US equity markets last week closed out the best quarter since 2020, in a rally driven by AI-related big tech.
The S&P 500 rose 1.8% for the week and finished up 14.9% for Q2 2026.
The S&P/ASX 300 gained 1.1% last week. Its 4.14% return for Q2 was solid, but it is cycling a weak year (+2.8% calendar year to date) with the impact of three rate rises, a sluggish domestic economy and a broadening housing downturn all weighing on performance.
It has been held back relative to the US because it lacks a clear set of AI beneficiaries.
That said, over the past two weeks some of the softer sectors – such as healthcare, consumer discretionary and software – have recovered.
Last week was also stronger for most global equity markets, apart from Korea (KOSPI Composite -3.8%) which saw a late rotation away from chip makers.
The broad-based US Russell 2000 also marked time (-0.4%), but it has had a very strong calendar year-to-date (YTD) performance (+21.4%).
The US–Iran accord has helped ease supply, with Strait of Hormuz voyages reportedly quadrupling last week, reinforcing confidence that oil supply can normalise through the second half of 2026.
Citibank has suggested that Brent crude prices could retrace to US$60–65 per barrel by the end of 2026, as the market shifts back toward surplus.
The other global hot spot, Ukraine, looks more likely to flare up with Ukrainian military successes potentially drawing an unpredictable Russian response.
AI/data centres
The scale and scope of the AI/data centre (DC) buildout continues to have knock-on effects.
For reference, the total hyperscaler AI capex spend is estimated to be just shy of US$700 billion in FY26 and is quickly nearing the scale of the US Department of Defence’s FY26 budget of roughly US$900 billion.
Chip prices
Apple is looking at buying memory chips from two Chinese semiconductor makers, ChangXin Memory Technologies and Yangtze Memory Technologies, to ease the impact of a global memory shortage that has forced price hikes across its product lines.
This year prices for standard DRAM/NAND chips have increased by 50-60% as suppliers shift capacity toward AI-related customers.
The issue is these two Chinese companies sit on a Pentagon blacklist. Apple has proposed using chips from these companies specifically for devices sold in the Chinese market, freeing up chips from other suppliers for the US.
Apple CEO has lobbied Trump administration officials for clearance to make these purchases.
Stress on the US grid
PJM Interconnection, the largest power grid operator in the US operating across 13 states – including the world’s largest DC cluster, has seen demand levels hit a two-decade high on the back of a heatwave and DC power demand.
The US Department of Energy stepped in with an emergency order, authorising PJM to force large DCs onto backup generators during peak hours, turning idle capacity into a pressure valve for the power system.
This is testing a thesis pushed by US-based, Goodman Group-lookalike Prologis that DCs can act to stabilise the grid. The outcome is important because of growing community-based opposition to DC rollouts.
Meta hits pause
Meta has changed tack in its AI/DC rollout, looking to create an enterprise cloud business like Amazon AWS or Microsoft Azure.
This is a change in the business landscape where most assume the whole rollout strategy is simply an unbridled rush to stake out the fertile ground in the AI/DC opportunity set.
Instead, Meta opted to pause and seed an enterprise cloud business.
US policy and macro
US labour data was on the softer side. Payrolls rose just 57,000 in June, roughly half expectations.
This is putting the Federal Reserve (Fed) back in a difficult spot; inflation is still too high, but the labour market is no longer giving it a free option to stay hawkish.
The AI boom is counterbalancing the balance of the economy, which is stagnant or possibly even in shallow recession.
Business strength may increasingly show up as compute capex and token spending, rather than actual jobs growth.
After three good reports in a row, the June employment report was weak, and in some respects even negative.
Initial jobless claims continued to be low (unchanged at 215,000). On a year-on-year basis, they are down 6.9% and continuing claims are down 7.2%.
This series continues to be one of the two most positive short leading indicators for the economy, along with the stock market.
But the pattern of downward revisions to payrolls for previous months resumed. April was revised lower by 31,000, and May was revised lower by 43,000, for a total decline of 74,000.
