Global wrap

Global markets continued their positive momentum through the September quarter, with all major asset classes delivering gains. Global shares led the way — extending a five-month rally — while gold prices climbed steadily, fuelled by uncertainty over the long-term direction of US policy.

So far in FY26, global economic conditions remain broadly supportive. Fiscal and monetary policy are working together to sustain growth, and technology productivity continues to drive global stock performance. However, questions linger over the US economic outlook. Tariffs are now taking full effect, immigration has slowed, and the risk of another government shutdown has re-emerged. US payroll growth appears to be losing momentum, prompting the Federal Reserve to begin easing interest rates. Yet inflation remains stubbornly high — with core inflation at 2.9%, above the 2% target.

Many investors are asking, “Will the Fed cut interest rates further?” While more cuts are possible, elevated inflation limits how far rates can fall. Offshore investors are also watching closely — concerns could intensify if US policymakers pressure the Fed into rate reductions that appear politically motivated rather than economically justified.

Meanwhile, the combination of fiscal stimulus from the government’s “One Big Beautiful Bill” and monetary easing from the Fed presents both opportunity and risk. While it supports company earnings in the short term, questions remain about long-term sustainability. Can the US continue to run multi-trillion-dollar deficits while inflation sits above target? These doubts, along with rising geopolitical tensions, help explain why gold continues to rally.

One reassuring sign is that US bond yields remain steady — the 10-year Treasury sits around 4.14% — suggesting bond markets still have confidence in US fiscal management. If yields were to rise above 4.5% and the US dollar weakened, that would signal growing market concern about US fiscal and monetary credibility.

Australian wrap

In contrast to global uncertainty, Australia’s economic outlook remains relatively positive. Core inflation is gradually returning to target (2–3%), and both monetary and fiscal policy are becoming more supportive heading into FY26.

The key risk lies in global trade volatility, particularly as it affects Asian demand for Australian commodities. So far, however, the commodity story has been encouraging — gold, copper and beef prices are strong, and even iron ore has shown resilience. Importantly, the US has maintained a relatively modest 10% tariff on Australian exports, helping to sustain trade activity.

A major development during the quarter was the RBA’s decision to cut interest rates, lowering the cash rate from 3.85% to 3.60% in August 2025. Headline inflation has edged higher, but core inflation remains contained around 2.6%, and there is speculation the RBA could deliver another 0.25% rate cut at its November meeting.

Fiscal conditions also look stable. The FY25 federal budget deficit came in at a modest –$11 billion, with government debt still moderate at 40–50% of GDP. Australia retains its AAA sovereign credit rating, while the US has been downgraded to AA+.

Recent company reporting shows mixed results, with softer profits and dividends in the resource and energy sectors. However, outlook commentary suggests earnings growth could rebound in FY26, supported by government spending and lower borrowing costs. Notably, the resource sector has already begun to recover, leading returns in the September quarter. The main risks remain tied to global trade disruptions and slower growth in overseas markets.

Investors are asking, “Will the RBA keep cutting interest rates?” The answer will depend on inflation data, but current trends suggest at least one more cut is possible this cycle — a positive sign for households and businesses alike.

Key known risks

1. Escalating US trade policies disrupt global supply chains and the US economy.
2. Inflation rises again, limiting monetary policy flexibility.
3. China’s economy underperforms, reducing demand for Australian exports.
4. Geopolitical or climate-related events impact global financial markets.