A Divided Fed Holds, Australian Inflation Cools

Key Takeaways

• The Fed held rates steady, but the market is pricing in a September hike. Rates stayed at 3.5–3.75% for a fifth straight meeting; three officials dissented in favour of a hike.

• Big Tech split the market. Microsoft and Amazon rose on cloud strength; Meta and Apple fell. Investors are paying for AI returns, not AI spending.

• The Australian market is catching up: The ASX 200 is outperforming in recent weeks amidst volatility in the US earning season, we also take a deep dive into the Korean AI volatility.

• Australian inflation cooled. Headline eased to 3.9% and the trimmed mean held at 3.6%, both a touch softer than expected. Oil prices remain the biggest upside risk to inflation.

Rates: Divided Abroad, Steady at Home

The Fed holds at 3.5–3.75% with three dissents

The Fed left rates on hold at 3.5–3.75% for a fifth straight meeting, with three regional presidents voting for an immediate hike. Services prices have stayed sticky and energy costs have complicated the picture, so the committee is holding without much conviction that holding is enough. Markets now put the odds of a September hike around 60%.

Australian Inflation Cools Ahead of the RBA

In Australia, last week's inflation print was the final major data point before the Reserve Bank meets. Headline inflation eased to 3.9% over the year while the trimmed mean, the RBA's preferred measure, held at 3.6%. Falling petrol prices did most of the work; services inflation across rents, insurance and healthcare stayed stubborn.

That combination should keep the RBA on hold next week and likely for some months. What would change the call is a re-acceleration in services prices or a fresh run higher in oil, with the Middle East conflict still unresolved.

Big Tech's Split Verdict

Cloud Growth Rewarded, AI Spending Punished

Microsoft and Amazon rallied, both rewarded for cloud usage growth that made their AI spending look like a response to real demand. Meta and Tesla fell as costs ballooned and free cash flow collapsed and it raised its spending plans again, though the stock has almost rebounded in the following days. Apple slipped on soft services numbers. Overall it appears the market is rewarding stocks when they can see what it's returning its spending into actual outcomes rather than investment.

The ASX Holds Up Better Than Wall Street

Locally, the ASX has held up modestly better than US indices through this reporting season, with less exposure to the AI capex debate driving the swings on Wall Street.

Korea's AI Volatility: A 17% Plunge, an 18% Rally

For a sense of just how volatile the AI trade has become, look to South Korea. The Korean market has been the best performer of the year, dominated by large AI players Samsung and SK Hynix. In the space of a single week, the Korean market plunged 17%, then staged a 18% rally in one session, with automatic trading halts along the way. We take a closer look at what is driving the rollercoaster and a look into leveraged ETFs in a separate analysis here.

Looking Ahead

All eyes now turn to the RBA on 11 August. A hold is widely expected, but the accompanying updated forecasts and Governor Bullock’s tone will matter more. Markets will be looking for any hint of whether another rise is coming later in 2026. Beyond that, the US September decision looms as a live hike, the last of the big earnings roll in, and oil and the Middle East stay firmly in view.

Key Dates to Watch

• RBA decision — 11 August. A hold is all but priced. The interest is in the updated forecasts and Governor Bullock's tone, and whether either hints at a rise later in 2026.

• US inflation — 12 August. The key input for a September Fed hike that markets already lean towards.

• Oil and the Middle East — ongoing. Any escalation pushes prices, and inflation expectations, back up.

• The last of US earnings — ongoing. With the AI-spending debate unsettled, guidance keeps moving the market.