The domestic focus last week was Wednesday's July CPI, and it was not the one the Reserve Bank wanted. Headline inflation eased to 3.5% over the year on base effects, despite a roughly 6% monthly rise in fuel prices, but the trimmed mean held at about 3.6%, and rose 0.5% in the month, well above expectation, with the pressure broad-based across goods and services rather than concentrated in one or two misbehaving components. The RBA's own forecast for August sees an acceleration to 0.83% and markets have moved to a coin toss for a hike in September and if not one is fully priced for November.

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Australia's August reporting season is drawing to a close, and the more interesting story is not the earnings themselves but what they triggered. CSL guided to flat revenue and rose 20%. Private equity bids arrived for Cleanaway, Equity Trustees, Perpetual, Steadfast and Reliance Worldwide. Meanwhile, the banks drifted the other way as mortgage applications rolled over post-Budget. This week, we look at what the rotation means for diversified portfolios and whether it has a second leg.

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The ASX 300 fell 0.6% last week, but the index number disguised a sharp change in leadership

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The RBA dominated the local week, holding the cash rate as universally expected but with a deliberate hawkish tilt. 

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Australian small caps are usually treated as a satellite, added when markets feel buoyant and trimmed at the first sign of trouble. The S&P/ASX Small Ordinaries is not a miniature ASX 100 though, and it is not the banks and iron ore that drive it. We speak with Ben Griffiths of Eley Griffiths Group about what small caps genuinely add to a diversified portfolio, and why valuations make this a better than usual moment to be asking.

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With 88% of the S&P 500 now reported, second-quarter blended earnings growth stands at 50.4% — the strongest since Q2 2021 — on revenue growth of 15.0%, itself the best since late 2021. The headline flatters, though. Alphabet's result included a US$98 billion unrealised gain on equity securities and Amazon's a US$53.4 billion gain on its Anthropic investment; strip those paper gains out and earnings growth is a still-remarkable 32%

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The last week of July was another round trip for markets with the NASDAQ and chip heavy emerging markets indices off 4–5% earlier in the week before making most of it back in the final sessions. Over the month the pain was concentrated exactly where the year's gains had been: Korean stocks, mainly the chipmakers that now make up some 28–32% of the emerging-markets index, fell around 10%, moving in near lockstep with the NASDAQ. At the other end of the spectrum, the Australian market rose about 2%. Three things are feeding the uncertainty: geopolitics, a regime change in US monetary policy, and a US reporting season revealing a bifurcation in how investors view big tech's differing approaches to the AI rollout

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The job of multi-asset investors is to build portfolios where a concentrated, catalyst-driven strategy has the space and the time horizon, five to seven years, to do what it does, without being rolled out at the worst possible moment.
 
This week, JR spoke to James Hawkins of L1 Capital about what it takes to run ten stocks through stretches where high-conviction, value-driven investing was decidedly out of favour.

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Rising GDP does not reliably translate into returns in emerging markets. The index is dominated by state-owned enterprises, political conglomerates and whichever theme is in vogue. Today that’s semiconductors, at more than 40% of the index. 

We speak to Rahul Desai of Aikya, who focuses on cash-generative domestic franchises across India, Brazil and South Africa that have compounded at 10–15% in US-dollar terms for two decades. Their core principle is that you lose money two ways, by buying poor quality or by overpaying.

Australian employment and US earnings led the news last week. The story is a familiar one wearing new clothes: an energy shock testing disinflation progress just as markets question the AI capex boom's cash generation. 

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