Speaking in Sydney today, Reserve Bank of Australia Governor Michele Bullock reaffirmed that the Board remains firmly focused on restoring price stability while leaving the door open to further monetary tightening if inflation proves more persistent than expected. Although she acknowledged that "the global environment has changed and the outlook is uncertain," Bullock stressed that the RBA's objectives "haven't changed," with the Board remaining committed to delivering both price stability and full employment. She also emphasized that the full effects of the cash rate increases delivered earlier this year "will take time to materialize," making it too early to judge whether existing policy settings are sufficiently restrictive.

Bullock warned that even if the latest disruption to global oil supplies proves temporary, inflation risks have not disappeared. She noted that "underlying inflation is still expected to be higher as fuel price rises flow through to other prices," while reminding markets that "inflation and capacity pressures in the domestic economy were already too high prior to the recent shock." Although there is evidence that domestic demand and labor market conditions have been easing, she argued that the economy continues to face significant capacity constraints and that the Board remains focused on "preventing elevated cost pressures from entrenching inflation."

While acknowledging that further moderation in demand may still be required, Bullock stopped short of signaling an imminent policy move, instead framing the coming months as a test of whether earlier tightening will be sufficient. She reiterated that monetary policy cannot solve Australia's weak productivity growth, but can make its greatest contribution by maintaining "low and stable inflation" alongside sustainable full employment. The speech nevertheless preserved the RBA's tightening bias, with Bullock concluding that the Board "is prepared to act as required to achieve its mandate, including by increasing the cash rate further if needed."

Key Takeaways

• Policy stance: RBA retains a conditional tightening bias and remains prepared to raise the cash rate again if inflation proves persistent.
• Policy lags: Bullock emphasized it is too early to judge whether the earlier rate hikes have been sufficiently restrictive, as their full effects are still working through the economy.
• Inflation: Even if oil supply disruptions ease quickly, higher fuel prices are expected to lift underlying inflation through broader cost pass-through.
• Domestic economy: Demand and labour market conditions are cooling, but capacity pressures remain elevated and inflation was already too high before the latest oil shock.
• Long-term challenge: Weak productivity continues to constrain Australia's non-inflationary growth potential, a problem monetary policy cannot solve.
• Market implication: The speech pushes back against expectations of an early policy pivot and reinforces the RBA's data-dependent tightening bias.

Full speech of RBA's Bullock here.

New orders for U.S. manufactured durable goods rose 0.3% mom in June, returning to positive territory after May's revised -4.0% decline but falling short of expectations for a 1.6% increase. Excluding transportation, orders increased 0.6%, also below the 0.9% consensus, while orders excluding defense edged up 0.3%. Although the headline figures disappointed, the report showed business investment remained on a positive footing rather than slipping back into contraction.

The underlying details were broadly constructive. Durable goods orders have now increased in three of the past four months, suggesting May's sharp decline was more of a setback than the start of a sustained downturn. Technology-related demand continued to stand out, with computers and electronic products rising 3.1%, marking gains in nine of the past ten months. The sector's strength highlights continued investment in digital infrastructure and advanced manufacturing, helping offset softer performance elsewhere.

Overall, the report points to moderating rather than weakening manufacturing activity. The slowdown from April's surge and May's sharp correction suggests order growth is normalizing, while positive readings in both headline and core measures indicate business spending remains resilient.

Economic Data Summary

Key Takeaways

• US durable goods orders returned to growth in June, rising 0.3% m/m after May's revised 4.0% decline, although the rebound fell well short of market expectations.
• Underlying business investment remained resilient. Orders excluding transportation increased 0.6%, while orders excluding defense also posted a 0.3% gain, indicating manufacturing demand continued to expand despite a slower pace.
• Technology remained a bright spot. Orders for computers and electronic products rose 3.1%, extending gains to nine of the past ten months and highlighting continued investment in digital infrastructure and advanced manufacturing.
• The report suggests normalization rather than deterioration. Durable goods orders have now increased in three of the last four months, implying May's sharp decline was more of a correction following April's surge than the start of a sustained downturn.

Full US durable goods orders release here.

Germany's business sentiment improved further in July, with the Ifo Business Climate Index rising to 86.6 from 85.7 in June as companies grew more optimistic about the months ahead despite ongoing uncertainty surrounding the conflict in the Persian Gulf. The improvement was driven entirely by stronger expectations, while firms were slightly less satisfied with current business conditions. The latest survey suggests German companies are becoming increasingly confident that activity will recover, even if that improvement has yet to fully materialize.

Manufacturing led the gains, with business confidence rising noticeably as expectations strengthened and demand picked up. Companies also reported easing material shortages, although their assessment of current conditions softened somewhat. The services sector likewise became less pessimistic about the outlook despite a slightly weaker view of present business. Trade confidence improved again, supported by better assessments of both current conditions and future prospects, with retailers becoming less concerned about business performance. Construction also showed further signs of stabilization as both current assessments and expectations improved, while fewer firms reported insufficient order books.

Taken together, the survey points to a broad-based improvement in confidence across Germany's economy, extending the gradual recovery seen in recent months. The contrast between stronger expectations and weaker assessments of current conditions suggests businesses see better conditions ahead but remain cautious about the near-term environment. While the Ifo survey alone is unlikely to materially alter European Central Bank policy expectations, it supports the view that Germany's economy is stabilizing despite persistent geopolitical risks and a still challenging growth backdrop.

Survey Details

Key Takeaways

• German business confidence rose for a third consecutive month, with the Ifo Business Climate Index increasing to 86.6 from 85.7, its highest level since February.
• The recovery was driven by expectations rather than current activity. Expectations jumped to 86.7 from 84.3, while assessments of current business conditions edged down to 86.5 from 87.0.
• Manufacturing showed encouraging signs of improvement, with stronger demand and easing material shortages supporting confidence despite softer assessments of current conditions.
• Confidence improved across all major sectors, including services, trade and construction, suggesting the recovery is becoming more broad-based.
• Companies appeared less concerned about geopolitical risks, with the Ifo Institute noting firms were less pessimistic despite continued uncertainty surrounding the Persian Gulf.
• For markets, the survey supports the narrative of a gradual German economic stabilization, but the divergence between stronger expectations and weaker current conditions suggests the recovery is still in its early stages and is unlikely to materially alter ECB policy expectations on its own.

Full German Ifo release here.