Summary

Market performance was broadly positive in January, with heightened geopolitical risks and monetary policy shifts creating intra-month volatility and resulting in some notable capital rotations within markets.

Gold and other precious metals were the standout performers, supported by strong ETF flows throughout the month, notwithstanding a sharp reversal on the last trading day of January. Emerging markets performed strongly, also benefitting from increased capital allocations as well as a weakening US dollar and price appreciation from locally based semiconductor manufacturers. US equity markets rotated toward energy, materials, and industrials, as the artificial intelligence (AI) thematic awaits further validation of an uplift in earnings.

Selected market returns (%)

January 2026

Sources: *FTSE EPRA/NAREIT DEVELOPED, **FTSE Global Core Infrastructure 50/50 Index

Financial markets

Global equity markets rose over January to post modest gains, with the MSCI World Index (USD) up 2.26%. The AI thematic continued to influence markets, with the market preferring hardware over software names. Rising commodity prices also influenced overall market returns, particularly within precious metals. US bond yields increased on the back of firmer labour and inflation data, potentially delaying previously expected near-term rate cuts.

Australian equities

The S&P/ASX All Ordinaries Index made a positive start to the 2026 calendar year, gaining 1.62% in January. Overall market returns were driven primarily by sector rotation, commodity strength, and a reassessment of monetary policy expectations, rather than broad-based risk-on sentiment.

While the ASX delivered modest gains overall, performance was uneven, with index returns heavily influenced by a small number of large resource stocks.

The resources sector was the dominant contributor. Elevated gold prices, supported by geopolitical uncertainty and demand for inflation hedges, underpinned strong performance from gold producers and diversified miners. Strength in copper and other industrial metals further supported materials stocks, with large-cap names such as BHP and Rio Tinto performing well.

By contrast, rising interest rate expectations became a headwind as higher bond yields weighed on equity valuations, particularly for long-duration growth sectors such as technology and REITs. The S&P/ASX Small

Ordinaries Index also gained, returning 2.74%. Performance was strongest in resource-oriented small caps, particularly gold and base-metal explorers and producers, which benefited from elevated commodity prices.

Global equities

Whilst global equity markets trended higher over the month, inflation data across key developed economies, particularly the US, remained firmer than expected, while labour markets remained resilient. This prompted bond markets to react, pushing government bond yields higher. As real yields rose, equity markets began to price less tolerance for elevated multiples, especially in interest-rate-sensitive segments.

Long-duration growth stocks, particularly in technology and consumer discretionary sectors, faced valuation headwinds. In contrast, value-oriented and cyclical sectors such as energy, financials, and industrials attracted flows.

In the US, performance was positive across all major Indices with the S&P 500 Index gaining 1.45% (USD). Small caps also continued their strong run, with the Russell 2000 Index posting positive returns of 5.35% (USD).

Emerging markets returned 8.86% (USD), primarily driven by AI supply chain leadership, a weakening US dollar, and supportive policy shifts in China.

Commodities

Appreciation of the price of gold continued, with the precious metal returning 16.32% (USD) for the month. Momentum buying further amplified gains, with a wave of purchases from speculators adding froth to the rally which exacerbated a pull back on the last day of the month.

West Texas Intermediate (WTI) crude oil also gained 12.64% (USD) as markets grappled with rising geopolitical risks, first with respect to Venezuela and more recently Iran. Oil price gains in January were also supported by production outages in Kazakhstan,

US production freeze offs, and tighter US restrictions on purchases of Russian oil.

Bond markets

US and Australian bond markets were influenced by a repricing of interest rate expectations toward a higher-for-longer outlook.

In the US, firmer inflation data and continued labour market resilience pushed treasury yields higher across the curve, as markets pared back expectations for near-term Federal Reserve rate cuts. The US 10-year treasury yield moved 10bps higher to 4.26%.

Australian bonds followed a similar pattern. Upside surprises in domestic inflation data prompted markets to reassess the likelihood of the Reserve Bank of Australia (RBA) easing, consequently pricing in higher probabilities of monetary tightening. This lifted yields across short and intermediate maturities, while longer-dated bonds remained sensitive to global rate dynamics.

Economic developments

Stubborn inflation

January inflation prints, particularly in the US and Australia, came in firmer than expected, reinforcing concerns of stalling disinflation. January releases drove a material repricing of interest rate expectations, pushing bond yields higher and somewhat weighing on equity valuations, especially in long-duration growth assets.

