Week commencing
7 September 2026

Fed rate outlook softens as RBA hike expectations rise

United States (US) equity markets are on track for a second consecutive week of gains. The bulk of the advance came after Federal Reserve (Fed) Governor Christopher Waller sounded dovish and took some of the heat out of rate hike concerns.

Waller noted that recent inflation data had improved and that, if incoming data continued to point in that direction, he would be inclined to hold the federal funds rate at the 16 September meeting. This saw the probability of a September Fed rate hike fall to about 50% from 68% earlier in the week. Investors also took some comfort from the fact that nothing in the latest Middle East flare-up has warranted fresh US strikes on Iran since Wednesday.

Closer to home, ASX 200 is trading 70 points (-0.70%) lower on the week and is set to lock in a third week of losses in the past four. The decline followed this week's resilient second quarter (Q2) gross domestic product (GDP) print, with annual growth at 2.1%, coming on the heels of the prior week's sticky trimmed mean inflation report. That combination has pushed up the probability of a fourth Reserve Bank of Australia (RBA) rate hike this year.

Together with falling housing prices and profit-taking in the big mining stocks, it has been too much for the index to withstand.

The week that was: highlights

• US Automatic Data Processing (ADP) private payrolls added just 38,000 jobs in August, missing consensus forecasts of 47,000 and slowing from a revised 46,000 in July
• Staying in the US, the Institute for Supply Management (ISM) manufacturing purchasing managers' index (PMI) fell to 54.6 in August from 55.6 prior, coming in below expectations of 55.2 while remaining in expansion territory
• The ISM services PMI rose to 55.4 in August from 54.1 in July
• US Job Openings and Labor Turnover Survey (JOLTS) job openings rose to 7.271 million in July from a revised 7.182 million prior, landing slightly below consensus estimates of 7.3 million
• US factory orders rebounded 0.9% month-on-month (MoM) in July, topping expectations for a 0.6% gain after declining a revised 0.2% in June
• Initial jobless claims climbed by 2,000 to 206,000 last week
• In China (CN), the official National Bureau of Statistics (NBS) manufacturing PMI edged up to 49.8 in August from 49.2 prior, slightly beating consensus forecasts of 49.7, while the private RatingDog manufacturing PMI expanded to 51.5 versus 51.0 expected
• China's RatingDog services PMI accelerated to 51.4 in August from 50.4 in July, outperforming consensus estimates of 50.6.
• Turning to Japan (JP), headline retail sales surged 4.0% year-on-year (YoY) in July, comfortably beating the consensus forecast of 3.0% and accelerating from a revised 0.6% prior
• Japanese preliminary industrial production rose 0.1% MoM in July, topping expectations for a 0.6% contraction following a 1.9% rise in June
• Across Europe, euro area headline inflation accelerated to 3.3% YoY flash in August from 2.9% prior, matching consensus, while core inflation eased to 2.4% YoY flash against expectations of 2.5%
• Euro area unemployment held steady at 6.4% in July, coming in slightly above the consensus forecast of 6.3%
• Down under, Australian Q2 GDP expanded 0.4% quarter-on-quarter (QoQ) and 2.1% YoY, exceeding consensus forecasts of 0.3% QoQ and 1.8% YoY
• Australia's trade surplus printed at A$1.923 billion for July, falling from a revised A$2.341 billion prior but topping market forecasts of A$1.40 billion
• In New Zealand (NZ), the Reserve Bank of New Zealand (RBNZ) delivered a 25 basis point (bp) rate hike, lifting its Official Cash Rate (OCR) to 2.75% in line with consensus expectations
• WTI crude oil rose 10.0% this week to $91.74
• The US dollar index (DXY) fell 0.70% this week to 98.98
• Bitcoin soared 4.0% this week to $80,800
• Gold gained 0.50% this week to $4476
• Wall Street's gauge of fear, the Chicago Board Options Exchange (CBOE) volatility index (VIX), eased to 14.31 this week from 14.42 the previous week.

Key dates for the week ahead

Australia & New Zealand

• AU – Westpac consumer confidence (September): Tuesday, 8 September at 10.30am AEST
• AU – National Australia Bank (NAB) business confidence (August): Tuesday, 8 September at 11.30am AEST
• AU – RBA Hunter speech: Tuesday, 8 September at 1.20pm AEST
• AU – RBA Hauser speech: Tuesday, 8 September at 7.30pm AEST
• NZ – Business New Zealand (Business NZ) PMI (August): Friday, 11 September at 8.30am AEST

China & Japan

• JP – current account (July): Tuesday, 8 September at 9.50am AEST
• JP – Q2 GDP final: Tuesday, 8 September at 9.50am AEST
• CN – trade balance (August): Tuesday, 8 September at 1.00pm AEST
• CN – exports YoY (August): Tuesday, 8 September at 1.00pm AEST
• CN – imports YoY (August): Tuesday, 8 September at 1.00pm AEST
• CN – inflation rate (August): Wednesday, 9 September at 11.30am AEST
• CN – producer price index (PPI) YoY (August): Wednesday, 9 September at 11.30am AEST
• CN – new yuan loans (August): Saturday, 12 September

