The Overnight Report: Elevated Oil & Fresh Tariffs

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This story features REGIS RESOURCES LIMITED, and other companies.
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The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

US markets fell, weighed down by higher oil prices, ongoing Middle East tensions, and rising concerns over AI capital expenditure following Alphabet's results.

The Australian market rose yesterday, but closed off its intraday high.

ASX200 futures are pointing to a weaker start on Friday morning.

Good Morning,

The Australian market retreated from intraday highs on Thursday after the release of the June employment data.

The ASX200 closed up 16 points or 0.2% to 8,839. Materials rose 1.4% while Technology continued to decline, down -3.3%, the worst performer.

Looking ahead to today, several quarterly updates are on the calendar, including from Regis Resources ((RRL)) and Newmont Corp ((NEM)).

FNArena Calendar https://fnarena.com/index.php/financial-news/calendar/

Jobs Surprise Lifts RBA Rate-Hike Expectations as Oil Adds Inflation Pressure,Tony Sycamore, IG

Australian employment rose by 76,800 in June, far exceeding market expectations for a 15,000 increase. The unemployment rate held steady at 4.4%, while the participation rate climbed 0.3 percentage points to 67.0%.

Sean Crick, ABS head of labour statistics, said: “In June, we recorded a 76,000 person rise in employment, driven by a 47,000 person rise in part-time employment.”

“Part of the growth in employment this month came from those who were waiting to start a job in May. This represents a stronger June movement than has been observed in recent years.”

While monthly labour force data can be volatile and subject to revision, the stronger-than-expected June result follows last month’s solid rebound and reinforces the Reserve Bank of Australia’s view that labour market conditions remain resilient.

The RBA’s key concern will be whether continued labour market tightness translates into stronger wage growth and, ultimately, higher inflation, particularly with crude oil prices having risen around 26% this month.

The employment report has increased expectations of an RBA rate hike at the August 11 Board meeting, although next Wednesday’s second-quarter inflation data is likely to be the decisive factor.

Before the release, interest rate markets were pricing in around 6 basis points of tightening for August, equivalent to roughly a 25% probability of a 25-basis-point rate hike, with around 20 basis points, or an 80% probability of one rate increase, priced in by the end of 2026.

Following the jobs data, those expectations have strengthened, with markets now implying around a 33% probability of an August rate hike and almost a 95% chance of at least one increase by year-end.

For context, in late June the market was pricing in just 13 basis points of tightening, or around a 50% probability of one rate hike by the end of 2026.

Today’s Big Picture, J.L. Bernstein extract

Oil is back above US$100

Houthi militants said they hit two Saudi tankers near Bab al-Mandeb. Brent crossed US$100 for the first time since May 26.

Trump answered on Truth Social, promising to take out an Iranian bridge or power plant every time a ship gets hit in the Strait of Hormuz.

Nannette Hechler-Fayd’herbe at Lombard Odier pointed out the pattern this year: once Brent touches US$100, somebody starts de-escalating.

Cash flow is the new scoreboard

Alphabet $GOOGL and Tesla $TSLA both went free cash flow negative last quarter, and both got punished for it.

Alphabet raised its 2026 spending plan to as much as US$205 billion while Tesla runs past $US25 billion.

The seven biggest tech names lost roughly -US$888 billion in market value today, their worst day since April 2025.

Revenue beats stopped paying the bill.

The Fed math got harder

Jobless claims came in at 187,000, the lowest reading since 1969. That is a genuinely strong labor market.

Pair it with US$100 oil and the case for a cut gets thin, which is why futures now lean hard toward a September hike.

I’d rather have this problem than the alternative.

ANZ Bank, Australian Morning Focus, extract

The S&P 500 was down -1.2% with Nasdaq down -2.15% and the DJIA down -0.97%.

The EuroStoxx50 ended its session down -1.7%, while the FTSE100 lost- 0.7%.

The yield on the US 10y note rose around 3.7bp to 4.7%. WTI lifted 4.5% to US$92.2/bbl. Gold was weaker at US$4,050.1/oz.

Oil prices rose to a two-month high after reports that Houthi militants had attacked two Saudi oil tankers in the Red Sea. President Trump threatened to intensify strikes on Iran, stating the US would hold Iran responsible for any further attacks by the Yemen-based Houthis on vessels transiting the Red Sea.

The Red Sea has become an important route for crude exports following the closure of the Strait of Hormuz, particularly for Saudi Arabia.

US: Initial jobless claims fell -22k in the week ended 18 July, which coincided with the survey week for July nonfarm payrolls. The fall was concentrated in New York, where unadjusted claims fell 16.95k to 14.94k.

A World Cup effect may have been at play, so it will be important to monitor initial claims data over coming weeks to see whether the decline unwinds.

The ECB left rates unchanged, and President Lagarde noted there are no signs of second-round inflation effects across a broad range of economic indicators.

She also highlighted downside risks to growth. Nevertheless, the ECB retained a hawkish bias, reflecting concerns that inflationary pressures stemming from the conflict in the Middle East could emerge over time.

We forecast a 25bp hike in September.

Fears of persistently elevated oil prices are again weighing on markets, raising the question of how long the Fed may be able to refrain from further tightening if the Middle East conflict persists. To date, there has been little evidence of inflation pass-through, as firms have absorbed higher energy costs.

That strategy is viable when a conflict is relatively short-lived.

However, the recent re-escalation in tensions has increased inflation uncertainty and will continue to do so if it persists.

