Good morning. Wall Street fell overnight after Iran fired ballistic missiles at United States forces in Jordan and the Federal Reserve left rates on hold. The S&P 500 closed 1.5 per cent lower at 7,316 and Brent crude jumped 7.7 per cent to US$90.54 a barrel. The oil move came first, in the hours before the Fed's decision at 4am AEST, and the selling in equities deepened after it.
Microsoft, Meta and Qualcomm all reported after the United States close. Microsoft rose in extended trading on the strength of its cloud division, while Meta and Qualcomm both fell. All three are spending more, and the cost of funding that spending moved against them during the session: Reuters reported that yields on hyperscaler bonds are rising as investor appetite cools. SK Hynix met the same scepticism earlier in the day, when a record quarterly profit still fell short of forecasts and it raised its capital budget anyway.
Closer to home, the June inflation indicator came in below expectations and the ASX 200 rose for a third consecutive session, with every sector higher. Rio Tinto's half-year result and Woodside's June-quarter report both landed during the session. Domino's Pizza Enterprises lodged a balance-sheet review after the close that puts it on course for a statutory full-year loss.
The ASX 200 finished yesterday's session up 1.0 per cent at 9,039, a third straight advance that takes its five-day gain to 2.4 per cent, and no sector recorded a loss. Rio Tinto rose 3.7 per cent to $165.39 after lifting its interim dividend, and Woodside Energy added 0.9 per cent on its quarterly report. The Australian dollar eased 0.3 per cent to US69.57 cents.
The S&P 500 fell 1.5 per cent to 7,316, the Nasdaq 1.7 per cent to 24,443 and the Dow Jones 2.2 per cent to 51,594, a fall of about 1,150 points. The VIX rose 13.5 per cent to 20.66, taking its five-day gain to 24.2 per cent. The 10-year Treasury yield rose 2 basis points to 4.62 per cent while the US dollar index fell 0.5 per cent to 100.84, and gold gained 2.2 per cent to US$4,126 an ounce.
The Stoxx 600 slipped 0.3 per cent to 645, the DAX was unchanged at 25,460 and the FTSE 100 rose 0.3 per cent to 10,908, the only one of the three to gain. European cash markets closed before the Fed's decision, so the session took in the oil surge and the Iranian missile attack but not the vote. The euro rose 0.7 per cent against the US dollar to 1.1465.
At yesterday's Asian close the Nikkei 225 fell 1.5 per cent to 61,434, extending a five-session decline to 7.1 per cent as chip and AI-linked names were sold after SK Hynix's result. The Hang Seng ran the other way, rising 2.0 per cent to 25,808, and the Shanghai Composite added 0.4 per cent to 3,828. The yen firmed 0.3 per cent against the US dollar to 163.36.
The trimmed mean measure of underlying inflation held at 3.6 per cent, against the 3.7 per cent expected. Housing was the largest contributor at 6.8 per cent, followed by food and non-alcoholic beverages and recreation and culture, each at 3.3 per cent. Markets cut the chance of an increase at the Reserve Bank's 11 August meeting to close to zero on the print, and Westpac withdrew its forecast of two further rises in August and September, now expecting the cash rate to stay at 4.35 per cent for the next year with the next move down in August 2027.
Full excise is reinstated from 3 August, so the pump price faces both the restored duty and the flow-through of higher crude, which rose again overnight. Fuel is a direct channel from the Middle East conflict into household budgets and into the transport component of the consumer price index reported the same day.
The split leaves data-centre power sourcing set state by state rather than nationally, which bears on where new capacity is built and on the electricity demand assumptions behind listed generators, network owners and the data-centre operators expanding in Australia.
The line is one of the New South Wales links needed to move power from new generation zones to demand centres, and approval clears the planning condition that had held it up. Transmission build-out is the constraint most often cited on the timing of renewable connections, so approvals of this kind bear on the capital programs of the listed network and infrastructure owners.
The 30-year Treasury yield rose 12 basis points to 5.21 per cent, its highest in 19 years, as the long end priced a slower response to inflation than the three dissents implied. Interest-rate swaps put the chance of an increase at the September meeting at about 60 per cent after the decision, down from roughly 82 per cent implied by fed funds futures earlier in the week, and it was that fall in near-term expectations that sent the US dollar lower. Chair Kevin Warsh said the committee would not hesitate to act and that there is no soft inflation target, adding that the Fed has no magic wand and that this is not something it can carry out in days or weeks.
