in July with CPI inflation of just 0.5%yoy and core inflation to just 0.9%yoy. With the Chinese economy continuing to run a huge saving rate with significant excess capacity, inflation is unlikely to be a problem and the old saying that “whatever China exports it deflates” remains valid. EV’s are an obvious example. China continues to require more policy measures to encourage its consumers to consume.

Australian economic events and implications

The July NAB business survey saw a slight improvement in business conditions, but confidence remained soft. Overall conditions look softish but there is no sign of collapse.

Meanwhile, the NAB survey showed that capacity utilisation rose and cost and price pressures all rose with labour costs rising to their highest since 2023 on the back of the latest rise in minimum and award wages. With these measures remaining above 2024-25 levels and even more above those seen in the pre-pandemic years it points to ongoing inflationary pressures.

Housing finance commitments fell 5% in the June quarter as rate hikes, tax hikes on investors and poor buyer confidence hit. As would have been expected given the tax changes, finance commitments to investors (-10%) fell more than to owner occupiers (-2%), but there is likely further falls ahead as the Budget was only in the middle of the quarter and reports from the major banks indicate a 15-20% slump in mortgage applications since May (with one report of a 28% fall from investors). This is consistent with other indicators of a downturn in the property market. Fortunately, finance commitments for dwelling construction still rose for now.

Average weekly earnings for full-time adult ordinary time workers slowed to 3.7% in the year to May its lowest since 2022. This measure is impacted by compositional change in the workforce and so tends to exaggerate the rate of wages growth for a worker doing the same job at the same level. This is best measured by the Wage Price Index and its running at 3.2%yoy. Whatever, it is both are running below inflation which was 4% over the year to May and highlight the slide in living standards. While the simplistic solution is to just force through higher wages growth this risks higher price rises unless it’s backed up by stronger productivity growth. So, the key is for government to undertake a round of productivity enhancing reforms of the sort economists have been talking about for years – deregulation, smaller government, tax reform, etc – to enable wages to rise at a faster pace without generating more inflation. I live in hope!

The gender pay gap remains, but at least its narrowing. The next chart shows that an average male employee still earns 38% more than an average female employee – see the dark blue line. Of course, this partly reflect males working more hours than females. If we compare full-time adult ordinary time earnings males earn 12.8% more than females – the blue line. The big factors here are likely to be women being disproportionately represented in roles and industries (like in accommodation, food services, retail and health care) that pay less than in the roles and industries that men are disproportionately represented (like mining, utilities, finance and insurance) and womens’ careers being disrupted by child bearing.

Its early days in the Australian June half earnings reporting season with only about 22% of major companies having reported. The consensus expectation is for 2025-26 earnings growth of 12%. However, strength is likely to be narrowly based on a rebound in mining sector profits and solid growth for financials with profits in the rest of the market only likely to see growth of 2.5%. Forward estimates have been falling recently reflecting the impact of rate hikes and cost pressures. So far banks have been under pressure on concerns about slowing housing finance and Seek fell in response to a slowing jobs market but others like AGL saw gains. Just bear in mind too that there is a tendency for companies with good results to report early so results may soften over the next couple of weeks.

• So far beats are running above misses with 33% of results surprising consensus earnings expectations on the upside, but this is less than the norm of 40%, and just 25% have surprised on the downside which is less than the norm of 41%. But its early days.

• 70% of companies have seen earnings rise on a year ago, and this is better than the norm of 56%.
• 64% of companies have increased their dividends on a year ago which is above the norm of 59%, but down slightly from the last reporting season.

What to watch over the next week?

In the US, expect home builder conditions (Monday) and housing starts (Tuesday) to remain soft, industrial production (also Tuesday) to rise modestly and key regional manufacturing conditions and the PMI for August (Friday) to show solid conditions.

Canadian inflation data for July (Monday) will likely show the core measures around 1.9%%yoy.

Eurozone business conditions PMIs for August (Friday) it likely to slow.

UK inflation data for July (Wednesday) is likely to show a core inflation around 2.5%yoy.

Japanese June quarter GDP (Monday) is likely to show reasonable growth of 0.5%qoq after 0.4%qoq in the March quarter with solid gains in consumer spending, business investment and trade a 0.4%qoq gain. July inflation (Friday) is likely to show a rise in core inflation to 1.3%yoy. The Japanese PMI for August (Friday) is likely to remain solid.

Chinese economic activity for July (Monday) is likely to show continuing subdued growth with industrial production up 4.9%yoy, but retail sales up just 1.5%yoy.

Australian wages growth for the June quarter (Wednesday) is likely to be unchanged at 0.8%qoq, resulting in annual growth slowing to 3.2%yoy, however it’s likely to spike in the current quarter reflecting the higher increase in minimum and award wages granted this year by the Fair Work Commission. Consumer confidence for August (Tuesday) is likely to have remained weak given the rebound in petrol prices and RBA hawkishness on rates. Jobs data for July (Thursday) is likely to show just a 3,000 gain in employment after the surprise surge seen in the previous two months with unemployment remaining at 4.4%. The business conditions PMI for August (Friday) is likely to slow slightly with ongoing cost and price pressures.

The Australian June half profit reporting season will continue with about 70 major companies reporting including in the week ahead including JB HiFi, NAB, BHP, HUB 24, Stocklands, Santos, Brambles, Dexus and TPG.

Outlook for investment markets

Global and Australian share markets are likely to remain volatile with the lack of any resolution to the Iran War and hit to global oil supplies, stretched valuations, sticky inflation, political uncertainty associated with Trump & the midterm elections and worries about the impact of AI and whether there is an AI bubble. However, returns should still be okay for the next 12 months as a whole thanks to continuing economic growth with recession avoided and strong global profit growth and likely rate cuts next year.

Bonds are likely to see returns around running yield or a bit less.

Unlisted commercial property returns are likely to be solid helped by strong demand for industrial property associated with data centres.

Australian home prices are expected to fall around 7% top to bottom, of which they have already done around 2%, out to the June quarter next year as a result of poor affordability, RBA rate hikes, reduced investor demand flowing from the winding back of negative gearing and the capital gains tax discount and poor confidence.

Cash and bank deposits are expected to provide returns around 4-5%.

The $A is likely to rise reflecting the wider interest rate differential to the US, although a move to Fed hikes may limit this. Fair value for the $A is around $US0.72.

By Shane Oliver

The post Weekly economic and market update – week ending 14 August, 2026 appeared first on AdviserVoice.

Stephen Miller

Since the conclusion of the last Fed Federal Open Market Committee (FOMC) meeting, the US financial market commentariat have spent some time highlighting Fed Chair Warsh’s communication shortcomings.

It appears that Warsh unnecessarily let his (justified) antipathy toward forward guidance manifest itself in a reticence to communicate a rationale for the Fed’s decision to keep the policy rate steady, failing to communicate any detail regarding Fed members’ assessments of current inflation pressures, and indeed on the economy more broadly.

Warsh could have simply shared elements of the Fed’s current economic assessments without crossing the line into forward guidance.

By choosing to communicate nothing by way of a rationale for the FOMC decision the Fed Chair has created an information vacuum. In part reflecting that void, the bond market took the path of least resistance and arrived at a collective view that Warsh lacked resolve on inflation.

It probably didn’t help that President Trump opined that Warsh was doing a “fantastic job” and “would love to lower interest rates”.

That circumstance seems to have distracted the US bond market from an inflation picture that is much less challenging that might have been feared, particularly in the wake of the Trump Administration’s tariff policies and the potentially deleterious effect on inflation and inflation expectations from the surge in oil prices in the wake of the Iranian conflict.

Last night’s US consumer price index (CPI) release is another indicator of just how well US inflation has behaved despite the challenges from, among other things, tariffs and oil.

US core CPI inflation came in at 2.5 per cent, the lowest annual rate since March 2021. That was at the height of COVID deflation fears (remember that!).

Meanwhile, the traditional Fed inflation focus – the core private consumption expenditures (PCE) price index – is, at 3.3 per cent, well north of the Fed target of 2 per cent. Warsh prefers the Dallas Fed trimmed-mean measure which is currently running at 2.2 per cent (June read) – not that far from the Fed target and the lowest read since July 2021.

Of course, the vagaries of oil prices might upset that positive emergent US inflation narrative but nevertheless the forgoing results are a positive surprise.

Along with recent softer payrolls numbers they indicate that the Fed is not under any pressure to urgently raise the policy rate.