While inflation and labour market data since the last FOMC meeting have been encouraging and suggest that monetary policy is restrictive, we expect the possibility of a further rate hike to be discussed at next week’s FOMC meeting.

On balance, we expect the Fed to leave rates unchanged, although oil price dynamics have reduced our level of confidence in that view.

Choke Points & Other Concerns, Ed Yardeni & Elias Griepentrog, Yardeni Quicktakes

At the start of last month, we anticipated a June pullback in the S&P500. Instead, the market has largely stalled, with the index trading around the 7,500 level since mid-May.

The year-end target of 8,250 remains unchanged, supported by a resilient US economy and strong corporate earnings. However, those positives are now well understood by investors, while a range of macro risks suggests markets could remain volatile through the northern hemisphere summer before the next leg higher.

The renewed conflict in the Middle East has moved to the top of investors’ concern list. The collapse of the ceasefire has pushed oil prices higher, reigniting inflation concerns.

Threats to shipping through the Bab el-Mandeb Strait have added further pressure to crude prices, while bond yields have risen as investors increasingly price in the possibility of an earlier US Federal Reserve interest rate hike.

Artificial intelligence has also become a source of uncertainty. Concerns have resurfaced over whether hyperscalers will generate sufficient returns on their enormous AI investment programs, while reports of a significant cybersecurity incident involving AI models have added to market unease.

Trade policy has also returned as a potential headwind. The US administration is proposing higher tariffs on a range of Canadian goods and is considering new import duties on products from around 60 countries.

Investors are concerned that another round of tariffs could place additional upward pressure on inflation. These concerns are increasingly evident across financial markets and economic indicators.

Oil prices have rebounded sharply from their June lows and remain elevated, reflecting geopolitical tensions and supply concerns. Strategic petroleum reserves in the US and other countries remain well below historical levels, while US gasoline inventories have fallen to multi-year lows during the peak driving season, adding to upward pressure on fuel prices.

Although the US economy is significantly less energy-intensive than in previous decades, energy stocks continue to be viewed as an effective hedge against further disruption to Middle East oil supplies, with refining companies among the strongest performers in the sector this year.

In fixed income markets, the US 10-year Treasury yield has climbed as investors reassess the inflation outlook following the rise in oil prices. The two-year Treasury yield has also moved above the federal funds rate, indicating markets expect further monetary tightening, with increasing probabilities assigned to rate hikes over coming meetings.

Gold has remained resilient despite a stronger US dollar, finding support around the US$4,000 an ounce level. Strong institutional demand, particularly from central banks, continues to underpin the precious metal, reinforcing its role as a defensive asset.

The Japanese yen has weakened to its lowest level in decades against the US dollar.

Higher energy costs, a widening interest rate differential with the US and concerns over Japan’s fiscal outlook have all combined to pressure the currency, despite expectations the Bank of Japan will continue raising interest rates.

China: Faster AI Adoption, Limited Reflation, Oxford Economics

Chinese AI models are rapidly narrowing the capability gap with their US peers, raising the prospect that productivity gains could emerge sooner than previously expected.

However, widespread access to AI continues to outpace economically meaningful adoption, with only around 11% of users applying AI to coding-related tasks, suggesting enterprise deployment remains relatively limited.

As a result, China may achieve broad AI adoption well before it sees a meaningful productivity dividend. While lower-cost AI models can quickly reduce prices and automate routine work, lifting productivity, household incomes and economic output will require deeper integration into business processes, more complex tasks and workforce skills.

Although the associated AI investment cycle is expected to be substantial, the inflationary impact is likely to be far more muted than in the US, where AI-related spending is already contributing modestly to core inflation.

In China, any initial price pressures are expected to be confined to imported computing hardware, selected producer prices and investment costs, while weak consumer demand and intense competition should limit broader inflationary pass-through.

Analysts estimate AI could add around 0.1 percentage points to China’s consumer price inflation this year and next before the impact turns mildly negative as additional capacity and competitive pressures build.

These forecasts remain highly dependent on the pace of AI investment, domestic content requirements and the extent to which higher upstream costs are passed on to end customers.

Overall, the outlook reinforces the view that China’s economic strategy remains one of managed substitution.

AI has the potential to significantly expand productive capacity, but at current levels of enterprise adoption it is likely to generate less employment, household income and private credit for each dollar of investment than the traditional growth drivers it is gradually replacing.

Corporate News In Australia:

• Washington H Soul Pattinson ((SOL)) is exploring the sale of its Australian horticulture assets
• Frasers Group has extended its takeover offer for Accent Group ((AX1)) until September
• KMD Brands ((KMD)) is attracting takeover interest for its Rip Curl and Kathmandu brands
• Sendle has returned under new ownership after Andrew McKenna acquired the company’s brand assets following its collapse
• KKR-backed UPL has ended talks to acquire assets from Nufarm ((NUF))
• The Victorian Government is exploring the sale or monetisation of Melbourne Water, valued at around $18bn
• La Caisse has invested $330m in agricultural investment platform Go.Farm
• Macquarie Group ((MQG)) has secured a debt extension for Bingo Industries through to 2031
• Bain Capital plans to sell down a -$200m stake in Virgin Australia ((VGN))
• Monvia is proceeding with a $100m ASX IPO despite weak conditions for SaaS listings

On the calendar today:

-JP June CPI

-UK June Retail sales

-US June new home sales

-XX Global PMIs

-NEWMONT CORP ((NEM)) FY26 earnings report

-REGIS RESOURCES LIMITED ((RRL)) Qtrly update

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days…

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