The United States and Saudi Arabia struck Iran-backed groups in Iraq in response to attacks on Saudi energy facilities, and the Financial Times reported that United States crude inventories have fallen to what it called a precariously low level as the conflict disrupts supply. The move reverses most of Tuesday's 5.2 per cent fall, which had followed reports of a Gulf-backed plan for managing the Strait of Hormuz, so the market has now given back the de-escalation premium it took out two days ago.
The hyperscalers have been funding data-centre construction in the bond market at scale, and Reuters separately reported that credit default swap pricing on their debt has begun to unsettle equity investors in the same names. Rising funding costs for the AI build-out bear directly on the capital spending plans that Microsoft, Meta and SK Hynix all expanded this week.
Diesel is the tightest part of the refined products market and Russia is one of the largest exporters, so an extension adds to the supply constraint already coming from the Middle East. Refining margins rather than crude alone are what pass through to freight, agriculture and construction costs.
Woodside disclosed in its quarterly report the same day that its contractor Bechtel has had to find new routes to move steel from the United Arab Emirates to the Louisiana LNG project, which is a concrete instance of the rerouting now showing up in project schedules and freight costs rather than only in the crude price.
The Section 301 tariffs of 10 to 12.5 per cent that took effect this month on more than 80 trading partners including Australia are already in force, so the bill concerns the scope of future action rather than current rates. It bears on the trade-exposed parts of an Australian portfolio because it would widen the range of measures available without fresh legislation.
Leveraged exchange-traded products had drawn heavy retail flows into the memory-chip rally, and the Economist reported the same day that the country's stock-market boom is unwinding. It is a live case of retail leverage amplifying a fall in a concentrated market, the mechanism regulators elsewhere have flagged in their own reviews of leveraged products.
Underlying earnings came in ahead of the US$6.81bn consensus and underlying EBITDA of US$14.8bn was in line with the US$14.79bn expected. Copper EBITDA of US$5.7bn was 7 per cent above the US$5.35bn forecast as Oyu Tolgoi ramped up, while iron ore EBITDA of US$6.8bn fell 2 per cent short of the US$6.97bn expected despite record first-half Pilbara production. Free cash flow rose 75 per cent to US$3.8bn and the dividend represents a 50 per cent payout ratio.
The write-downs are $70.5m against the France business, $45.7m against Taiwan, $43.8m of capitalised IT development costs, $69.0m of store and related assets and $30.0m of other items, and up to 60 stores will permanently close, 25 in Europe, 29 in Australia and New Zealand and six in Asia. Underlying net profit guidance was reaffirmed at $118m to $122m. FY26 same-store sales were down 4.1 per cent, comprising Australia and New Zealand down 4.7 per cent, Europe down 2.2 per cent and Asia down 6.7 per cent. Net leverage was about 1.9 times EBITDA at 28 June. The filing was lodged after the close, so the shares have not yet traded on it, and incoming chief executive Andrew Gregory starts on 5 August.
Production fell 9 per cent on the March quarter to 41.3 million barrels of oil equivalent, reflecting planned maintenance at Pluto Train 1 and recovery from cyclone damage, so the revenue increase came from price rather than volume. The Scarborough project is 98 per cent complete, on budget and on track for its first LNG cargo in the fourth quarter of 2026. The shares closed 0.9 per cent higher on Wednesday.
Spodumene concentrate production was 103,111 dry metric tonnes at an average grade of 5.0 per cent lithium oxide against sales of 108,489 tonnes, net cash flow was $137m and cash on hand rose to $561m from $424m. FY27 production guidance is 390,000 to 440,000 tonnes of spodumene concentrate, with a target ore mining run rate of 2.8 million tonnes a year by the end of FY27. A clarification to the report was lodged after Wednesday's close.
Revenue beat the US$89.37bn consensus and earnings of US$4.74 a share beat the US$4.33 expected. Net income rose to US$35.77bn from US$27.23bn a year earlier. Azure growth accelerated to 43 per cent in constant currency from 40 per cent in the prior quarter, and Microsoft Cloud revenue was US$59.3bn, up 27 per cent. Capital expenditure and finance leases reached US$41bn for the quarter, up 69 per cent. The shares rose about 3 per cent in extended trading.