Bond markets still have a bit to worry about, particularly the huge US Budget deficit, but if Fed Chair Warsh had articulated that emergent positive narrative – and he could have done so that without crossing the forward guidance line – then perhaps bond markets might be well be a tad less anxious.

RBA: Bullock avoids the ‘Warsh trap’ but monetary policy challenges remain

Following the Fed Chair Warsh’s poorly received communication after the Fed kept rates steady in July, I conjectured that Reserve Bank of Australia (RBA) Governor Bullock would have to be on top of her communication game in the event the RBA held rates steady in the August meeting.

In the event those fears proved unfounded.

Bullock gave a credible rationale for the RBA’s decision to keep the policy rate steady. She framed the Monetary Policy Board (MPB) debate as one between keeping rates steady and increasing the policy rate, ceding the “bond vigilantes” some succour.  That was given some emphasis by a stated readiness to raise the policy rate should upside risks to inflation assert themselves.

Bullock speaks from a position of greater credibility than Warsh given that the RBA had raised the policy rate at three successive meetings in February, March and May of this year. In that sense she has revealed inflation-fighting credentials in a way that Warsh has yet to demonstrate.

The June quarter trimmed-mean inflation outcome at 3.6 per cent was below the RBA forecast of 3.8 per cent issued in May. So, the argument went, the increases in the policy rate so far this year are working to contain inflation, and with activity growth tepid, the balance of risks pointed to no further requirement for an increase at the August meeting.

Bullock communicated this in a clear and balanced way, albeit one can argue whether the Board arrived at the “correct” decision.

Warsh on the other hand, unnecessarily let his antipathy toward forward guidance manifest itself in a reticence to communicate a rationale for the Fed’s decision to keep the policy rate steady, failing to communicate any detail regarding Fed members’ assessments of current inflation pressures, and indeed on the economy more broadly.

Warsh could have shared elements of the Fed’s current economic assessments without crossing the line into forward guidance.

Taking a leaf out of Bullock’s approach, Warsh might have pointed out that US inflation has been less than feared.

In other words, there were good reasons for the Fed leaving the policy rate unchanged.

Last night’s July CPI report reaffirmed that.

Warsh has in the past conjectured that disinflation in the US will follow from tremendous (largely AI motivated) investment. In Warsh’s view that investment has wrought a productivity dividend that (other things equal) has raised the US economy’s “speed limit”. In other words, the US economy can grow at faster rate before igniting inflationary pressures.

The notion that AI driven productivity growth can constrain inflation is a credible – if debatable – position. Some worry that the huge capex requirements associated with AI might in the short-term put demand pressure on inflation. Indeed, it is the latter that the RBA emphasised in its articulation of upside risks to inflation.

The RBA’s decision to hold the policy rate at the August meeting, however, is not without some risk. Australia has an “underlying” inflation rate that is among the highest in the developed world. That reflects the stark reality of a homegrown structural inflation proclivity. I tend to think that the RBA underplays this factor in its public commentary.

I have noted in the past that that reflects the interplay of regulatory creep in labour and goods markets that impose costs on businesses, part of which are passed on to consumers, and which result in abject productivity growth which makes the task of inflation containment all the harder. Australia’s abject productivity growth may be why AI related capex has a greater inflation impulse in Australia.

Frustratingly, governments (state and federal; Labor and Coalition) have displayed a ‘head in the sand’ approach to dealing with these issues and unfortunately the current Federal government is no exception.

In that context, the policy rate “hold” from the RBA last week may be defensible but I continue to worry that the RBA will be required to raise the policy rate again at some stage in 2026. Unit labour cost growth in excess of 3 per cent (even if down from 5 per cent a year ago) is hard to square with a seamless return of inflation to the mid-point of the target. Too great a delay in tightening policy runs the risk of too “sticky” an inflation rate and, as a consequence, a more substantial dislocation in economic activity and in the labour market down the track.

By Stephen Miller, investment stragtegist.

The post US inflation: nothing for the worry Warshs   appeared first on AdviserVoice.

Share markets were mixed over the last week helped by some pull back in oil prices as the US held back from escalting further with Iran, a rebound in tech stocks and specifically chipmakers from oversold levels and the US Fed leaving rates on hold. However, it was a bit messy with only modest gains in US shares despite strong earnings results, a reasonable gain in Eurozone shares, but falls in Japanese and Chinese shares. The heavily AI exposed Korean share market rose strongly later in the week along with chipmakers helped by optimism that the unwinding of leveraged AI trades (including by a hedge fund called Situational Awareness) may be over or nearing an end. It’s the nature of bull markets to see relatively steady gains but then occasional sharp sell offs as investors who are predominantly long unwind their often leveraged positions. Of course the rebound in chip makers and Korean shares could just be a bear market rally so its best approached with some caution. Despite the global volatility Australian shares rose around 2.5% for the week helped by lower than expected inflation adding to expectations that the RBA will leave rates on hold at its August meeting. Gains were led by IT, health, telco, retail and property shares.

Bond yields mostly fell slightly, but as can be seen in the next chart remain in a rising trend. Copper and gold prices rose slightly but iron ore prices fell slightly. Bitcoin was little changed although it remains shaky and yet to confirm that its latest crypto winter is over. It was helped by a slightly softer $US which also saw the $A rise slightly.

Oil prices intially fell sharply early in the past week following Trump’s latest TACO (with the US holding off on further escalation and Trump talking again about a “good chance” of a peace deal) and easing in hostilities but then reversed some of its falls as hostilities resumed, but it still fell over the week.

The combination of high and rising oil prices, ongoing pressure on central banks to raise rates, a rising trend in bond yields and worries about an AI bubble amidst stretched valuations leaves shares at high risk of another correction as we come into the seasonally weak months of August and September. Of course, just as Australian shares didn’t get much benefit on the way up in the AI boom they may not fall as much if and when it does really start to unwind. That said, we remain a bit sceptical that we are at the peak of the AI story just yet as related capex has a way to go and growth in demand for AI is real.

The latest de-escalation and re-escalation in the Iran War seen in the last week just highlights the mess Trump has got himself into with Iran. While he clearly wants to TACO – with key munitions running low, uncertainty about whether more strikes on Iran are achieving anything along with sensitivity about rising gasoline prices and bond yields  – Iran is not so willing to play ball. And so the War continues with more attacks on energy infrastucture and Saudi Arabia joining strikes on Iran, the Strait of Hormuz remaining largely closed and uncertainty about the reliability of Saudi shipping through the Red Sea.

Another peace deal remains our base case with oil perhaps in a $US70-100 range with Iran preventing it going lower and the US moving to try and calm things down whenever it gets above $US100 as happened a week ago. On the latter Trump remains under immense pressure politically as Americans care most about inflation and affordability and not so much the Iran War which is just adding to inflation concerns – see the next chart. However, the risk remains that there will be no sustainable peace deal, the flow of oil out of the Middle East remains down 10-15% on normal levels and that we will have to face ever higher oil prices as reserves run down. This poses ongoing upside risks to inflation and downside risks to economic growth.

This brings us to inflation and rates where the messages over the last week were mixed, but with more of a bias to modestly higher rates:

• The Fed left rates on hold but poor communication is seeing it lose inflation fighting credibility. While relatively benign inflation readings for June gave the Fed cover to leave rates on hold at 3.5-3.75%, which it did, the lack of clear guidance on how the Fed will react, three dissents in favour of a rate hike and the ongoing threat to inflation from higher oil prices is starting to see the bond market fret more about inflation and what the Fed might do with rates. While new Fed Chair Warsh reiterated the Fed’s commitment to the 2% inflation target, this was undermined by a failure to clearly articulate how the Fed would get inflation back to target and what the target actually is along with a misrepresentation as to why bond yields had been trending up. In terms of the latter, he seems to think the bond market is doing some of the Fed’s job for it, which may be partly true but more importantly the rise in yields appears to reflect increased uncertainty about the Fed and an assessment that the Fed will need to raise rates. This is consistent with pipeline inflation pressures from energy and other costs remaining elevated.

• Absent better inflation data in the next seven weeks the Fed will probably have to hike in September with the money market now seeing a 64% chance.