Aggregate hours worked for non-managerial workers declined 0.4%. Aggregate payrolls for non-managerial workers also declined 0.1%.
The challenge for the Fed is that inflation is stubbornly high above 3%, while its target is 2%.
Fed Chairman Kevin Warsh is still fighting inflation-first. His message that the Fed “will deliver price stability” keeps the bias toward higher rates, with markets now pricing only one hike by year-end.
The tension is that a weakening jobs market would normally point towards rate cuts.
Australia policy and macro
The Reserve Bank of Australia (RBA) minutes released last week noted that the economy was “easing broadly as expected” and that “there was merit in using the space provided by the board’s earlier decisions to raise the cash rate target to assess how the economy was adjusting”.
The board assessed financial conditions were “somewhat restrictive” and noted that “monetary policy needed to remain restrictive to unwind current excess demand”.
The issue for the RBA is that non-discretionary items (electricity, rents, insurance, education and health) are running at 5.1% price growth.
A number of these are structural, for example the impact of the housing shortage.
The RBA needs the economy to run below trend for a period and that probably equates to 1.5% GDP growth.
Australian capital-city dwelling prices fell 0.6% month/month in June, after a 0.5% decline in May, as the market continued to soften under the weight of multiple rate hikes, the federal budget’s housing-policy changes, a softening economy, and still-elevated house-price-to-income ratios.
National prices fell 0.4% month/month, taking the June quarter decline to 1.3%, the largest fall in almost four years.
Sydney (-1.2%) and Melbourne (-1.0%) led the monthly declines, while smaller capitals held up better but also eased (Perth +0.7%, Brisbane +0.3% and Adelaide unchanged.)
Auction clearance rates remain well below average.
The rental market remains tight, with vacancy rates at 1.6%, well below the long-term average of 2.5%.
In its recent minutes, the RBA noted that housing had been weaker than anticipated, this makes future rate hikes less likely.
Australia’s old line that “housing is the economy” still has some truth to it; retail sales and confidence are impacted when house prices fall. For now, house price weakness is likely to spread until a new positive catalyst appears.
Markets
Japanese bond yields and currency
The yen has declined to a new four-decade low against the US dollar, amid speculation that the Ministry of Finance would step in again by selling dollars and buying yen.
Since the beginning of 2021, the yen has plunged 37% against the US dollar. Since the beginning of 2012, it has fallen 53%.
Given the yen’s collapse and imported inflation pressures, the Bank of Japan has been forced to do quantitative tightening, which has contributed to surging long-term yields, and rate hikes.
There is no easy exit for the BOJ. Near term this exerts upward pressure on world bond markets and means more competition for Japanese capital.
Korean and chip market shakeout
In late June the US share market rotated back to some value and oversold sectors, as concerns build about the chip/AI trade.
After a strong spring rally to record highs, the ‘Magnificent Seven’ and energy names weakened into month-end, reflecting a combination of rate-hike concerns, profit-taking, sell-offs in Micron, reported delays to the OpenAI IPO, and Apple and Microsoft price increases.
Investors are questioning whether AI optimism has pushed chip valuations beyond reasonable levels.
Goldman Sachs highlighted one of the clearest signs of AI euphoria last month – the Hong Kong-listed CSOP SK Hynix 2x leveraged ETF had grown into the world’s largest single-stock leveraged ETF by a considerable margin.
The Apple proposal to embrace Chinese memory suppliers is causing concern about competitive dynamics in the world’s largest electronics market.
Australian equities
The S&P/ASX 300 gained 6.16% in FY26, significantly underperforming international markets.
Put simply, Australia lacks an AI/chip story comparable to those investors can find in the US and through Asian markets.
At the same time, the Australian domestic outlook has come under pressure over the last six months.
At the sector level, Tech and Healthcare have struggled while Materials and Energy have outperformed.
This past week saw a reversal of FY26 trends, with Tech and Healthcare recovering. Interest rate-sensitive sectors remained weak.
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