Weekly recap
What happened in markets
The Australian sharemarket was choppy last week, however, managed to add 0.2%. The local index advanced 2.6% over the course of August, which is the fifth consecutive month of gains. Main drivers throughout the week were a hotter than anticipated monthly inflation print, earnings announcements and profit taking also a key focus. The Energy (3.0%) and Materials (2.7%) sectors outperformed supported by strong commodity prices, while Health Care and Telecommunications dragged on the market, both falling 1.8%. All major commodities ended the week higher, with gold rallying 2.3% and copper 1.7%. Stock standout was Nextdc, which advanced 14.9%, after delivering a 14% increase in net revenue and a record number of contracted sales, exceeding expectations.
US sharemarkets eased last week, attributed to mixed earnings announcements along with continued political noise. The Federal Reserve’s independence was put in the spotlight after President Trump fired Governor Cook, which is now being challenged in court. On the other hand, economic data pointed to a steady economy with personal spending and the core measure of inflation both coming in as expected, while GDP was revised higher. Key earnings announcement last week was from NVIDIA (-2.4%). While the chip company beat expectations and delivered strong guidance, it was not as high as what the market had hoped for.
European sharemarkets fell last week, as French politics dominated. French Prime Minister Bayrou called a confidence vote for next week, due to his controversial austerity budget (aimed to reduce the government deficit), which proposed cutting public holidays and freezing some social benefits. Minutes from the latest European Central Bank policy meeting reinforced rates will remain on hold for now, while a higher for longer narrative plays out with the Bank of England. The Banks (-0.9%) and Basic Materials (-0.6%) sectors were the main detractors.
Stock & sector movements
What caught our eye
Every August the world’s top central bankers meet in the US mountain town of Jackson Hole. It is a small annual retreat run by the Kansas City Federal Reserve. No decisions are taken there, yet the speeches often hint at what comes next for interest rates.
What Powell Said
Chair Jerome Powell kept the tone calm and careful. Inflation has come down a long way from the post pandemic spike, and the Fed will keep moving step by step while watching the data on prices and jobs. The door is open to rate cuts, and the path will be measured rather than rapid.
Our Base Case
We expect the Fed to cut by 0.25% at its September meeting, then pause to take stock. Any further moves would likely be spread over later meetings and shaped by incoming data. This approach fits a world where inflation is lower than it was, but has not yet settled at the 2% target.
Why the Labour Market Matters Now
New tariffs are pushing up some goods prices, which makes monthly inflation numbers noisy and harder to read. Because those price signals are muddy, the labour market is the cleaner guide. The Fed’s dual mandate is inflation and employment, and the labour backdrop has cooled from very strong levels. Hiring has slowed, unemployment has edged up from its lows, and wage growth has eased. If that cooling continues the case for more cuts strengthens. If jobs hold up the Fed can sit tight after a first move.
Independence Under Pressure
There is also a political layer. Donald Trump has been very public in calling for lower rates and has taken steps that challenge, or appear to challenge, the Fed’s independence. We are watching this closely because any permanent damage to the Fed’s independence has the potential to cause volatility in global financial markets. The more visible the pressure, the more likely the Fed is to emphasise a cautious and transparent approach that is clearly driven by data.
Looking Ahead
Expect a gradual easing in US interest rates rather than a dash to the finish line. With tariffs clouding inflation, labour data will likely set the pace. We will be watching payroll growth, unemployment, hours worked and wages as the key signposts.
The week ahead
Locally, the key economic indicator this week will be from the national accounts, with economists expecting a 0.4% quarterly increase in Gross Domestic Product. Additionally, we will hear from Michele Bullock, while also getting an insight into inventory levels and company profits.
Overseas, in the US the manufacturing index is expected to edge just above 50, showing signs of expansion. Non-farming payroll data is also set for the end of the week, where 90,000 jobs are expected to be added.
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