• In the UK, the Bank of England left rates on hold at 3.75% and sounded a bit dovish noting labour market weakness and limited second round effects from oil so far. However, the vote was 6 to 3 in favour of holding verses hiking.
• The Bank of Japan also held at 1%, but revised up its economic growth forecasts, flagged the risk of underlying inflation exceeding its target and indicated that it will continue to raise rates. Another hike is likely by October.
• Money market expectations still lean towards higher interest rates from major central banks although not dramatically so.

• In Australia, lower than expected inflation for June provided relief with the RBA likely to hold in August – but it might just be a false dawn. June inflation fell to 3.8%yoy helped by a 10.9% fall in fuel prices and underlying or trimmed mean inflation remaining at 3.6%yoy. June quarter trimmed mean rose to 3.6%yoy too from 3.5%yoy in the March quarter but was materially lower than the RBA’s expectation for a 3.8% rise providing hope that inflation may have peaked.

• The combination of lower-than-expected inflation along with weaker than expected jobs and housing markets provide scope for the RBA to remain in wait and see mode and so we now expect the RBA will leave rates on hold at its August meeting. We are not as confident as the money market though which sees a less than 1% chance of a hike – we would put it at 30%! However, the RBA is likely to retain a hawkish bias and we continue to expect one further hike by year end because: trimmed mean inflation at 3.6%yoy is still too high with no clear evidence of a downtrend in monthly data; second round impacts of the oil price rise are still in the pipeline with oil and petrol prices up again; housing related costs are still trending up; there are still more items with inflation greater than 3% than less than 2%; and the RBA needs to be more cautious than it was in the last rate cycle because after five years out of six with inflation above target there is now a greater risk of the inflation target losing credibility.

• Out of interest while demand side factors likely drove the bulk of the rise in underlying inflation through 2025-26, supply side cost pressures are now elevated as indicated in our Pipeline Inflation Pressure Indicator for Australia threatening to keep inflation elevated.

On the cost front – petrol prices in Australia look headed to around $2.10 a litre if the Government follows through with its plan to end fuel tax relief on 2^nd August. They have already rebounded to $1.95 a litre from the 30 June low of around $1.53 a litre reflecting the 16 cents a litre from the halving of the 32 cents a litre fuel tax cut from 1 July and the flow through of the rebound in global oil prices. If fuel tax relief ends as scheduled, then petrol prices will rise around another 17 cents a litre (which is the remaining 16 cents a litre along with a 1 cent CPI adjustment). This will push up headline inflation again as well as the cost of the average households’ weekly fuel bill by around $20, although its still well below the levels reached in March.

Vale Bill Evans, former Chief Economist of Westpac. I first met Bill in 1991 soon after he was appointed to the Chief Economist role at Westpac and got to know him on the ABE committee. I quickly learned to highly value his well-reasoned and invariably entertaining insights, particularly in terms of where the RBA was headed. Back in 2011 I was thinking of changing our view on interest rates to be that the next move would be down rather than up which was the consensus at the time – but Bill beat me too it and was completely right! Being with Bill on a panel of economists always led to excellent debate and great fun. I miss him.

Major global economic events and implications

US June quarter GDP growth slowed to just 1.5% annualised but this was due to detractions from trade – as data centre capex sucks in tech imports, a bit like in Australia – and inventories with strong growth in investment and consumption.

Monthly data showed continued solid growth in personal spending, strong growth in capital goods orders and shipments, a slight pickup in home prices but softish consumer confidence and a deterioration in consumer perceptions of the jobs market. Jobless claims remained low.

Meanwhile, US core private final consumption inflation data for June edged down to 3.3%yoy from 3.4% consistent with more benign CPI data already released – but it remains too high.

The US earnings reporting season has now seen around 60% of S&P 500 companies reports with around 87% exceeding expectations. The consensus expectation for earnings growth has now risen to 27%yoy (after adjusting for one off asset revaluations at Alphabet which had blown it out to 38%yoy). Earnings growth is being led by energy and tech companies. So far investors appear increasingly wary though of the AI capex spending boom though.

Eurozone June quarter GDP rose a stronger than expected 0.4%qoq with annual growth improving to a 1%yoy. Spain saw growth of 0.7%qoq with Germany, France and Italy all at 0.2%qoq. Unemployment was flat at 6.3% in June, with May revised up from 6.2%.

Japanese economic data was mixed with strong growth in industrial production and low unemployment but a fall in retail sales. Inflation in July in Tokyo rose to 2%yoy.

Chinese official business conditions PMIs fell in July but are just bouncing around in the same range they have been for the last few years – although services sector conditions might be breaking lower. The July politburo meeting suggests some incremental step up in fiscal support for the economy might be on the way.

Australian economic events and implications

Housing credit growth for June was little changed. It has slowed from its highs, but a further slowing is likely as past rate hikes hit and the Budget tax changes push many investors to the sideline, but its early days yet. Reports from NAB of a 15% fall in home loan applications points to a further slowing ahead as it will take a while to show up in actual housing credit data. Business credit growth remains solid picking up to 10.8%yoy with total credit growth rising to 8.5%yoy. No evidence of a collapse in the economy here – well not yet anyway!

Home price falls accelerated in July. Cotality’s monthly home price data for July won’t be released till Monday, but its daily indexes through to the end of July show a further acceleration in the pace of decline to 0.9%mom for the five big capital cities. This was led by Sydney (-1.4%mom) and Melbourne (-1.2%), Brisbane (-0.6%) and Adelaide (-0.2%) are now going negative with Perth (+0.1%) looking like it is too. The combination of higher mortgage rates, tax hikes on investors, poor confidence and poor affordability are the main drivers. The likely move by the RBA to leave rates on hold at its August meeting will come as a relief but it’s not likely to be enough to arrest the fall in prices just yet as the RBA is likely to retain a tightening bias and we think that it will hike again in November. Overall, we expect a top to bottom fall of 7% in national average home prices, of which they have currently fallen about 2%. Rate cuts next year should start to support property prices, but not till the June quarter next year.

One source of support preventing a deeper slump in property prices is the housing shortfall and this is unlikely to change anytime soon despite a rising trend in home building approvals. Approvals bounced 7%mom in June thanks to volatile unit approvals rising 18%mom. The good news is that the trend is up and is now running at 220,000 annualised which is getting closer to the Housing Accord target to build 240,000 homes a year which is necessary to eat into the shortfall. The trouble is that rate hikes, rising costs and project abandonments will likely see it rollover soon and completions continue to run at much lower levels such that the housing shortage will linger longer.

What to watch over the next week?

In the US, the focus will be on jobs data for July (Friday) which is likely to show a 90,000 gain in payrolls, unemployment staying at 4.2% and benign wages growth around 3.5%yoy. The manufacturing conditions ISM (Monday) and the services ISM (Wednesday) for July are expected to show solid conditions around 54 with price pressures remaining elevated. Job openings data will also be released (Tuesday). Another 170 S&P 500 companies will report June quarter earnings results.

Chinese trade data for July (Friday) is likely to show continued very strong growth in exports and imports.

In Australia, Cotality data for July (Monday) will confirm an acceleration in home price falls to around 0.7-0.8%mom (allowing for a smaller fall in regional prices) with Sydney and Melbourne both down by more than 1%, Brisbane and Adelaide starting to fall and Perth looking like it may be doing the same. In other data, expect the Melbourne Institute’s Inflation Guage for July (Monday) to show a bit of a bounce on higher fuel prices, household spending for June (Tuesday) to rise 0.1%mom and the trade deficit for June (Thursday) to fall to around $2.6bn.

The Australian June half profit reporting season will start to get underway with about 12 major companies reporting including AMP, Resmed and Nick Scali. Consensus expectations are for 2025-26 earnings growth of 12%. However, strength is likely to be narrowly based on a rebound in mining sector profits and solid growth for financials with profits in the rest of the market only likely to see growth of 2.5%. Forward estimates have been falling recently reflecting the impact of rate hikes and cost pressures partly due to higher oil prices so guidance will be watched closely in terms of whether profit expectations will be reduced further.

Outlook for investment markets

Global and Australian share markets are likely to remain volatile with the risk of another correction given the resumption of the Iran War and surging oil prices, stretched valuations, sticky inflation, political uncertainty associated with Trump & the midterm elections and worries about the impact of AI and whether there is an AI bubble. However, returns should still be okay for the next 12 months as a whole thanks to continuing economic growth with recession avoided and solid profit growth.

Bonds are likely to see returns around running yield or a bit less.

Unlisted commercial property returns are likely to be solid helped by strong demand for industrial property associated with data centres.