United States

• US – PPI (August): Thursday, 10 September at 10.30pm AEST
• US – existing home sales (August): Friday, 11 September at 12.00am AEST
• US – consumer price index (CPI) (August): Friday, 11 September at 10.30pm AEST
• US – University of Michigan consumer sentiment preliminary (September): Saturday, 12 September at 12.00am AEST

Europe & United Kingdom

• EA – European Central Bank (ECB) interest rate decision: Thursday, 10 September at 10.15pm AEST
• EA – ECB press conference: Thursday, 10 September at 10.45pm AEST
• UK – GDP MoM (July): Friday, 11 September at 4.00pm AEST
• UK – goods trade balance non-EU (July): Friday, 11 September at 4.00pm AEST
• UK – industrial production MoM (July): Friday, 11 September at 4.00pm AEST
• UK – manufacturing production MoM (July): Friday, 11 September at 4.00pm AEST

Key events for the week ahead

AU: Westpac consumer confidence (September)

Date: Tuesday, 8 September at 10.30am AEST

Last month the Westpac-Melbourne Institute Consumer Sentiment Index rose to 88.9 from 83.9 in July, the highest reading since March. The lift was concentrated among mortgage holders after the RBA held the cash rate at 4.35% on 11 August, following three hikes earlier in the year. Despite the bounce, it was still viewed as a weak result.

'While consumers are feeling less pessimistic than last month, pessimists still outnumber optimists, especially about their current finances. The improvement in forward-looking views was also much less pronounced than for the questions covering current conditions. This suggests that pervasive uncertainty, including about the Middle East, is still weighing on sentiment to some extent.'

September's print must digest a much harsher backdrop. Last week's 3.6% trimmed mean inflation reading and this week's resilient Q2 GDP print, with annual growth at 2.1%, have pushed up the odds of a fourth rate hike this year while falling housing prices continue to dominate the headlines.

That is likely to provide a direct hit to sentiment and, in particular, mortgage rate expectations, which is usually what moves this survey around. A drop back into the low 80s is expected.

The Australian interest rate market is set to end this week pricing in 16 bp, or around a 66% chance of a 25 bp rate hike for the 29 September RBA Board meeting, with a full 25 bp hike priced for the RBA's 3 November Board meeting.

Australia consumer confidence chart

CN: inflation rate (August)

Date: Wednesday, 9 September at 11.30am AEST

Last month China's annual headline CPI slowed to 0.5% in July from 1.0% in June, a six-month low and below the 0.8% expected. Core inflation, excluding food and energy, eased to 0.9%, also a six-month low.

The decline has raised concerns that deflationary risks are re-emerging. Those concerns sit with policymakers tightening fiscal policy as export growth strengthens. That is landing while the property market remains a heavy drag and household deleveraging has intensified. In a nutshell, if households keep paying down debt at this pace and the fiscal squeeze holds, deflationary pressure can come back.

August is expected to show a rebound with estimates clustered around 0.9% YoY, driven by oil's rise during August.

China inflation rate chart

EA: ECB interest rate decision

Date: Thursday, 10 September at 10.15pm AEST

At its June meeting, the ECB delivered a 25 bp hike, the first since 2023, lifting the deposit rate to 2.25%. In the updated staff projections, headline inflation on the Harmonised Index of Consumer Prices (HICP), the official euro area measure and the one the ECB targets at 2% over the medium term, was revised higher, largely on a higher assumed path for energy prices and their indirect effects on food, goods and services.

At the 23 July meeting the Governing Council held all three key rates steady. ECB President Lagarde said the energy outlook was still close to the June baseline and well above pre-conflict levels: 'Uncertainty remains high and the full inflationary impact of the energy shock has yet to play out. We are therefore closely monitoring the intensity and duration of the shock, as well as its indirect and second-round effects.'

Earlier this week annual HICP inflation accelerated to 3.3% in August from 2.9% in July, the highest since September 2023, driven by energy inflation that jumped to 14.3%. Markets have fully priced a 25 bp hike next week to 2.50% and are also fully priced for a second 25 bp hike at the ECB's December meeting.

Euro area deposit rate chart

US: inflation (August)

Date: Friday, 11 September at 10.30pm AEST

July's CPI report showed the annual inflation rate slowing for a second month to 3.4% from 3.5% in June, in line with expectations and further below the 4.2% high reached in May 2026. Core CPI rose 0.2% after a flat June, taking the annual core rate down to 2.5% from 2.6%, matching forecasts and the softest reading in five months.

Last week Fed Chair Kevin Warsh sounded hawkish in his speech at Jackson Hole, noting that the Fed's 2% inflation target is not up for negotiation and that recent Personal Consumption Expenditures (PCE) and CPI readings were better than expected, but they do not tell him that underlying trends have meaningfully improved.

August's figures will be scrutinised for evidence of whether that core moderation is sustained, or whether energy starts leaking into the rest of the basket. Consensus expects core inflation to rise about 0.2% MoM, taking the annual core rate to 2.4%. Headline CPI is expected to remain at 3.5% YoY.

A hotter print, for example core inflation back at 0.3% MoM, would likely push hike probabilities higher again ahead of the 16 September Federal Open Market Committee (FOMC) meeting. The US rates market is set to finish this week pricing 13 bp of hikes for the Fed's 16 September meeting and 57 bp of hikes between now and June 2027.

US core inflation rate chart