Sunrise Market Commentary

Markets

US Treasuries outperformed German Bunds and UK Gilts yesterday. The July wholesale price report was close to consensus and not outspokenly soft (0% M/M & 4.7% Y/Y for headline; 0.2% M/M & 4.2% Y/Y for core), but investors took the cumulative effect of last Friday’s weak payrolls and Wednesday’s tame CPI report into account. The key message probably is that inflation is not re-accelerating. If upside inflation risks don’t materialize, it might keep the Fed at bay for longer. That seems to be the current market reasoning at least. US yields shed 4.5 bps (30-yr) to 6.5 bps (5-yr) as September rate hike bets are further scaled down from 50% to 33%. Chicago Fed Goolsbee (non-voter) later more or less confirmed this view. He said that inflation readings for a couple of months have been getting a little bit better even though inflation is still too high. Richmond Fed Barkin (non-voter) also found some comfort in recent readings but acknowledged the risk of embedded price pressures. He differentiates between shocks (tariffs, Iran war) which should pass and supply chain challenges or the AI boom which could generate more persistent pressures. “Inflation has been too high for too long, risking an upward shift in the price expectations of firms and consumers. If true, this argument suggests help is needed to bring inflation all the way back down to target.” The US Treasury ended its mid-month refinancing operation with a $25bn 30-yr Bond auction which tailed slightly, but had an average bid-cover. The auction yield (5.216%) was the highest since 2001. Overall, this week’s 10-yr Note and 30-yr Bond sales managed to lure investors despite worries over the US fiscal trajectory which shows in the rising trend of real yields (> inflation expectations). On FX markets, the US Treasuries’ outperformance didn’t weigh on the dollar. EUR/USD closed nearly unchanged at 1.1528. JPY failed to capitalize on a Bloomberg report that the Japanese government supports faster BoJ tightening (September or October). Sterling couldn’t benefit from a solid Q2 GDP figure. US stock markets profited from the correction on bond markets with key indices gaining 0.15% (Dow) to 0.80% (Nasdaq).

Today’s eco calendar contains July US retail sales and August University of Michigan consumer confidence (including key short term & long term inflation components). We think the data will be interpreted through the lens of the past couple of days. Anything bar significant upside surprises will suffice to keep rate hike pricing in check. Volatility in energy prices remains a wildcard with Brent crude ($88/b) holding near the $90/b threshold as the US/Iran stalemate persists.

News & Views

The number of Australian new home loans fell by 5.4% Q/Q in Q2 2026 in their biggest drop since end 2022. The value of total new home loans fell 5.2% Q/Q, after a 3.4% fall in the previous quarter. Changes to negative gearing, an RBA rate hike (May) and capital gains tax in the May Budget all had an impact. They suggest that efforts to tame the red-hot housing market are having an effect. Prices appear to have peaked in Sydney and Melbourne in November of last year with other major cities and regions showing price falls since March. Investor loans drove the fall in new home loans, dropping by 8.6% Q/Q. Annually, growth in investor loans slowed from 19.4% to 2.8%. The number of new owner-occupier loans fell 3.3% Q/Q (-2,745 loans), following a 3.8% fall in the previous quarter. Lending to owner occupiers was 1.6% lower than a year ago, marking the first annual fall since Q3 2023. Owner occupier first home buyer loans also fell 2.9%. Developments on the housing market are one of the considerations of the Reserve Bank of Australia in determining whether or not a final rate hike is still needed. A dovish RBA statement was balanced by a more hawkish press conference by RBA governor Bullock earlier this week. When it comes to the housing market, RBA assistant governor Kent yesterday said that its softening contributed to financial conditions potentially being a bit more restrictive than otherwise: “All else equal, these changes will tend to reduce the extent to which monetary policy needs to constrain the growth in aggregate demand to help bring inflation back to the RBA’s target.” The market implied probability of final RBA rate hike (early next year) peaks at 63%.