Australian home prices are expected to fall around 7% top to bottom, of which they have already done around 2%, out to the June quarter next year as a result of poor affordability, RBA rate hikes, reduced investor demand flowing from the winding back of negative gearing and the capital gains tax discount and poor confidence.

Cash and bank deposits are expected to provide returns around 4-5%.

The $A is likely to rise reflecting the wider interest rate differential to the US, although a move to Fed hikes may limit this. Fair value for the $A is around $US0.72.

By Shane Oliver

The post Weekly economic and market update – week ending 31 July, 2026 appeared first on AdviserVoice.

Shane Oliver

Key points

• Despite rising GDP per person, measures of happiness have been flat to falling in western countries including Australia.
• Key drivers are likely to be rising expectations, the rise of social media and falling housing affordability.
• It may be driving the rise of extreme political parties.
• Some suggest we are on an “hedonic treadmill” and want a broader policy focus on something like Gross National Happiness, but by suppressing individual freedom and achievement this could in turn depress happiness.

Introduction

The pursuit of happiness is at the centre of our existence. Along with life and liberty it’s even a central idea upon which the US was founded. And rightly so because happiness is good for us – happy people live longer, are healthier, more resilient, more creative, better leaders and more sociable. And happy countries are less likely to wage war with other countries.

This is where economics comes in. The basic “economic problem” which economics is focussed on solving is: how to maximise utility or satisfaction when human wants are unlimited but resources available to satisfy those wants are limited. Of course, utility is basically happiness, so economics is all about happiness. To borrow from the Dalai Lama, it may be said that economics is really the “art of happiness”. But in the absence of definitive measures of happiness, economists long assumed that consumer spending per person or GDP per person are good proxies which ultimately led economics down a path of focussing on material wellbeing.

The problem is that over the last two decades, despite rising measures of material well-being, measures of happiness have been flat or falling in many developed countries. Indeed, the decline in happiness may be contributing to the rise in support for populist more extreme political leaders, like Trump in the US, and parties like in Australia with One Nation.

Material prosperity has surged

The 19th century saw the start of rapid global economic growth. This really took off in the 20th century as innovations such as electricity, the internal combustion engine and silicon chips came together to rapidly boost productivity. Consequently, real income or Gross Domestic Product (GDP) per person surged.  This in turn led to a massive rise in material prosperity, eg, with: big climate-controlled homes; high speed affordable travel; a high quality and variety of food; a huge array of goods; much longer lives; and instant communication & entertainment. While living standards in Australia may have fallen in the last five years, Australians are substantially better off materially compared to 25 or 50 years ago (see here).

But happiness has been stagnant in recent decades

The next chart compares income and happiness – as measured by surveys of how people see the quality of their lives. People in rich countries are mostly happier than those in poor countries. According to the 2026 World Happiness Report Finland ranks #1 as the happiest, Australia ranks #15 with the US at #23. Lebanon, Zimbabwe and Afghanistan are at the bottom. However, there are diminishing returns to income. At lower levels, extra income can have a big positive impact. But for countries beyond a certain level (around $US50,000), extra income has little impact. Eg, income levels in Switzerland are nearly double NZ but happiness is the same.

What’s more, despite a huge surge in material prosperity there is little evidence that happiness levels in developed countries have improved in the last fifty years. This is illustrated in the chart below for the US which shows the percentage of people who say they are “very happy”, versus real GDP per person. As income has gone up, happiness has gone down.

It’s a similar for Australia – a rising trend in income but falling happiness.

In general, the 2026 World Happiness Report finds that several western countries have seen flat to declining happiness over the last 15 years.

Other findings from the happiness studies are as follows:

• Rich people are happier than poor people, but people compare themselves to others (“keeping up with the Joneses”) so if average incomes rise, they may be no happier.
• Younger people in anglo countries are the least happy. This appears due to the rise of social media driving more anxiety and depression.
• Physical and outdoor leisure, shopping, reading books, seeing relatives, listening to music and attending sporting and cultural events are associated with higher happiness. Time on the internet is not – the higher the rate of social media use the lower the level of happiness.
• Freedom to make life choices contributes to happiness.
• People adapt to their situation: evidence shows we are born with a genetically pre-set level of happiness to which we return to after good events (like winning the lottery) and bad (like having an accident).

Why has happiness fallen?

Explanations for the declining trend in happiness over the last twenty years include: increasing stress associated with the rising complexity of life (e.g. more choices); increasing pressure to “keep up with the Joneses”; rising expectations; falling housing affordability; the rising use of social media contributing to a decline in real human interaction and magnifying grievance and feelings of inadequacy. In particular, some have claimed that most people are on an “hedonic treadmill” of working ever harder to attain material wealth in the belief this will make them happier only to find it doesn’t but resolving to work even harder!

Why not ditch GDP for Gross National Happiness?

These findings present a challenge for economists. If GDP, income and consumption are positively correlated with happiness, then policies to boost economic growth will boost happiness. But, if not, this may be misplaced so some argue economic policy needs to be refocused on broader measures of wellbeing such as Gross National Happiness. This would mean a radical change in economic policy with proposals to boost happiness like: taxing or banning excessive work; re-distributing more income and wealth (because inequality leads to envy and keeps people on the “hedonic treadmill”); reducing the focus on competition and rivalry; spending more money on public goods such as parks; refocussing on community; limiting advertising to information to avoid creating demand for stuff we don’t need; and regulating access to social media.

However, in reality it’s never that simple and there are good reasons to be sceptical of proposals for government policy to target happiness:

• Nationally determined concepts of happiness could be used to justify religious or ethnic persecution and to advance authoritarian aims.
• Just because we get used to something doesn’t mean we should stop doing it. Rising material wealth may not permanently boost happiness beyond a certain level as we adapt to it. But just because the huge increase in healthy lifespans or overseas holidays hasn’t boosted happiness does not mean we should cut health spending & ban travel.
• While material progress may not be boosting happiness, it is doubtful stagnation will either. Curiosity and the desire to advance are fundamental to humanity. Policies to supress them may reduce happiness, by taking away satisfaction derived from achievement.
• Restricting choice in favour of officially mandated happiness guidelines may actually reduce happiness as evidence suggests that freedom to make life choices contributes to happiness.
• Finally, we are partly dealing here with the outworking of success including the rise of social media. Affluence has given people in rich countries the time and money to think about things which can sometimes make them less happy (“too much time on their hands!”) Finding better ways to live with the success, including social media – a bit like the rules around driving cars – is better than reversing it.

There is a danger in trying to legislate for happiness. There is nothing new in the concept that material wealth beyond basic needs won’t lead to lasting happiness. Most religions have long been pointing it out. Buddha observed that most human suffering comes from desire (the Four Noble Truths) and this has to be controlled (with The Eightfold Path) to achieve happiness.  But seeking happiness and enlightenment is up to individuals, not the state (or government). Maybe as Thomas Jefferson implied, happiness is something we have to “pursue”! And the state’s role is to enable that pursuit, while protecting the rights of all other citizens to the do the same.

By Dr Shane Oliver, Head of Investment Strategy and Chief Economist, AMP

The post The economics of happiness – why it’s been falling and what to do about it? appeared first on AdviserVoice.

Global shares came under pressure again over the last week as the Iran War escalated further with Trump talking of a “massive attack”, oil prices surged, expectations for central bank rate hikes rose, the Trump Administration announced more tariffs and IT shares were hit again with worries about the sustainability of AI related earnings and valuations, despite strong earnings results. In terms of the latter on Thursday the Magnificant Seven group of tech stocks fell 4.8%. Combined this saw US and European shares fall. Japanese and Chinese shares came under pressure later in the week but managed modest gains and the AI exposed Korean sharemarket gave up some of its rebound. Renewed global worries weighed on the Australian share market which fell around 0.3%, but with its lower exposure to tech shares providing some protection. Tech, property and mining shares led the falls on the ASX but were partly offset by gains in energy and financial shares.

Bond yields surged over the last week on worries about higher inflation and more rate hikes with Australian and UK 10-year bond yields pushing back above 5%. Iron ore and gold prices fell, but copper prices rose as did Bitcoin although it remains shaky given the softness in shares and a rise in the $US. The latter saw the $A fall back below $US0.70.

