Market Performance
Share and bond prices rose in August, supported by strong U.S. corporate earnings and softer labour data that increased expectations of imminent rate cuts. The Australian share market gained 3.1%, while global shares rose 2.1% as measured by the MSCI World Index in Australian dollar terms. Listed property also performed strongly, with Australian and international property up 4.47% and 3.63% respectively. Bonds slightly underperformed cash as yields remained under pressure due to ongoing inflation concerns, particularly in the U.S. where tariffs are contributing to price pressures.
United States
The U.S. share market rally was underpinned by robust earnings results and growing expectations for rate reductions by the Federal Reserve. Economic activity has stagnated since the last FOMC meeting, with most districts reporting little or no growth in output or employment. Labour market data showed slowing payroll growth, suggesting a weaker but stable jobs market that should help contain services inflation. However, goods inflation continues to rise, contributing to overall inflationary pressure. Conflicting inflation data emerged during the month, with producer prices cooling while consumer prices accelerated. Core consumer inflation rose around 3.1%, driven by tariffs, with goods inflation at 1.5% and services inflation steady at 3.6%. Housing market weakness continues to weigh on growth as high mortgage rates and slowing consumer spending limit residential investment.
Australia
The Australian economy expanded by 0.6% in the June quarter and 1.8% over the year, showing modest but positive momentum. Growth was supported by stronger consumer spending, which benefited from higher incomes, tax and interest rate cuts, and moderating inflation. Retail discounting also boosted household consumption. Despite this, markets remain uncertain about how far the Reserve Bank of Australia will go in easing monetary policy, particularly after stronger-than-expected inflation data in the consumer price index. It is now expected that there may be one further rate cut before the RBA adopts a neutral stance.
Europe
In Europe, the European Central Bank kept monetary policy unchanged, expressing confidence in achieving a soft landing. Domestic activity has held up despite weaker U.S. demand, but sentiment remains fragile due to U.S.–EU tariffs. Economic momentum has slowed, and tight financial conditions—driven by a strong euro and elevated German bond yields—are constraining growth. While peripheral economies are reducing debt and supporting consumption, external risks such as a slowing U.S. economy or further yuan depreciation in China could prompt additional easing by the ECB.
China
China’s economy weakened further in August, with key indicators missing market expectations. Retail sales rose just 3.4% over the year, the lowest since late 2024, while industrial production growth slowed to 5.2%, a 12-month low. Fixed-asset investment declined, weighed down by real estate and soft private investment. The persistent downturn in property continues to drag on consumer confidence. Housing data showed both new and used home prices falling by around 0.3% to 0.6% in August, suggesting continued pressure on homeowners. Analysts expect further short-term stimulus, including an additional 0.1% interest rate cut and a 0.5% reduction in the reserve requirement ratio.
Outlook
Although share markets in Australia and the U.S. remain expensive, there are signs of selective value emerging, indicating potential sector rotation in the months ahead. Concerns remain about political interference in U.S. monetary policy and the risk that rates could be cut too aggressively. Combined with the ongoing fiscal challenges in the U.S., these factors could set the stage for a period of slower growth and persistent inflation, raising the prospect of a stagflationary environment developing in 2026.
