The RBA takes centre stage this week, meeting Tuesday with markets expecting a hawkish hold. The Q2 inflation print came in below the Bank's own forecasts — a modest reprieve — but inflation remains too high for comfort, and the accompanying Statement on Monetary Policy will show how far the Bank has moved its inflation and unemployment forecasts. The domestic data gave it little help. June household spending rose 0.8%, well above consensus and led by discretionary categories, with travel spending back around pre-conflict levels, evidence the squeeze on real incomes has been less severe than feared. 

The RBA needs below-trend growth to be confident inflation settles, and the consumer is not entirely cooperating. Housing, by contrast, is adjusting sharply: capital-city prices fell 0.9% in July, with Sydney and Melbourne down more than 1%, as the market digests both three rate rises and the Budget's changes to investment-property taxation, a structural repricing towards income rather than capital gain, not a normal funding-cost cycle. On brighter notes, the trade balance swung back to a $2 billion surplus  (a deficit near $1 billion was expected) on a 9.6% jump in exports, and the Australian dollar held the US 70s, ending the week near 70.7 US cents. Local 10-year yields closed at 5.01%.

Offshore, the story of the week was the US jobs report. July payrolls fell 23,000 against expectations of an 80,000 gain, with 103,000 of downward revisions, yet unemployment fell to 4.1% because the labour force shrank by roughly 264,000, partly reflecting immigration policy. Wages rose just 0.1% in the month (3.2% annually). Fewer people chasing fewer jobs reads as a stable, not deteriorating, labour market with no wage pressure, leaving the Fed on the sidelines ahead of this week's US CPI (consensus around 0.2% monthly). Earlier in the week the news had been stronger — jobless claims below 200,000 for the first time in about two years, layoffs at a two-year low, and productivity up a striking 1.4% for the quarter. The other notable development: the US and Japan confirmed joint intervention to support the yen, with markets now pricing a Bank of Japan hike in September as more likely than not.

Oil remains hostage to Hormuz headlines. Hopes of an imminent reopening pushed Brent below US$80 mid-week before Houthi attacks on Saudi targets, including the Gizan refinery, lifted it back towards US$83.50. We seem to be in a broad US$70–100 trading range, with elevated refined-product prices the more persistent concern for Asia. Gold is up over 7% this month. China's pulse weakened again, Caixin PMIs fell and CPI ran at just 0.5% annually on soft domestic demand.

US earnings season in focus

With 88% of the S&P 500 now reported, second-quarter blended earnings growth stands at 50.4% — the strongest since Q2 2021 — on revenue growth of 15.0%, itself the best since late 2021. The headline flatters, though. Alphabet's result included a US$98 billion unrealised gain on equity securities and Amazon's a US$53.4 billion gain on its Anthropic investment; strip those paper gains out and earnings growth is a still-remarkable 32%. 86% of companies beat estimates (the highest proportion since Q2 2021), the aggregate surprise of 29.2% is the largest FactSet has recorded since 2008 (a still-elevated 10.9% excluding the two outliers), and ten of eleven sectors are growing — eight at double-digit rates, led by energy, communication services, consumer discretionary and technology, with health care the only decliner. Analysts now pencil in roughly 27% earnings growth for Q3 and 30% for calendar 2026, and the forward P/E of 20.0 sits almost exactly on its five-year average. There are signs that the US market can grow into its multiple rather than be re-rated.

However, AI remains both the engine and the question mark. The four large hyperscalers now plan roughly US$725 billion of combined 2026 capital expenditure — Amazon around US$200 billion, Alphabet US$175–185 billion, Meta guiding towards US$125–145 billion and Microsoft around US$120 billion — up some 77% on 2025, and increasingly debt-funded: analysts expect US$250–300 billion of hyperscaler bond issuance this year, with about US$152 billion already raised by mid-May plus roughly US$65 billion of off-balance-sheet financing (most visibly Meta's US$27 billion private-credit venture with Blue Owl). The market's reaction has turned discriminating. Alphabet fell 7% when it lifted capex guidance in late July, and during the week SpaceX dropped 14% and AMD 8% on ever-rising spending intentions and soft guidance. This season, AI spending stopped being enough on its own — it was evidence of monetisation, notably cloud re-acceleration, that carried the rally. Advisers may wish to note the concentration this implies: for many clients, international equity exposure is now substantially a single AI trade, flattered this quarter by one-off valuation gains.

In summary, markets more generally are proving resilient with the Australian and European markets are ahead for the financial year to date. Locally, the RBA's message on Tuesday will frame the local rate outlook. Watch the RBA statement and forecasts, US CPI and retail sales.