The past week has seen a further signficant military escalation in the US/Iran conflict, the Strait of Hormuz remaining effectively closed again and Iran backed Houthis reportedly targeting Saudi shipping in the Red Sea which goes out via the Bab el-Mandeb Strait to the south or the Suez Canal to the north. If the Bab-el-Mandeb Strait is fully blocked oil can get out through the Suez Canal or through an associated pipeline to the Mediteranean but to get to Asia it then has to travel around Africa adding to costs. So the Houthis intervention potentially threatens up to 7 million barrels per day of oil supplies which had been diverted through the Saudi East-West pipeline rather than have to go through Hormuz. See the map below.

So we now need to track shipping moving out of the Red Sea as well.

The signficant escalation in the War and increased disruption to oil supplies has seen oil prices rise further with Brent now back above $US100/barrel – note that intra day Brent and West Texas spiked to around $US1.20 a barrel earlier in the War so we are still below that. But so far this month oil prices are up around $US30/barrel.

The ongoing escalation in the US/Iran War raises the risk again of a bigger stagflationary hit to the global and Australian economies. So far markets seem relatively relaxed with oil prices up sharply from June lows but still below their highs a few months ago and share markets have not had big falls yet. This likely reflects the view that the world can continue to run down reserves, profit growth has been strong and expectations that Trump will sooner or later announce another peace deal capping the spike in oil prices. Another TACO deal is our base case too as a rebound in US gasoline prices which are now back above $US4/gallon will crash Trump’s already low approval rating and the Republicans’ ability to keep the Senate in the mid-terms. Iran may also go along with another deal to buy some more time.

However, the risk is high that there will be no deal and that we will have to face ever higher oil prices as reserves run down – the US Strategic Petroleum Reserve is at its lowest since 1983 and it’s unclear how long China can continue to run on sharply reduced imports – and the global economy has to face a day of reckoning requiring the demand for oil to have fall back to match the fall in daily production levels. This could mean oil prices up to $US150-200 a barrel. It’s not our base case but it’s a high risk again. Ukrainian hits on Russian refineries arguably also now add to the upside risks to global refined oil product prices, particularly diesel.

The combination of surging oil prices, increasing pressure on central banks to raise rates, rising bond yields, AI earnings and valuation worries along with another ramp up in tariff noise leaves shares at high risk of another correction. Much of this turbulence is at the hands of President Trump, highlighting the risks he poses to the economic outlook – in terms of more inflation and less growth – and the threat that poses to share markets. Of course, just as Australian shares didn’t get much benefit on the way up in the AI boom they may not fall as much if and when it does really start to unwind.

In Australia, petrol prices have risen from the 30 June low of around $1.53 a litre to now around $1.82 and could be above $2 early next month. The rise so far reflects +16 cents a litre from the halving of the 32 cents a litre fuel tax cut from 1 July and some flow through of the $US30 a barrel rebound in oil prices. But the rebound in oil prices is yet to fully flow through and at current levels alone could add around another 10 cents a litre to petrol prices. So far, the Treasurer has said that the remaining 16 cents a litre fuel tax cut “will taper off in the first couple of days of August”. If so, it could mean another 26 cents a litre at least added on to petrol prices.

We remain of the view that the RBA will have to raise rates again. Canadian and UK underlying inflation at 1.8% and 2.6% respectively for June released in the last week highlight how out of whack we are globally with underlying inflation at 3.6%yoy in May. Of course, both these countries have higher unemployment at 6.5% and 4.9% which may partly explain the difference compared to 4.4% in Australia. But the problem for the RBA is that the rebound in oil prices with a potentially greater flow through to underlying inflation will see inflation potentially stay higher for longer, threatening higher inflation expectations making it even harder to get inflation back to target. This is already a big worry as, including this year, inflation will have been above the 2-3% target for five the last six years, which risks blowing the credibility of the inflation target. Jobs data for June was mixed but will likely still see the RBA characterise the labour market as a “bit tight” which in turn should clear the way for another rate hike next month. So, our base remains for an August rate hike, but with uncertainty about the growth outlook and home prices falling we see it as a close call. However, we would still see a further hike as being necessary this year even if the RBA does decide to pause so as to “wait and see” again next month. Next week’s inflation data for June will be key though. Another rise in trimmed mean inflation to 3.7%yoy or more will reinforce the case for another hike whereas an outcome around 3.5%yoy or less could weaken it.

RBA survey findings that only 25% of people correctly assess that higher interest rates will ultimately slow inflation and more than 50% think it will add to inflation are not particularly surprising. I have even had colleagues who think that! But it does mean that the RBA has to hike more than otherwise would have been the case if more understood how interest rates impact inflation. Which in turn highlights the need for more economic and financial literacy in Australia. But I doubt Australia is much different to other comparable countries in this regard.

Meanwhile with around two thirds of respondents citing inflation as their main concern, and this particularly being the case amongst lower income households, the RBA is right to be focussed on getting it back down, ie not just because it’s part of their mandate.

Major global economic events and implications

It was a quiet week in the US for data releases, but jobless claims remained low. So far 87.5% of companies to have reported US June quarter earnings have exceeded expectations, but it’s still early days with only 25% of S&P 500 companies having reported so far. The consensus expectation for earnings growth has now risen to around 37%yoy and is likely to end up around 40%yoy! Earnings growth is being led by energy and tech companies. So far investors appear increasingly wary of the AI spending boom with Alphabet beating but its shares fell 7% following the announcement of more AI related capital spending.

The past week saw more tariff announcements from the US, including confirmation that the temporary Section 122 10% tariff which expired on Friday 24 July will be replaced with 10% and 12.5% tariffs depending on the country under Section 301 to counteract allegations of “forced labour”. It’s all a bit of a joke because even if a country has an outright ban on forced labour imports, they still get a 10% tariff –  but I guess the Trump Administration had to make up something to get back the tariffs that were struck down by the Supreme Court! And coming on the back of the 25% tariff on Brazil, Trump announced a 50% tariff on Canadian autos, dairy and alcohol after getting annoyed by smoke over US cities from Canadian bushfires and a tariff on generic drugs of 100% in two years and 200% in three years. Some of these may or may not eventuate and there are so many exemptions for Canadian goods that the impact will likely be minor. That said the bigger picture is the replacement of the Section 122 10% tariff with a 10% or 12.5% tariff under Section 301 to counteract allegations of “forced labour”. Further Section 301 tariffs to counteract alleged excess capacity and unfair practices in countries like China and Europe are likely in the months ahead. Once multiple exemptions across various goods and substitution from high to lower tariffed countries are allowed for the end result is that the average US effective tariff rate will end up being around where it was before the Supreme Court struck down the reciprocal tariffs in February, ie around 11% which is down from the 30% or so which was threatened post Liberation Day but up from the pre-2025 level of around 2.5%. The key is that US tariffs will remain a longer-term threat to global trade and US costs and efficiency but a new short-term disruption for share markets is unlikely.

Australia is illogically caught up in the forced labour tariff with a rate of 12.5% along with countries like Japan, Korea, Switzerland and the UK. As such we will lose our relative advantage versus countries like Europe that will only be tariffed at 10%. However, this likely won’t be for long as Europe and many other countries will likely be subject to the excess capacity tariffs when they start whereas Australia probably won’t be. And in any case around two thirds of our products by value going to the US are exempt anyway – eg gold, beef, copper and blood plasma – so the effective tariff on Australian exports to the US will remain way below 12.5%. So, the impact on Australia will be very mild – just like the tariffs last year were.

Canadian inflation fell more than expected in June with a fall in energy prices pulling headline CPI inflation down to 2.8%yoy from 3.2%, and the key underlying measures of inflation falling just below the 2%yoy target. This will keep the Bank of Canada on hold for now, although the rebound in oil prices still points to upside risk ahead.

Similarly, UK CPI inflation also slowed more than expected in June to 2.6%yoy from 2.8%. Core inflation remained stuck at 2.6%yoy though. This leaves the Bank of England on hold for now but still potentially having to raise rates at some point as inflation remains above target.

Meanwhile, Andy Burnham has been confirmed as UK PM with a left leaning agenda. The reality though is that his ability to hike taxes and spend on new programs is limited by already high tax and spending shares of GDP. And his ability to borrow and spend is limited by a high budget deficit (more than three times that in Australia as a share of GDP) and high public debt (double that of Australia as a share of GDP) so any significant increase in the budget deficit would threaten another Liz Truss sell off in UK bonds. In fact, UK bond yields are already well above where they spiked to when Truss was briefly PM in 2022.