Domestically, the latest figures showed inflation remaining elevated, with annual headline CPI rising to 3.8% in December, up from 3.4% in November. Underlying inflation also firmed, with the monthly trimmed mean, which removes volatile items, rising 0.2% month-on-month and 3.3% year-on-year. Housing continues to be the largest contributor to CPI, driven by sharp increases in electricity costs, rents, and new dwelling prices, while food and recreation also added upward pressure. The strength in rents and construction costs will make it difficult for overall inflation to return to 2.5% in the near term, particularly with many service categories still rising above 3%.

With inflation still sitting well above the RBA’s 2–3% target range, the data reinforces expectations that the interest-rate cutting cycle has ended unless the labour market deteriorates significantly. As a result, market participants are widely expecting to see the

RBA move to a hiking cycle. In prior meetings, the Board has highlighted that inflation has picked up, although uncertainty remained if this was a temporary spike.

Labour market data

Employment reports showed continued labour market resilience across key developed economies, most notably the US. Strong job growth and wage persistence undermined the case for imminent rate cuts and validated central banks’ cautious stance.

Payroll growth remained solid in the US, the unemployment rate stayed low by historical standards, and participation showed limited deterioration. Importantly for markets, wage growth proved sticky, particularly in the services sectors, signalling ongoing domestic inflation pressure. This combination reduced confidence that inflation would continue to decelerate smoothly and prompted markets to push back expectations for Federal Reserve rate cuts.

Similar dynamics were evident in Australia, where employment growth and low unemployment reinforced the RBA’s cautious stance. Headline labour data suggested demand for labour remained resilient, limiting policymakers’ flexibility.

For investors, the persistence of tight labour conditions mattered less for growth optimism and more for policy credibility where resilient employment implies central banks cannot pivot dovish without risking renewed inflation.

Outlook

Global economic growth is expected to remain resilient but below longer-term trends, supported by broad fiscal stimulus and robust corporate earnings.

Earnings growth is expected to remain a pivotal driver for ongoing equity market performance. As 2026 begins, many major equity markets are benefiting from resilient profit trends, led by the US and parts of Asia.

This trend continues to provide a broadly supportive backdrop for risk assets.

Structural themes, most notably the AI thematic, are reinforcing this outlook. Early signs of revenue acceleration are emerging among a subset of companies, suggesting that recent investment may be starting to translate into commercial outcomes. While confirmation of a durable uplift in earnings is still developing, the medium-term implications are constructive if productivity improvements persist as multi-year growth drivers.

Near-term market conditions are likely to remain volatile as investors respond to shifts in geopolitics, macroeconomic indicators and evolving policy settings. Against this backdrop, portfolio flexibility and diversification remain important disciplines.

Major market indicators

Sources: Quilla, Refinitiv Datastream

Important information

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Summary

Market performance was mixed in November, with heightened volatility creating a clear divide between defensive and growth assets. After a sharp mid-month pullback, most major equity indices ended close to flat as sentiment oscillated between strong earnings results and growing caution around artificial intelligence (AI) driven optimism.

Infrastructure was the standout performer, supported by resilient income streams and sustained demand for utilities. Global equities finished broadly flat, while bond yields diverged as differences in rate cycles became more pronounced, with the US outperforming peers. Gold also recovered, edging back toward recent highs around US$4,220.

Selected market returns (%)

NOVEMBER   2025

Sources: *FTSE EPRA/NAREIT DEVELOPED, **FTSE Global Core Infrastructure 50/50 Index

Financial markets

Global equity markets ended flat in November, with the MSCI World Index (USD) up 0.31%, as investors grew more cautious on the AI thematic and questioned the sustainability of recent earnings strength and elevated capital expenditure. US bond yields continued to trend lower, driven by expectations of rate cuts over the next 12 months.

Australian equities

The S&P/ASX All Ordinaries Index fell -2.51% in November, bringing the calendar year-to-date (YTD) return to 5.36%.

The ASX underperformed global peers over the month, driven by a mix of stock-specific pressures and a more challenging

domestic inflation and interest rate backdrop. Commonwealth Bank, which had been trading at stretched valuation levels, retraced sharply and weighed on the broader financials sector. Investor appetite also shifted away from high-valuation growth names, reflecting a more cautious global tone as optimism around the AI cycle moderated.

Despite the weakness in financials and growth sectors, the materials sector provided support, with lithium companies rebounding after a difficult year and gold miners benefiting from higher prices.

The S&P/ASX Small Ordinaries Index fell -1.48%, reflecting the broader market trend as diminishing expectations of rate cuts weighed on sentiment across the small-cap sector.

