Australian Bond Exchange Weekly Update
02 Jul 2026
Market Insights
- Australia’s labour market shows early signs of cooling
- Japan’s retail sales surprise reinforces BOJ normalisation case
- China’s PMI turns positive as export demand holds firm
Key Points
- Australia: The RBA left the cash rate unchanged at 4.35% p.a. at its June meeting. May CPI eased to 4.0% p.a., while Trimmed Mean rose to 3.60% p.a. from 3.4% p.a. in April.
- United States: The Federal Reserve left the federal funds rate unchanged at 3.50%–3.75% p.a. at its June 2026 meeting. The latest U.S. CPI inflation rate was 4.2% p.a. as of May 2026, while Core CPI was more contained at 2.9% p.a.
- United Kingdom: The Bank of England held Bank Rate steady at 3.75% p.a. CPI for May was 2.8% p.a., with Core CPI slowing to 2.6% p.a.
- Eurozone: The European Central Bank increased its key deposit facility rate by 0.25% to 2.25% p.a. Recent data show inflation in the euro area increased to 3.2% p.a. in May, up from 3.0% in April.
| Region | Policy Rate | Latest Inflation (YoY) |
|---|---|---|
| Australia | RBA Cash Rate 4.35% p.a. | 4.0% p.a. to May 2026 |
| United States | Fed Funds 3.50%–3.75% p.a. | 4.2% p.a. to May 2026 |
| United Kingdom | Bank Rate 3.75% p.a. | 2.8% p.a. to May 2026 |
| Eurozone | Deposit Facility Rate 2.25% p.a. | 3.2% p.a. in May 2026 |
Australia’s Labour Market Shows Early Signs of Cooling
Australia’s labour market is gradually softening, with employment growth remaining subdued. While the unemployment rate edged down to 4.36% from 4.48%, the three-month average ticked slightly higher, suggesting a more stable but slowly weakening trend.The data align with softer business activity indicators, a weaker property market and easing price pressures, suggesting that higher interest rates are increasingly weighing on economic momentum.
What this means for fixed income markets: The gradual cooling in labour demand supports the case for the Reserve Bank to remain on hold in the near term, with moderating wage and inflation pressures providing a constructive backdrop for credit fundamentals and bond valuations.
Japan’s Retail Sales Surprise Reinforces BOJ Normalisation Case
Japan’s May retail sales exceeded expectations, highlighting the resilience of household spending despite higher interest rates and persistent inflation. Strong wage growth, government cost-of-living subsidies and robust tourism supported broad-based gains, particularly in vehicles, pharmaceuticals and department store sales. However, consumers are showing greater price sensitivity, with faster growth at lower-cost drugstores than convenience stores, suggesting household budgets remain under pressure. For fixed income markets, the data reinforce the view that domestic demand remains sufficiently robust to support the Bank of Japan’s gradual policy normalisation. That said, rising underlying inflation, the fading impact of subsidies and downside risks to consumer spending mean the pace of further rate hikes is likely to remain measured rather than aggressive.Why this is important: Japan’s transition away from decades of deflation has global implications. Higher domestic yields could contribute to the unwinding of yen carry trades and reduce demand for overseas bonds, which may add volatility to global fixed income markets.
China’s PMI Turns Positive as Export Demand Holds Firm
China’s official manufacturing PMI unexpectedly returned to expansion territory in June, rising to 50.3 from 50.0 in May and beating market expectations. The non-manufacturing PMI edged up to 50.2, while the composite PMI increased to 50.6, signalling a modest improvement in overall economic activity. The recovery was driven largely by stronger production, improving new orders and resilient demand for AI-related and other high-tech exports. However, domestic consumption, the property sector and employment remain subdued.Economic calendar
World Economic Calendar
Scheduled economic releases and policy events for 06 Jul – 09 Jul 2026.
| Date / Time | Country | Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| Mon, 06 Jul11:00 AM | AU | Melbourne Institute Inflation MoMPeriod: Jun | Jun | — | -0.30% |
| Mon, 06 Jul7:00 PM | EC | Retail Sales MoMPeriod: May | May | 0.30% | -0.40% |
| Mon, 06 Jul7:00 PM | EC | Retail Sales YoYPeriod: May | May | 1.60% | 1.00% |
| Tue, 07 Jul10:30 PM | US | Trade BalancePeriod: May | May | -$78.8b | -$55.9b |
| Thu, 09 Jul4:00 AM | US | FOMC Meeting MinutesPeriod: 17-Jun | 17-Jun | — | — |
| Thu, 09 Jul11:30 AM | CH | CPI YoYPeriod: Jun | Jun | — | 1.20% |
| Thu, 09 Jul10:30 PM | US | Initial Jobless ClaimsPeriod: 4-Jul | 4-Jul | — | — |
Market Insights
- Australia’s May Inflation Drops to 4.0% p.a.