The Eurozone Central Bank left rates on hold at 2.25% as widely expected but commentary and guidance leaned hawkish with concern about the full inflationary impact of the oil supply shock. A September hike looks highly likely with a strong possibility of another one before year end.

Japanese CPI inflation rose to 1.7%yoy in June, with core rising but only to 1.2%yoy.

New Zealand June quarter inflation rose more than expected to 4.1%yoy reflecting the lagged impact of the higher energy prices with some measures of underlying inflation asor rising. This keeps the RBNZ on track for two more rate hikes this year with the next in September.

Australian economic events and implications

Jobs data for June as mostly very strong again. Employment rose by 76,300 after 44,000 in May, full time employment and hours worked were strong, labour force participation rose to near a record high and unemployment remained relatively low at 4.4%.

Against this, underemployment rose again as did the underutilisation rate suggesting a bit more spare capacity in the jobs market and the rise in participation could also reflect “cost of living pressures. And it’s possible that the rise in employment was exaggerated by statistical noise. All of which could give the RBA reason to remain in “wait and see” mode on rates. But overall, the RBA is more likely to see the jobs market as still a “bit tight” leaving space for higher rates to control inflation.

Australian business conditions PMIs for July rose 2.2pts to an okay 52.6 with gains in services, employment and orders, which is surprising given the rebound in oil prices. Input price pressures fell but output price pressures rose and remain high, which is a concern for inflation.

What to watch over the next week?

In the US, the Fed is expected to leave rates on hold at 3.5-3.75% (Wednesday) with softer June CPI inflation data providing a bit of breathing space. However, the commentary is likely to lean hawkish with some dissents possible in favour of a rate hike and many Fed officials lately appearing to lose patience with inflation. Expectations for a September hike are likely to firm. On the data front in the US, expect continued strong underlying growth in capital goods orders (Monday), a slight rise in consumer confidence but a further slowing in home price growth (Tuesday), a slight pick up in June quarter GDP growth (Thursday) to 2.3% annualised, continued solid growth in personal income and spending in June (also Thursday) and a slight moderation in employment cost growth in the June quarter (Friday). Core June private final consumption deflator inflation (Friday) is likely to slow slightly but remain elevated at 3.3%yoy. And the US June quarter earnings reporting season will ramp up.

Eurozone June quarter GDP growth is likely to be 0.2%qoq with unemployment holding at 6.2% (both Thursday). CPI inflation for July (Friday) is likely to have risen to 2.9%yoy reflecting the rebound in fuel prices but core inflation is likely to have remained around 2.4%yoy.

The Bank of England (Thursday) is likely to leave rates on hold at 3.75%, lean somewhat hawkish given the renewed threat to inflation from the rebound in oil prices.

The Bank of Japan (Friday) is expected to leave rates on hold at 1%, but signal that further tightening is likely this year.

Chinese business condition PMIs for July will be released Thursday and are likely to remain around the 50 level.

In Australia, the focus will be on June inflation data. Monthly inflation is likely to have remained at 4%yoy with a sharp fall in fuel prices but solid increases for new dwelling costs, rents and holiday travel with trimmed mean inflation rising slightly to 3.7%yoy. The quarterly trimmed mean inflation rate, which is what the RBA will mainly focus on, is expected to rise to 3.8%yoy, from 3.5% in the March quarter. Being consistent with the RBA’s forecasts this will leave the door open to another RBA rate hike in August. June home building approvals (Thursday) will likely see another fall on the back of rate hikes and credit data (Friday) will likely show a further slowing in housing credit growth. Addresses by RBA Governor Bullock and Chief Economist Hunter will be watched for any clues as to the outlook for interest rates.

Outlook for investment markets

Global and Australian share markets are likely to remain volatile with the risk of another correction given the resumption of the Iran War and surging oil prices, stretched valuations, sticky inflation, political uncertainty associated with Trump & the midterm elections and worries about the impact of AI and whether there is an AI bubble. However, returns should still be positive for the next 12 months as a whole thanks to continuing economic growth with recession avoided and solid profit growth.

Bonds are likely to see returns around running yield.

Unlisted commercial property returns are likely to be solid helped by strong demand for industrial property associated with data centres.

Australian home prices are expected to fall around 2% this year and by 6% over the next 12 months as a result of poor affordability, RBA rate hikes, reduced investor demand flowing from the winding back of negative gearing and the capital gains tax discount and poor confidence. This will mean roughly a 7% top to bottom fall.

Cash and bank deposits are expected to provide returns around 4-5%.

The $A is likely to rise reflecting the wider interest rate differential to the US, although a move to Fed hikes may limit this. Fair value for the $A is around $US0.72.

By Shane Oliver

The post Weekly economic and market update – week ending 24 July, 2026 appeared first on AdviserVoice.

Shane Oliver

Key points

• The first half of this year saw good share market returns despite the oil supply shock on the back of the US/Iran War.
• We remain upbeat on a 12-month view but see a high risk of another correction in the short term.
• Nine key charts worth watching are: business conditions PMIs; inflation; inflation expectations; ship traffic through the straits of Hormuz and Bab el-Mandeb; global oil reserves; oil prices; profit growth; Korean shares and the AI boom; and bond yields and share market valuations. They are sending cautious signals.

Introduction

Share markets had a strong first half despite the oil supply shock as expectations for de-escalation, okay economic data, strong profits and the AI boom provided an offset. This note looks at nine key charts worth watching going forward, particularly with the Iran War escalating again and concerns about the sustainability of the AI boom.

Chart 1: Global business conditions PMIs – okay

With the War escalating again with strikes from both sides back to including energy infrastructure and oil on the way back up the risk of recession globally and in Australia is now rising again. The historical experience indicates that if recession is avoided any fall in shares will be relatively short term in nature. Business conditions PMIs – surveys of business conditions globally – will provide a key early warning. At present they are okay.

Chart 2: Inflation (and hence interest rates) – negative

While underlying inflation is around target in Europe and Canada, in the US, UK and particularly Australia its well above target. The fall in oil prices had taken some pressure but now it’s on the rise again threatening a flow on to underlying inflation and inflation expectations at a time when many US Fed officials are losing patience with inflation and the RBA still retains a tightening bias. The rebound in oil prices threatens higher interest rates, which would be a drag on shares. So underlying inflation is key to watch.

Chart 3: Inflation expectations – slight negative

The oil shock on the back of the 2022 inflation surge, US tariff hikes and cost of living pressures runs the risk that inflation expectations move higher making it harder to get inflation down. So far there has only been a mild rise in the US and Australia, but a further rise would justify more rate hikes.

Chart 4: Shipping through Hormuz & Bab el-Mandeb

The Strait of Hormuz is effectively closed again. This would normally see 20% of global oil supply, or 20 million barrels, flow through every day. With diversions – using the Saudi East-West pipeline to the Red Sea and the UAE’s pipeline to Fujairah – the hit to supply is around 12-13 mbd. So far the world has seen little impact as it’s been running down reserves but this has a limit and the more Iran is pressured the greater the risk it attacks Fujairah and/or its proxy Houthi Rebels will block the Bab el-Mandeb Strait, the southern exit from the Red Sea – both of which would disrupt the Hormuz bypasses and speed up the rundown of oil reserves. So shipping through these two straits remains key to watch.

Chart 5: Global oil reserves – slight negative

So far, the rundown in oil reserves looks modest based on IEA data. But this likely understates the fall given uncertainty about Chinese reserves.

Chart 6: Oil prices – negative

So, the longer the oil production hit continues the more oil prices will rise.  Rough estimates suggest that to offset a 12% hit to global production will ultimately require an oil price of around $US150 a barrel. This would risk much higher inflation and rate hikes and possibly recession. So far, we are well below that at around $US90 for Brent. There are no easy solutions for Trump now – ensuring Iran does not have an ability to block Hormuz or develop nuclear weapons will come at a cost Trump is not prepared to take (including US lives lost and another “forever war”) but backing down risks ceding Iran control of the Strait. Political pressures into the mid-terms may soon force him to dress up another TACO peace deal and then maybe have another go at it after the elections. This could cap oil below $US100 but uncertainty is high.

Chart 7: Company profits – positive

Consensus 12-month earnings expectations remain strong. This is helping support stretched equity valuations so any slippage could be a concern.

