Rising oil prices, big tech earnings and critical inflation data is set to buffet the local share market, bond market and Aussie dollar this week.

Inflation figures due for release on Wednesday are likely to determine whether the Reserve Bank will lift interest rates in a little over a fortnight’s time.

Australia’s underlying inflation rate is running at 3.6 per cent, well above the RBA’s target band of two-to-three per cent. Unless Wednesday’s figures show an appreciable fall back, then a rate rise on 11 August will probably become the consensus forecast.

Bond markets have priced in a 100 per cent chance of a rate hike this year, and the Aussie dollar, trading close to US70c suggest a rate hike is on the way.

Other economies – notably Canada and the UK last week – seem to have price rises under control. Not Australia.

A big challenge for the Reserve Bank is that rising oil prices could flow through to underlying inflation and to inflationary expectations. That’s when the economy ends up with some real problems.

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Greed-o-meter

Fear & Greed Q+A today

On the week ahead for the economy, including the all-important June quarter inflation figures:

 

“For the headline CPI, which includes everything in the basket, I'm expecting around one per cent for the quarter and about 4.3 per cent over the year—well above the Reserve Bank's 2.5 per cent target. That does include the impact of higher petrol prices, which really kicked off in April.

 

For the trimmed mean, the underlying measure the Reserve Bank focuses on, I'm expecting something around 0.9 per cent for the quarter and 3.7 per cent over the year. That's still too high for the RBA's liking, and it's going to cause the markets and the Reserve Bank some angst because it's that underlying inflation rate that really needs to start moving lower—towards three per cent, then 2.75 per cent and eventually 2.5 per cent—before we can be confident we've beaten this inflation bug.”

News in brief

Prime Minister Anthony Albanese yesterday said the federal government is in discussions with Anthropic about gaining access to its most powerful model.

The record-setting surge in exchange-traded funds on the Australian sharemarket is forecast to accelerate in coming months as providers rush to capitalise on investor demand for low-cost access to the artificial intelligence assets.

The United States has levied fresh tariffs on 60 trading partners, including China, Canada, the EU and Australia. The group comprises 99.4 per cent of US imports.

On Wall Street, three of the big tech giants – Microsoft, Amazon and Meta – report June quarter earnings this week amid fears about debt fuelled sending sprees on AI assets.

Two Chinese academics have won the world's top prize for mathematics for solving problems that have baffled mathematicians for more than a century.

Fear-o-meter

AMP’s Shane Oliver on 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.

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