Global equities

In the US, performance was mixed with the S&P 500 Index edging up 0.25% (USD), the Nasdaq Composite fell -1.51% (USD), while the Russell 2000 Index gained 0.85% (USD).

Global equity markets experienced a volatile month as investors reassessed the durability of the AI-driven rally. Despite record earnings from Nvidia, investors are increasingly demanding clearer evidence that the unprecedented AI capex cycle, spanning data centres, chips, robotics, and cloud infrastructure, can deliver sustainable returns on the significant capital invested.

Emerging markets declined -2.38% (USD) as a stronger US dollar, and the AI-related sell-off weighed on sentiment, with MSCI Korea down -8.00% (USD) and MSCI Taiwan falling -5.01% (USD).

Commodities

Gold rebounded from its fall in October, ending the month up 5.56% (USD). West Texas Intermediate (WTI) crude oil fell -5.10% as markets grappled with a combination of softer demand indicators and rising supply.

Bond markets

Fixed income markets experienced notable swings over the month as investors reassessed the global monetary policy path. In the US, the 10-year Treasury yield drifted 8bps lower to 4.02%, reflecting growing expectations for 3–4 rate cuts by the end of next year. In contrast, Australia’s 10-year bond yield rose 30bps to 4.53%, driven by stubborn domestic inflation and a more hawkish Reserve Bank of Australia (RBA), relative to global peers.

Credit markets held up well, supported by healthy corporate balance sheets and solid corporate earnings trends. However, there is limited room for further spread tightening unless global growth meaningfully re-accelerates.

Economic developments

The economic data blip

The recent 43-day US federal government shutdown resulted in a significant disruption to US data visibility.

The Bureau of Labour Statistics (BLS) confirmed that October’s Employment Report, including the unemployment rate, would be cancelled after the shutdown halted essential data collection. October nonfarm payrolls will be merged into November’s release, while the October CPI report was also cancelled, with figures only to be published where data can be reliably reconstructed alongside November 2025 CPI. The shutdown is expected to weigh on fourth-quarter GDP before contributing to a mechanical rebound in Q1 2026.

The absence of timely information has increased uncertainty around the near-term path of US monetary policy, especially amid concerns about sticky inflation and weakening labour market conditions heading into year-end.

Despite this, markets are currently pricing in an ~ 88% probability of a rate cut at the Federal Reserve’s (Fed) meeting in December.

The new datapoint everyone will be watching

Australia has shifted to a monthly Consumer Price Index (CPI) framework, moving away from the quarterly series to improve the timeliness of inflation monitoring.

The latest figures showed inflation picking up again, with annual headline CPI rising to 3.8% in October, up from 3.6% in September. Underlying inflation also firmed, with the monthly trimmed mean, which removes volatile items, rising 0.3% month-on-month and 3.3% year-on-year. Housing was the largest contributor to the CPI rise, driven by sharp increases in electricity costs, rents, and new dwelling prices, while food and recreation also added upward pressure. The strength in rents and construction costs will make it difficult for overall inflation to return to 2.5% in the near term, particularly with many service categories still rising above 3%.

With inflation still sitting well above the RBA’s 2–3% target range, the data reinforces expectations that the interest-rate cutting cycle has ended unless the labour market deteriorates significantly.

As a result, the RBA held rates steady at its November meeting, with the decision unanimous and no consideration given to a rate cut. The Board highlighted that inflation has picked up, noting that the broader economy is showing signs of improving momentum. Domestic activity is lifting, consumption has firmed, the housing market continues to strengthen, and credit conditions have eased.

Outlook

Ultimately, earnings growth is the primary driver of equity returns.

With most major markets entering 2026 with solid earnings momentum, particularly in the US and parts of Asia, the backdrop for equities remains broadly constructive.

The accelerating AI thematic adds another layer of support, provided that productivity gains, data-centre investment and automation continue to deliver multi-year earnings tailwinds across sectors. While the path is unlikely to be linear, and questions remain around whether the scale of capital expenditure will ultimately generate sufficient returns, the potential for AI to be genuinely transformative offers a supportive narrative for long-term equity growth.

Volatility will remain a feature of markets as investors react to key macro factors, including inflation trends, labour-market data, and the evolving monetary and fiscal policy landscape. In this environment, remaining flexible and maintaining diversification remains essential.

Major market indicators

Sources: Quilla, Refinitiv Datastream

Summary

Equity markets strengthened in October, recording solid gains with little weakness across regions. Emerging markets continued to deliver solid performance, led by Asian regions as trade discussions advanced.