Chart 8 – Korean shares & the AI boom – cautious

Because of its exposure to computer chip production (via Samsung and SK Hynix), the Korean share market has sometimes been referred as Dr Kospi in that trends in it can be a positive or negative sign for the IT sector. Until recently it was being boosted by surging chip demand from the AI boom but recently faltered with a 28% fall. This could just be a correction and profit taking after doubling year to date and its forward PE ratio is just 6-7 times, but an ongoing slide could be a warning sign for the US AI boom. Particularly, with the risk that another Chinese AI company – Moonshot with its Kimi K3 AI model – may be a competitive threat to US AI labs.

Chart 9: Bond yields & share valuations – negative

For the last 18 months or so US and Australian share valuations have been stretched offering little prospective risk premium over bonds. So apart from keeping on eye on earnings growth which needs to remain strong, bond yields are also worth watching because a continuation of the recent rising trend would be bad news for share market valuations.

By Dr Shane Oliver, Head of Investment Strategy and Chief Economist, AMP

The post Nine key charts for investors to keep an eye on amidst oil and AI worries appeared first on AdviserVoice.

Global shares were mostly softer over the last week as the Iran War escalated again with oil prices up and worries remained around AI related earnings and valuations. Eurozone shares rose slightly and the US share market only fell around 0.4% but Japanese and Chinese shares saw sharp falls. The renewed surge in the oil price along with a fall in BHP shares on the back of a weak production outlook for copper and a strike at Port Hedland saw the Australian share market fall but only by around 0.3%. with gains in retail, telco, energy and bank shares partially offsetting falls in IT, mining and consumer staple shares.

Pressure remained on Korean shares which are down 25% from their high on worries about a bubble, profit taking after shares more than doubled, heavily leveraged retail investors closing positions, tightened regulations around buying singe stock leveraged ETFs and not helped by the Bank of Korea raising rates with more hikes likely. But with surging earnings the forward PE is now around 6-7 times!

Bond yields were mixed over the last week – up in Europe and Australia but down in the US and Japan. The $A rose slightly to around $US0.70 as the $US was little changed. The iron ore price rose slightly but remains around $US100 a tonne, but copper, gold and Bitcoin fell. Bitcoin continues to hold above technical support around $US60,000 but has so far failed to rise above its 50 day moving average and looks weak like its still in a “crypto winter”.

Following the end of the US/Iran peace deal and the renewed escalation in the conflict, the Strait of Hormuz is effectively closed again with Iran attacking ships and the US attacking Iran and blockading its ports. Trump at one stage added to confusion with a plan to impose a 20% fee on the value of cargo on ships transiting the Strait but that ridiculous idea was quickly dropped.

This in turn has seen oil prices rebound, although they are well below their highs – note that intra day Brent and West Texas spiked to around $US1.20 a barrel earlier in the War.

The resumption of the War begs the question of what has been achieved? Iran is arguably now stronger having proved it can block the Strait, its government is more hardline, there is no resolution to its nuclear ambitions and it still has missiles and drones! There are parallels with the Ukraine and Vietnam wars which showed a superior military power can be challenged – but of course they did not threaten the global economy to the same degree!

The relatively moderate response in the oil price and in share markets so far likely reflects the relatively benign experience since the War started and the assumption that the same will continue to apply. In particular:

• The hit to global oil production has been less than implied by the blockage of the Strait (which would normally mean a 20% hit to oil and gas supplies – ie a 20 million barrels a day reducton in oil supplies) as some was able to bypass the Strait by flowing through the Saudi East-West pipeline to the Red Sea (which has 7 million barrels per day of capacity) and the UAE’s Fujairah pipeline (1.5-2 mbd capacity) and production picked up in other countries. So the hit to production is more like 12-13mbd rather than 20mbd. And the fall in production as seen in the next chart was from a spike higher through last year which led to a reserve build up.

• Global oil demand has fallen around 5% (or 5mbd) as a result of efficiencies and an increase in demand for EVs. See the Australian data section below.
• The world has been able to run down oil reserves which had been built up ahead of the War. The next chart may understate the rundown – which could have taken us back to around the 2022 lows. But this is what the International Energy Agency’s data says.

• Despite a hit to confidence economic data has mostly held up pretty well and expected profit growth remains strong, helped by the AI boom of course.

• Investors are assuming another TACO as there are constraints on both the US – with Trump’s approval rating likely to collapse anew and lead to Republicans losing both the House and Senate in the midterms if the gasoline price surges again – and on Iran –  which wants to keep pressure on Trump but not so much he decides to wipe out its government. Trump has been claiming that Iran wants to talk peace again..which usually means he wants a deal!

The final point suggests some sort of range for oil prices maybe around $US70-90, with another TACO “peace” deal if we get to the high end.

But the risk is now high for the global economy and share markets as oil reserves head even lower. The strikes on Iran are intensifying and if really pushed it may attack the UAE port of Fujairah again and could fire up the Houthi’s to block the Bab el-Mandeb Strait out of the Red Sea. Which would severely disrupt the oil bypass routes. So we are back to where we were before the peace deal in that the longer the Strait remains closed or the War escalates the greater the risk that oil prices will have to rise to around $US150/barrel to bring demand down to match the hit to supply. This is not our base case but it’s a high risk again. This leaves US and hence global and Australian shares at high risk of another correction in the seasonally weak months of August and September.

In Australia, petrol prices have risen from the 30 June low of around $1.53 a litre to now around $1.72. This reflects the halving of the 32 cents a litre fuel tax cut from 1 July and some flow through of the rebound in oil prices. But the rebound in oil prices is yet to fully flow through and could add around another 10 cents a litre to petrol prices. It’s likely that the Government will delay the removal of the remaining 16 cent a litre fuel cut beyond 2 August.

While the rebound in oil prices boosted concerns that central banks might have to raise interest rates, this was partly offset in the US by weaker than expected June inflation data. Thanks to lower energy prices last month the headline CPI actually fell in June seeing its annual rate of increase drop back to 3.5%yoy and core inflation was flat leading to a drop to 2.6%yoy from 2.8%yoy. Producer price inflation has also moderated. This in turn points to June annual core private final consumption deflator inflation, which the Fed targets, dropping to 3.3%yoy from 3.4%yoy.

The softer inflation readings for June give the Fed a bit of breathing space for its July meeting to leave rates on hold. While Chair Warsh sounded hawkish in Congressional testimony, he offered little in terms of how he will get inflation back to target but he did reiterate his view that AI will ultimately push inflation down and for now he has a bit of leeway given the softer inflation readings for June. Influential NY Fed President Williams also indicated that he thinks inflation has likely peaked. A risk for the US though is that the inflation relief proves short lived as the rebound in oil prices persists and as the AI boom continues to boost tech related prices in the near term. On this front it’s noteworthy that Fed Governors Waller and Cook indicated they are losing patience with inflation and some regional presidents look to supporting a hike in rates. So, while the Fed is likely to leave rates on hold this month there are likely to be some dissents in favour of a hike and a September move is a close call. The US money market still expects at least one hike by year end.

I am not a great fan of historical overlay charts like the next one for US inflation – but the US and the global economy does seem to have become more inflation prone (thanks to deglobalisation, rising defence spending, bigger government, etc). So, the risk of another up wave in inflation can’t be ignored if central banks get too relaxed.

Unfortunately, Australia remains a standout in terms of core or underlying inflation, highlighting why we continue to see the RBA raising rates further this year. The money market is back to seeing a 65% chance of a hike by year end.

A Little Less Conversation (A Little More Action) first appeared in Elvis’ 1968 rom-com Live a Little, Love a Little but was remixed by JXL in 2002 reaching No 1 in Australia. Nearly 60 years after the original here’s a brand-new Josh Wildfire remix of it. It’s what we need in terms of economic reform to get living standards sustainably rising again!

Major global economic events and implications

US economic data was mostly solid. Consumer spending looks to be remaining solid with strong underlying retail sales growth in June, jobless claims remain low and business conditions in the New York and Philadelphia regions are strong in July. Against this the July NAHB home builders’ conditions index remained weak. Meanwhile, the Fed’s Beige Book of anecdotal evidence reported a slight upgrade in growth to “slight to moderate” and that price pressures are still elevated but may have moderated, albeit this may be dated given the renewed escalation in oil prices.

The Bank of Canada left rates on hold at 2.25%. This reflects underlying inflation running around its 2% target and unemployment at 6.5%. With underlying inflation around target its likely to be on hold for a while yet.

