In the US the second-quarter earnings season continued, with Nvidia, the most prominent company reporting, beating overall sales and earnings estimates but missing data centre revenue forecasts. In aggregate corporate profits soundly beat analysts’ muted expectations. The recent run up in prices has a lot to do with earnings surprises. EPS growth was expected at 5% and has come in at around 11% driven largely by the Magnificent 7.

 

The most market-moving economic news was the release of US non-farm payrolls for July, which suggested the US labour market was slowing. At Jackson Hole – the Federal Reserves (Fed’s) annual get-together for central bankers – Fed chair Jerome Powell suggested the balance of economic risks had shifted based on this release, potentially warranting an adjustment to the Fed’s policy stance. As a result, rates markets now price in a high likelihood that the Fed will reduce the fed funds rate by 25 basis points at its September meeting.

 

In Australia the July monthly CPI was stronger than expected, up by 2.8% over the year (expectations were for a 2.3% rise). This follows a downside surprise last month and we know that the monthly indicator has measurement issues which can make it volatile. The upside surprise came from a stronger lift in electricity prices which is being influenced by when government rebates hit consumer bank accounts, stronger domestic holiday travel prices, so some of these one-offs will be unwound next month.  We see the central bank on hold in September, as there is no urgent need to cut rates right now, as the rise in the unemployment rate has been gradual and growth is sideways to up (rather than down!). We still see another 25-basis point cut in the November, February 2026 and May 2026 meetings, which would leave the cash rate at 2.85% by the end of this cycle. 

 

Australian corporate half-year profit results to August are done. It has been a fairly good earnings season, with 29% of companies beating expectations, 36% of companies missed expectations and 35% were in line (which is above the historical average), 61% of companies had earnings above where they were a year ago and 62% had dividends higher than a year ago. The Australian share market performed strongly over reporting season, particularly in consumer discretionary. According to UBS, companies with US exposure like Amcor, Bluescope and James Hardie all had downbeat assessments on US businesses. Tech-related businesses like REA group, Car Group and Seek all had solid earnings growth.

 

Despite the strong rally in August (which is a seasonally weak month for shares), share markets are still at risk of a correction through September given stretched valuations and risks around US tariffs and US debt and likely weaker growth and profits. However, with Trump pivoting towards more market friendly policies and central banks, including the Fed and RBA, likely to cut rates further, shares are likely to provide reasonable gains into year end.

 

Bonds are likely to provide returns around running yield or a bit more, as growth slows, and central banks cut rates.

 

Unlisted commercial property returns are likely to improve as office prices have already had sharp falls in response to the lagged impact of high bond yields and working from home.

 

Cash and bank deposits are expected to provide returns of around 3.75%, but they are likely to slow as the cash rate falls.