US runs on empty with high inflation, but the Fed holds despite dissenters; Singapore PPI stays very high; Korea stocks take a beating; Aussie inflation eases; UST 10yr at 4.68%; gold firms; oil jerk higher; AU$1 = 69.3 USc

Here's our summary of key economic events overnight that affect Australia, with news the US and the world are facing a new jolt of inflation as the hot war activity spread. The US central bank response? ignore the risks and pretend things will return to normal soon.

But first, US mortgage applications fell sharply last week, their largest dip since mid-May, and driven by a -10% fall in refinance activity. And that came as their benchmark mortgage interest rate rose yet again, now its highest in a year.

Also falling sharply last week were US crude oil stocks, down much more than expected. They have fallen in 12 of the past 14 weeks, and this latest one is one of the larger retreats. Worse perhaps, their strategic oil reserves are now at at levels they last had in 1983 just after they started building these reserves in 1982, and their economy is now nine times as large. These strategic reserves have gone from double the private system holdings, to only 75% of them. It is public mismanagement on an epic scale.

The US Fed held its policy rate unchanged, even while noting they have high inflation that isn't easing and they have "supply shocks that have driven price increases" well above their 2% goal. But it was a split decision with three members voting to hike +25 bps. One of those was not Jerome Powell; he was in the nine who voted for the hold. Chairman Warsh's style is all over this statement because it was very short with little transparency. And Warsh's inflation fighting vow seems to be just talk.

Across the Pacific, Singapore reported that their producer prices rose more than +30% in June from a year ago, maintaining the pace of increase for non-oil goods they have had since March.

In South Korea, there has been real drama on their stock exchange with declines so sharp they had to temporarily suspend trading. It is all related to perceptions about tech valuations. Even though these companies are reporting sharp profit increases, investors worry that Chinese chipmakers are about to eat their lunch. At one point yesterday the share market there was down -13%, suddenly wiping out all the prior AI gain euphoria. But it ended down 'only' +6% to cap a five-day retreat of -17%.

In Australia, June CPI inflation came in at 3.8%, and less than the 4.0% expected. It was kept up by the expiry of household energy support measures, but the falls in fuel costs more than offset that. More here. Will this deter the RBA from moving their policy rate on August 11? It may do, but inflation expectations remain very high. Some analysts now expect a hawkish hold. The lower CPI hit the AUD hard yesterday, presumably because FX markets no longer see higher interest rates imminently.

The global credit risk environment has evolved heading into the second half of 2026 but continues to be driven by two main sources of short-term risk, according to Fitch Ratings; rising vulnerability to an AI-related market correction and persistent geopolitical uncertainty in the Middle East. This is on top of a broader context of slowing US consumer momentum, high inflation risks stemming from the 2Q energy shock and structural public finance pressures limiting the ability to respond to risk events. Credit risk premiums will rise, says Fitch.

Iran was annoyed Trump claimed talks were taking place when they weren't, so they reinforced their point. Then the US and Saudi Arabia attacked Iran-linked forces in Iraq. And the Houthis attacked two Saudi tankers off Yemen. This mess isn't going away.

June air cargo demand rose, at a time of a relative lull in Middle East tensions. It was up +8.5% overall, up +9.6% for international trade. Asia/Pacific activity was up +9.5% from a year ago. There were larger increases in air cargo trade with North America.

Meanwhile the China-to-Europe cargo train trade is surging, added to by very fast 15 day transit times for peak demand of air conditioning units, for example. Shipping via the Suez canal chokepoint will probably never recover for consumer goods.

The UST 10yr yield is now just on 4.68%, up +8 bps from this time yesterday and with a push higher after the Fed decision. The key 2-10 yield curve is now at +31 bps (+1 bp). Their 1-5 curve is now at +28 bps (unchanged) and the 3 mth-10yr curve is at +94 bps (+4 bps). The China 10 year bond rate is down -1 bp at 1.72%. The Japanese 10 year bond yield is now at 2.76%, also down -1 bp. The Australian 10 year bond yield starts today at 4.96%, up +1 bp from yesterday. 

Wall Street is lower on both the S&P500 (-1.5%) and the Nasdaq (-1.7%) in Wednesday trade. The Fed abdication of action on inflation didn't help. Overnight, European markets were mixed, down -0.6% in Paris and up +0.3% in London. Yesterday Tokyo ended its Wednesday trade down -1.5%. Hong Kong ended up +2.0% while Shanghai rose +0.4%. Singapore spirted +1.7% higher The ASX200 ended up +1.0%. 

The price of gold has risen to US$4075/oz, back up +US$45 from yesterday. Silver is now just over US$58.50/oz, back up +US$1.50 from yesterday.

Oil prices have risen sharply by +US$5.50 from yesterday at now just over US$84.50/bbl in the US, while the international Brent price is now just under US$90.50/bbl and up +US$5. Hormuz transits are still basically halted. There have been no crude tankers and only 8 cargo ship exiting over the past 24 hours (6 dark with transponders off) and sixteen entering for new loads (11 dark). The Red Sea is even less active than the prior day.

The Australian dollar is down -50 bps from yesterday at just over 69.3 USc. Against the Japanese yen we are down -70 bps at ¥113.6. Against the euro we have dropped -40 bps to 60.8 euro cents. 

The bitcoin price starts today at US$63,890 and up +0.5% from this time yesterday. Volatility over the past 24 hours has been low at just on +/-0.9%.