China’s economy slowed more than expected. June quarter GDP rose 0.9%qoq or 4.3%yoy, down from 5%yoy. This likely reflected the impact from the oil supply shock, slower public spending and bad weather. However, June data was mixed with a fall in investment, an ongoing property slump and slowing credit growth, but industrial production and retail sales growth picked up a bit. Policy measures are still needed to boost consumer spending and the housing sector, but are likely to remain incremental unless the oil shock goes on for several more months.

Australian economic events and implications

Consumer confidence bounced 4% in July helped by the fall in petrol prices and talk that interest rates might have peaked. The renewed rise in oil prices and its flow through to petrol prices suggest that the bounce may be short lived.

The Westpac/MI consumer survey showed a further fall in home price expectations, and consumers still see now as a poor time to buy a dwelling although it’s up slightly.

The June NAB business survey showed unchanged business conditions at below average levels, with a rebound in confidence helped by the fall in fuel prices but to still weak levels.

Labour cost pressures increased on the back of the rise in minimum and award wages, but purchase costs and final product price pressures fell further. This is good news and on its own would support the RBA leaving rates on hold, but its vulnerable to the latest rebound in oil prices.

The impact from the oil supply shock can be seen in the next chart. EVs are now over 20% of new car sales and together with hybrids are nearly 50%.

What to watch over the next week?

Business conditions PMIs for developed countries will be released Friday and are likely to show some deterioration and rise in cost pressures reflecting the breakdown in the US/Iran peace deal and rebound in oil prices. They are likely to remain in the same range as recently though consistent with global growth around 3%.

The US June quarter earnings reporting season will ramp up with the consensus expecting growth around 24%yoy, after 29% in the March quarter. Key to watch will be the AI capex boom and price pressures. Growth is expected to have been led by energy and tech companies.

In the US the temporary Section 122 10% tariff imposed after the reciprocal tariffs were struck down in February expires this coming Friday. They are likely to be replaced by permanent Section 301 tariffs levied on a country, sector and issue specific basis (like the new 25% tariff on Brazil and the forced labour tariff proposed a few months ago) which will likely see the effective tariff rate (after exemptions and substitution) settle around 10% – down from above 30% after Liberation Day but above the pre-2025 level of around 3%. Announcements are likely in the next week but there could be a gap between the Section 122 expiry and the startup of some Section 301 tariffs – so there may be a brief tariff free period. The key is that US tariffs will remain a longer-term threat to global trade and US costs and efficiency but a new short-term disruption is unlikely. The proposed (and laughable!) 12.5% forced labour tariff on Australia will hopefully be lowered back to 10% – but either way the impact on Australia will be mild.

Canadian inflation for June (Monday) is likely to have fallen to 3%yoy with the core measures staying around 2%.

The ECB (Thursday) is expected to leave rates on hold at 2.25% after hiking at its last meeting with core inflation close to target but it’s likely to retain a tightening bias.

Japanese inflation for June (Friday) is likely to have risen to 1.7%yoy, with core inflation rising slightly to 1.4%yoy.

New Zealand June quarter inflation (Tuesday) is likely to rise to 4%yoy.

In Australia, expect June jobs data (Thursday) to show an 18,000 rise in employment with unemployment at 4.4%.

Outlook for investment markets

Global and Australian share markets are likely to remain volatile with the risk of another correction given the resumption of the Iran War and blockage of the Strait of Hormuz, stretched valuations, sticky inflation, political uncertainty associated with Trump & the midterm elections and worries about the impact of AI and whether there is an AI bubble. However, returns should still be positive for the next 12 months as a whole thanks to continuing economic growth with recession avoided and solid profit growth.

Bonds are likely to see returns around running yield.

Unlisted commercial property returns are likely to be solid helped by strong demand for industrial property associated with data centres.

Australian home prices are expected to fall around 2% this year and by 6% over the next 12 months as a result of poor affordability, RBA rate hikes, reduced investor demand flowing from the winding back of negative gearing and the capital gains tax discount and poor confidence. This will mean roughly a 7% top to bottom fall.

Cash and bank deposits are expected to provide returns around 4-5%.

The $A is likely to rise reflecting the wider interest rate differential to the US, although a move to Fed hikes may limit this. Fair value for the $A is around $US0.72.

By Shane Oliver

The post Weekly economic and market update – week ending 17 July, 2026 appeared first on AdviserVoice.

Stephen Miller

The financial market commentariat would have us believe that Federal Reserve Chair Warsh’s Congressional testimony was “hawkish”.

Fair enough! Despite a benign June consumer price index (CPI) report and last night’s benign producer price index (PPI) report, Warsh noted that it didn’t follow that it was ‘mission accomplished’ on inflation. He added for good measure that the Fed’s interest rate setting committee had ‘no tolerance for persistently elevated inflation’ and further, were united in ‘a resolute commitment to restoring price stability’.

I would note that it would be highly problematic for a central bank chair to communicate anything other than a ‘resolute commitment’ to fighting (what appears to be elevated and “sticky”) inflation.

Warsh gave nothing away regarding the likely Fed stance that will emerge from the next meeting of the Fed’s interest rate setting committee on July 28-29. (For what it is worth, markets dialled down their expectations of a tightening at the July meeting to a trivial level in the wake of the benign inflation reports but are still pricing slightly more than one further tightening before year-end).

All in all, Warsh’s comments are consistent with the notion that statements from this Fed Chair may well assume a more Delphic quality than that to which financial markets have become accustomed.

Warsh has indicated a strong antipathy for central bank “forward guidance” and by implication, the utility of the Fed’s “dot plot”. He did not submit a “plot” at the most recent Fed policy meeting and has made it clear that he doesn’t put too much store in the accuracy of the “plot”.

In essence, Warsh appears to doubt that the “dot plot” is additive to the information set of the Fed or markets. Indeed, he implies that in some instances the exercise is possessed of a certain disutility, insofar as such projections are innately ephemeral and create a damaging facade of an anchoring mechanism that bears no relation to unfolding reality.

In this sense it might be that to the extent that markets have inferred a tactical “hawkish” tilt under Warsh, it might be misplaced.

What Warsh has articulated is a desire to reframe the Fed’s strategic direction via the establishment of a series of taskforces covering communication, Fed balance sheet management, a review of data sources, productivity and jobs, and inflation drivers and measurement.

Having said that, to the extent that one could draw any conclusions regarding the benign June inflation reports it is that they appear to be some way from necessitating an increase in the Fed policy rate.

Inflation, however measured, is still north of the Fed’s 2 per cent target but looks to be trending (very grudgingly) downward despite tariff impacts and the surge in oil prices in the wake of the Iranian conflict. Of course, it might be argued that with respect to oil prices, the jury is still out when it comes to potential contagion effects on broader inflation and inflation expectations, particularly in the wake of the reescalation of the Iranian conflict.

The taskforces on productivity and jobs and price and inflation frameworks play into a theme that Warsh has in the past been quite vocal about. Specifically, Warsh conjectures that disinflation in the US will follow from tremendous (largely AI motivated) investment. In Warsh’s view that investment has wrought a productivity dividend that (other things equal) has raised the US economy’s “speed limit”. In other words, the US economy can grow at faster rate before igniting inflationary pressures.

The notion that AI driven productivity growth can constrain inflation is a credible – if debateable – position. Some worry that the huge capex requirements associated with AI might in the short-term put demand pressure on inflation.

What is also interesting is that when it comes to inflation measures, Warsh has indicated that he prefers the Dallas Fed trimmed-mean measure of the PCE. That measure was 2.4 per cent in in May, a full percentage point below the traditionally preferred core PCE at 3.4 per cent and occurs despite those aforementioned broad-based price pressures emanating from the Trump tariff agenda and oil price increases. Like other measures, the Dallas Fed inflation measure is still north of the Fed’s 2 per cent target for “inflation” but further away from mandating a policy rate increase than the traditionally preferred measure.

If that remains the case (an admittedly big “if”) and if Chairman Warsh can convince other FOMC members of the veracity of his viewpoint (a similarly big “if”) then a policy rate hike might be a more remote prospect than markets currently contemplate.

Further, Warsh’s more strategic focus might mean less frequent policy adjustments than have been seen in the past.

Instead, an extended period of a stable policy rate might be a more credible scenario.

By Stephen Miller, investment strategist

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