Iran: A waiting game…
The conflict with Iran has hardened into a standoff. The US is blocking Iran's ports; Iran is returning the favour by closing the Strait of Hormuz - the narrow shipping lane a large share of the world's oil normally passes through. Neither side is in a hurry to blink. Iran is betting that pain at the petrol pump will crank up political pressure on Trump as the US midterm elections approach. Washington is betting that economic pain drags Tehran to the table first. For now, we watch and wait.
You'd expect all this to send oil through the roof. It hasn't. West Texas crude rose 5% last week to US$82.40 a barrel - up, but hardly a crisis.
A few things are keeping a lid on prices. Demand has softened in parts of Asia. Pipeline routes are letting Middle East oil sidestep the Strait entirely. The world has been drawing down the oil it had in storage. And there's a quirk worth knowing: we can pump plenty of crude, but there aren't enough refineries to turn it all into petrol and diesel. That bottleneck caps how much crude anyone actually needs - even while the price of the finished fuel keeps climbing.
The brighter news: inflation and the Fed…
The economic data was the better story. Underlying US inflation - the measure that strips out the noisiest price swings - rose just 0.2% in July, nudging the annual rate down to 2.5% from 2.6%. That's tame enough to keep the US Federal Reserve sitting on its hands at next month's meeting, and my base case is unchanged: no US rate hikes this year. That's supportive of shares, bonds and gold - though it may take some steam out of the US dollar after its strong run.
The RBA holds, but leaves the door open…
After a strong stretch, Australian shares lagged last week, weighed down by a soft economic outlook and nagging worries about a rate hike.
As expected, the Reserve Bank left rates on hold - but pointedly warned that inflation, and therefore rates, could still surprise on the high side. The way I read it: rates stay put as long as the RBA doesn't have to mark up its inflation forecasts again. Right now those forecasts pencil in inflation gains of around 0.8% a quarter over the next two quarters - the same pace as last quarter - which looks achievable provided the economy keeps cooling gently rather than reheating.
The rest of the data stayed subdued. NAB's business survey showed confidence stuck below average. Home loans fell 5% in the June quarter, with lending to property investors down a steeper 10%. And anyone hoping first-home buyers would come charging back was left disappointed - that lending was essentially flat. Commonwealth Bank's results told a similar story.
Locally, utilities, energy and technology led the market, part of a gradual shift back toward resources and away from the banks. There are also early, tentative signs that smaller companies and tech are finding their feet again.
Wages and jobs…
Wednesday brings the June-quarter wages figures. Wage growth has held steady at around 3.3% since late 2024, even as unemployment crept up from 4.0% to 4.4%. As the job market softens, wage growth should eventually ease toward 3% or a little below - which would, in turn, help cool the stubborn inflation still lingering in services. But it's probably too soon to see much of that slowdown in this week's numbers.
Thursday brings the July jobs report. After June's surprise 76,000 surge in employment, something more modest - or even a small fall - looks likely. Another big gain would unsettle the RBA, since it would suggest the economy still has more momentum than the Bank would like.
One figure worth watching is underemployment - the share of people working fewer hours than they'd like. It's been ticking higher lately, a quiet sign that the job market isn't quite as tight as the headline numbers suggest.
Rick Maggi CFP, Financial Advisor (Perth)