Sunbird Market Update and Outlook – Market Update – July 2026
Summary: Global markets started the new financial year off with a bout of volatility sparked by a correction in semi-conductor stocks and a spike in the oil price.
Global Wrap
Global markets started the new financial year off with a bout of volatility sparked by a correction in semi-conductor stocks and a spike in the oil price. The Nasdaq fell 7%, while the South Korean KOSPI was down 34%. At the same time, the Iran ceasefire agreement quickly unraveled as hostilities between the US and Iran flared up again, causing a 24% spike in the oil price.
Subsequently, a strong start to the US 2Q26 reporting season managed to calm markets down, while the oil price also retreated as the US, once again, tried to seek a ceasefire deal with Iran. According to FactSet, 86% of S&P 500 companies (that have reported Q2 results thus far) have beaten earnings estimates – well above the 10-year average of 76%. Strong earnings are clearly supporting equities, despite oil and AI worries.
The other notable development during July was the continual rise in global bond yields, with the US 10-year bond yield reaching 4.7%, the German 10-year hitting 3.2% and Japan 2.8%. The rise in the long end of the yield curve seems to be in response to concerns that Governments and Central Banks aren’t doing enough to contain inflation. Over the past few years, easy monetary and fiscal policy has provided support for economies and financial markets but the rise in bond yields suggests the bond market may eventually call the hand of various governments, forcing tighter fiscal and monetary policy.
For now, the Fed remains on hold at 3.63% despite the new Chair, Warsh, talking tough on inflation. Markets expect 1-2 rate hikes over FY27, and it will be interesting to see if the Fed follows through as expected, given Warsh was recently appointed by President Trump.
Australian Wrap
The big news in July was June quarter 2026 inflation coming in below expectations with the headline rate at 3.9% and the trimmed mean rate at 3.6%, below the RBA’s expectations for 4.8% and 3.8%, respectively. While both figures are still above the RBA’s 2.0-3.0% target, there is a good chance that inflation will continue to retreat towards target as the economy slows. The RBA has lifted the cash rate to 4.35% and has likely done enough for this cycle. Although, the market is currently pricing in a 50% chance of one more rate hike over FY27.
As mentioned above, the economy is likely to slow on a combination of tighter monetary and fiscal policy. Indeed, recent changes to tax rules in the May budget seem to have sparked a correction in the housing market, which will further impact consumer confidence. But ‘bad news could be good news’ in that inflationary pressure should ease, allowing the RBA to adopt a more accommodative stance.
The main risk to inflation retreating remains fuel prices, with the Government’s recent cut to fuel excise tax due to expire in early August 2026, while global oil prices remain volatile with the weekly news on the Iran war. Fuel prices could remain an ongoing issue, but it does seem that Australia is well supplied in the short term. One likely consequence of events in Iran, is that the Australian transport sector will continue to move to electric vehicles to reduce reliance on imported fuel. Of course, the Government will need to sort out how the electricity network caters to growing demand from EVs and Data Centres but that is a story for another day!
Outlook
The outlook remains mixed. There are the positives of expansionary US policy and the technology theme against the threat of rising inflation and interest rates. Meanwhile, the Australian eThe big news in July was June quarter 2026 inflation coming in below expectations with the headline rate at 3.9% and the trimmed mean rate at 3.6%, below the RBA’s expectations for 4.8% and 3.8%, respectively. While both figures are still above the RBA’s 2.0-3.0% target, there is a good chance that inflation will continue to retreat towards target as the economy slows. The RBA has lifted the cash rate to 4.35% and has likely done enough for this cycle. Although, the market is currently pricing in a 50% chance of one more rate hike over FY27.
As mentioned above, the economy is likely to slow on a combination of tighter monetary and fiscal policy. Indeed, recent changes to tax rules in the May budget seem to have sparked a correction in the housing market, which will further impact consumer confidence. But ‘bad news could be good news’ in that inflationary pressure should ease, allowing the RBA to adopt a more accommodative stance.
The main risk to inflation retreating remains fuel prices, with the Government’s recent cut to fuel excise tax due to expire in early August 2026, while global oil prices remain volatile with the weekly news on the Iran war. Fuel prices could remain an ongoing issue, but it does seem that Australia is well supplied in the short term. One likely consequence of events in Iran, is that the Australian transport sector will continue to move to electric vehicles to reduce reliance on imported fuel. Of course, the Government will need to sort out how the electricity network caters to growing demand from EVs and Data Centres but that is a story for another day!conomy seems to be facing a couple of headwinds in terms of tightening fiscal and monetary policy, but the commodity outlook remains positive.
We currently expect a ‘muddle through’ scenario of low-to-moderate growth, moderate inflation and moderate interest rates, with the outlook likely to be heavily influenced by oil prices and inflation. Longer term, the risks seem to be rising around the unintended consequences of easy fiscal and monetary policy (inflation, rising bond yields, currency debasement). There is also a risk that the AI investment boom fails to deliver a decent return on investment.
Key Known Risks
- Persian Gulf oil and gas flows remain restricted1
- Inflation remaining above target
- 3Rising interest rates in response to rising inflation and budget deficits
- The AI investment boom fails to earn a decent return on investment
- Leverage in the private equity/debt space comes undone; and
- Geopolitics and/or climate change events impact financial markets
Next Key Events
- US reporting season – August 2026
- Australian reporting season – August 2026
- RBA meeting – 10/11 August 2026
- Fed meeting – 15/16 September 2026
About the Author
Bill Keenan
Founder & Portfolio Manager, Sunbird Portfolios
Over 30 years’ experience in financial markets.
Holds a Bachelor of Business in Accounting and a Graduate Diploma in Finance and Investment.
Disclaimer & Warning
This material is provided by Sunbird Portfolios Pty Ltd and is general in nature only. It does not take into account your personal objectives, financial situation or needs. Past performance is not a reliable indicator of future performance.