- Sydney Airport 2030 Inflation-Linked Bond: A Great Way to Hedge Against Inflation
- UK – 7 Prime Ministers in 10 years
- US preliminary PMIs strengthened in June
Key Points:
- Australia: The RBA left the cash rates unchanged at 4.35% p.a. at its June meeting. May CPI eased to 4.0% p.a., while Trimmed Mean rose to 3.60% p.a. (up from 3.4%p.a. in April).
- United States: The Federal Reserve left the federal funds rate unchanged at 3.50%–3.75% p.a. at its June 2026 meeting. The latest U.S. CPI inflation rate is at 4.2% p.a. as of May 2026. Core CPI was more contained at 2.9% p.a.
- United Kingdom: The Bank of England held Bank Rate steady at 3.75% p.a., and CPI for May was 2.8% p.a., with Core CPI slowing to 2.6% p.a.
- Eurozone: The European Central Bank increased its key deposit facility rate by 0.25% to 2.25% p.a., and recent data show inflation in the euro area increased to 3.2% p.a. in May, up from 3.0% in April.
| Region | Policy Rate | Latest Inflation (YoY) |
|---|---|---|
| Australia | RBA Cash Rate 4.35% p.a. | 4.0% p.a. to May 2026 |
| United States | Fed Funds 3.50–3.75% p.a. | 4.2% p.a. to May 2026 |
| United Kingdom | Bank Rate: 3.75% p.a. | 2.8% p.a. to May 2026 |
| Eurozone | Deposit Facility Rate: 2.25% p.a. | 3.2% p.a. in May 2026 |
Australia’s May Inflation Drops to 4.0% p.a.
Sydney Airport 2030 Inflation-Linked Bond: A Great Way to Hedge Against Inflation
We are currently building a book for the Sydney Airport CPI+3.12% 2030 inflation-linked bond, which offers an attractive way to hedge your fixed income portfolio against inflation. Please email us or contact your advisor if you are interested.
How does an inflation-linked bond work?
Inflation-linked bonds are bonds where the value and/or interest payments increase with inflation. When inflation rises, the bond’s principal is adjusted upward, and the coupon is paid on the upward-adjusted principal. This helps protect your money’s purchasing power from rising prices.
UK Faces 7th Prime Minister in 10 years
Earlier this week, the sixth post-Brexit prime minister resigned. Keir Starmer, who won a landslide election less than two years ago, lost the trust of voters and many officials in his own party. The recent resignation of the British Prime Minister highlights a decade of political turmoil that began with the Brexit vote. As the country prepares for its seventh leader in ten years, deep-rooted economic challenges, exacerbated by leaving the European Union, remain severe enough that a simple change in leadership cannot resolve them.
US preliminary PMIs strengthened in June
US preliminary PMIs strengthened in June, with the S&P Global Composite PMI rising to 52.2 from 51.5 in May, signalling continued expansion in private-sector activity. The three-month average remains near 51.8, consistent with moderate economic growth and supportive of credit fundamentals. However, the S&P PMI continues to point to a softer growth backdrop than the ISM Composite Index, which is closer to 54 and implies stronger momentum.
Why is this important: The June PMI data indicate that US economic growth remains solid and has strengthened modestly from May. This reinforces a higher-for-longer Fed outlook by reducing the urgency for rate cuts.
*Data accurate as at 02.07.2026
Disclaimer: This webpage has been prepared by Australian Bond Exchange Pty Ltd ACN 605 038 935 AFSL 484453 (ABE). The information contained in it is of a general nature only. It was prepared without considering your financial needs, circumstances and objectives. Before investing in this security, you should consider whether it is appropriate for your circumstances and review the Master PDS and PDS. This website may contain links to other third-party websites, some of which require a subscription to read. Such links are for your convenience only, and ABE does not recommend or endorse these third-party sites. No representation or warranty is made as to the accuracy, completeness or reliability of any estimates, opinions, conclusions, or other information contained in this website. This website may contain certain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors, many of which are beyond our control. Past performance is not an indication of future performance. To the maximum extent permitted by law ABE disclaims all liability and responsibility for any direct or indirect loss or damage that you may suffer as a result of relying on anything on this webpage.