AU Weekly Wrap | ASX Nears Record High Amid Mixed Earnings; July PCE Inflation Report Supports Fed's Rate-Cut Path

Inflation increased slightly in July, aligning with the Federal Reserve's preferred measure as it prepares for its first interest rate cut in over four years. The Commerce Department reported a 0.2% monthly rise in the personal consumption expenditures (PCE) price index and a 2.5% annual increase, matching expectations. Core PCE, excluding food and energy, also rose 0.2% monthly and 2.6% annually, slightly below the 2.7% estimate. Both core and headline inflation remained unchanged from June. Markets are certain of a rate cut in September, with debate over whether it will be a quarter or half-point reduction. Fed officials, including Chair Jerome Powell, are confident that inflation is nearing the 2% target. The Fed is now expected to balance its focus on lowering inflation with supporting the labor market, as unemployment, though low at 4.3%, has been rising and hiring appears to be slowing.

Australia's consumer price index (CPI) inflation rose more than expected in July, driven by higher fresh food costs, though softer housing and energy costs led to a slight decline in core inflation. CPI inflation increased by 3.5% year-on-year, above the expected 3.4% but down from June's 3.8%. Core CPI inflation, excluding volatile items, dropped to 3.7% from 4%. Despite the decline, inflation remains above the Reserve Bank of Australia's (RBA) 2% to 3% target, fueling concerns of potential rate hikes. RBA officials recently suggested that further rate increases might be necessary to combat persistent inflation. Analysts predict that rates will remain high until at least late 2025.

Australian retail sales stagnated in July after a few months of growth driven by discounting events. According to the Australian Bureau of Statistics, retail sales remained unchanged from June, which saw a 0.5% rise. Analysts had expected a 0.3% increase. Year-over-year, sales were up 2.3%, falling short given the country's 2.6% annual population growth. Spending on clothes and at department stores declined as consumers became more frugal.

In August, major ASX miners BHP Group, Rio Tinto, Fortescue, and Pilbara Minerals reported their earnings, highlighting their status as profitable, mature businesses. Despite strong historical performance, these giants saw declines in 2024: BHP and Rio Tinto each fell over 10% year-to-date, Pilbara dropped more than 20%, and Fortescue declined over 30%. These declines were driven by sharp fluctuations in commodity prices, particularly lithium, and concerns about a slower-than-expected global economic recovery, notably from China.