Transcript:

The RBA cut rates, Commonwealth Bank (ASX:CBA) reports and CPI data was released in the US. It was a big week for news flow in markets.

I’m Michael Malseed, Head of Institutional Portfolio Management. Welcome to the Morningstar Market Minute, where we break down what happened this week in markets, and how it impacts portfolios.

On Tuesday the RBA met and decided to cut the official cash rate by 25 basis points. This is the third cut this year, as inflation has continued to moderate, but in the Board’s words: the economic outlook is uncertain. Importantly the central bank has firepower to react to any softening in economic conditions. Now the market is pricing in another couple of rate cuts by the end of the year.

In the US July inflation data came out, showing core CPI at 3.1%. This is the highest reading since February, showing stickiness in services inflation. The impact form tariffs hasn’t been as large as it could have, as a portion of that has been absorbed by corporates. The inflation numbers were balanced by weaker jobs data from last week, so the market is now expecting the Fed to cut rates in September, the first cut this calendar year.

Meanwhile as Australian reporting season rolls on we saw the ASX’s largest company CBA report earnings. They were in line with expectations, with cash profit growing by 4%. But it wasn’t enough to sustain its lofty share price which fell over 5% on the day, to end around 11% below its recent peak. This goes to show that even the best companies have to succumb to valuation limits at some point.

In portfolios our positioning remains broadly unchanged, preferring the diversification of global equites over Australian shares, and searching for pockets of attractive value in what remain generally fully priced markets.

That’s it for this week. Thanks for watching, and we’ll be back with more next Friday.