Revenue edged past the US$60.2bn consensus but earnings of US$6.18 a share missed the US$7.14 expected, and net income fell 14 per cent to US$15.85bn as the operating margin narrowed to 31 per cent. The earnings shortfall included US$2.4bn for legal contingencies and US$1.2bn of severance charges. Third-quarter revenue was guided to US$61bn to US$64bn and full-year expenses to US$165bn to US$169bn. The shares fell about 8 per cent in after-hours trading.
Revenue of 79.32 trillion won, up 257 per cent on a year earlier, also missed the 84 trillion won forecast, with analysts attributing the shortfall to HBM4 shipments landing later than expected rather than to weaker demand. The company said it will lift 2026 capital spending by roughly 50 per cent to at least US$31bn. As a leading supplier of high-bandwidth memory to the AI server market, its result set the tone for chip and AI-linked equities through the Asian and United States sessions.
Net income fell 25 per cent to US$2.002bn and non-GAAP earnings fell 20 per cent to US$2.21 a share, with handset chip revenue down 20 per cent to US$5.086bn. Automotive revenue rose 61 per cent to US$1.588bn and internet-of-things revenue 9 per cent to US$1.830bn. Management attributed the margin compression, four percentage points at the chip division, to higher wafer fabrication, memory, packaging and testing costs. Fourth-quarter revenue was guided to US$9.7bn to US$10.5bn and the shares fell about 5 per cent after hours.
The combined firm would have revenue of about US$7.5bn and more than 34,000 staff, and it is the largest transaction in the accounting and advisory sector in more than 25 years. Completion is expected in the fourth quarter of 2026, subject to a CBIZ shareholder vote and regulatory approvals, and a go-shop period runs to 27 August. The benefits and insurance operations will be separated into a New Mountain-backed unit, continuing the movement of private capital into professional services partnerships.
Earnings beat the US$0.66 consensus and revenue the US$9.16bn expected, on same-store sales growth of 7.9 per cent, and the shares rose about 5 per cent after hours to a 52-week high. Chipotle also lifted its same-store sales forecast and rose about 3 per cent, so two large United States restaurant groups pointed to discretionary spending holding up through the June quarter.
Second-quarter revenue of US$7.38bn beat the US$6.91bn consensus, net income was US$513m and vehicle sales rose 38 per cent to 197,325 units, so the fall came from the outlook rather than the quarter. The size of the reaction to a soft forecast, against a strong quarter, is a read on how closely consumer credit conditions are being watched.
Growth accelerated from the first quarter, with the Americas up 15 per cent, Japan up 11 per cent and Europe excluding France up 9 per cent, while the Middle East fell 4 per cent. Currency movements cut 360 million euros, or 4.5 percentage points, from reported growth. Leather goods and saddlery grew 10 per cent. The figures are one of the cleaner reads available on high-end discretionary demand, including in Greater China.
“I asked for a good family fight and I got one.”
“When we look through some of the bigger price movements, underlying inflation is steady at 3.6 per cent in the 12 months to June 2026.”
“We'll be hitting them hard. They're going to get a beating.”
“This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation.”
“While some job displacement can occur during times of transition, our data shows that AI is not eliminating jobs at scale. Instead, it is reshaping how work gets done, what roles look like, and how teams are organized.”
“We delivered strong growth in quarter 2 with like-for-like sales up plus 4.2% at group level. These strong results are delivered in what remains, obviously, a challenging and volatile external environment.”
For wholesale clients only. Prepared by Arc Point OCIO Pty Ltd (ACN 693 569 765), Corporate Authorised Representative (CAR 1319046) of Capella Advisory (AFSL 550125), for wholesale clients within the meaning of the Corporations Act 2001 (Cth); it is not intended for, and should not be relied on by, retail clients. This note is factual market reporting and general information, with any arcpoint view clearly labelled as such. It is not personal advice and does not take into account any person's objectives, financial situation or needs. Information is drawn from sources believed to be reliable but its accuracy and completeness are not guaranteed. Past performance is not a reliable indicator of future performance.
Sources: Yahoo Finance, FRED, RBA, company filings.