Within commodities, Gold continued to rally, topping $US4300 per ounce before experiencing a pullback. Bond markets experienced minor moves as the US Federal Reserve cut interest rates by 25 basis points as expected. In Australia, the Quarterly Consumer Price Index (CPI) release dashed expectations of a rate cut decision at the Reserve Bank of Australia’s (RBA) November meeting.

Selected market returns (%)

OCTOBER    2025

Sources: *FTSE EPRA/NAREIT DEVELOPED, **FTSE Global Core Infrastructure 50/50 Index

KEY MARKET AND ECONOMIC DEVELOPMENTS IN OCTOBER 2025

Financial markets

Global equity markets continued to deliver robust gains in October, with the MSCI World (USD) up 2.02%. Investors were encouraged by developments in trade deal discussions and solid earnings results from US companies. US Bond yields continued to trend lower on Fed easing.

Australian equities

The S&P/ASX All Ordinaries Index rose 0.49% in October, bringing the calendar year-to-date (YTD) return to 9.0%. Gains in the materials and energy sectors offset declines across

the healthcare, consumer discretionary, and information technology sectors. Geopolitical tensions helped boost both the materials and energy sectors. Materials companies reacted to discussions between Presidents Trump and Xi on rare earths, while energy companies benefited from rising oil market tensions following US sanctions on Russian oil suppliers and India’s review of its Russian oil purchases. The healthcare sector was dragged lower by CSL on an earnings downgrade and a delay

to its vaccine business spin-off.

The S&P/ASX Small Ordinaries Index finished the month up +1.89%, as the rally in the materials sector extended to smaller companies on the ASX.

Global equities

October was a positive month across global equity markets, driven by robust corporate earnings and improved investor sentiment regarding US–China trade tensions. In the US, the S&P 500 Index (+2.27% USD), Nasdaq Composite (+4.70% USD), and Russell 2000 Index (+1.76% USD) all posted gains.

US third-quarter 2025 earnings results have been robust to date, with 83% of S&P 500 companies reporting positive Earnings

Per Share (EPS) surprises. However, the magnitude of these surprises remains below long-term averages.

Emerging markets also rallied, with South Korea’s Kospi 200 Index (+20.10% USD) and Taiwan’s FTSE TW50 (+10.62% USD)

recording strong gains, supported by a new trade pact between the US and Korea and continued developments in the artificial intelligence sector.

Commodities

Gold continued to rally through October, reaching new highs and ending the month up 3.78% (USD). Prices reached record highs of $US4379 per ounce before pulling back due to a stronger US dollar and easing trade tensions.

West Texas Intermediate (WTI) crude oil fell -2.23% as investors grappled with the US blacklisting of Russia’s two largest oil producers and OPEC+ considering an output hike.

Rare earths and critical minerals emerged as

a major theme. China expanded its restrictions on rare earth exports, including products manufactured with Chinese components, intensifying global supply chain pressures.

This was reversed later in the month but still drove a surge in investor interest. In response, the US and Australia announced a $4.6 billion partnership to develop critical mineral projects, aiming to reduce reliance on China. This bolstered Australia’s rare earth sector.

Bond markets

US Treasury yields briefly traded below 4% for the first time since July but ended higher as expectations for additional rate cuts eased.

The Fed delivered a 25 basis point cut during the month, though Chair Powell emphasised that another move in December is not assured. The US 10-year government bond yield finished October at 4.1%, down 5 basis points.

Australian 10-year government bond yields were little changed, ending the month at 4.31% after dipping to 4.1% mid-month. A hotter-than- expected inflation print significantly reduced expectations of a November rate cut, while

the US–China trade deal also contributed to upward pressure on yields.

Economic developments

Australian economic data suggests no more rate cuts in 2025

Annual headline inflation rose to 3.2%, above forecasts of 3%, which marks a material upside surprise. The result sees underlying inflation remaining above the RBA’s 2-3% target band.

Further complicating the macroeconomic environment, the unemployment rate rose to 4.5% in September from a revised 4.3% in August. This highlights a softening labour market and challenges the RBA’s forecast of a stable 4.3% rate over the next two and a half years.

Economists now expect no further rate cuts in 2025. The 2026 outlook depends on whether inflation moderates again and how the unemployment rate trends.

The Fed cut the policy rate by 25 basis points

The Federal Reserve (Fed) cut interest rates by 0.25% lowering the target range to 3.75%-4.00%. This was despite headline

inflation rising to 3%. Personal Consumption Expenditures (PCE) inflation is more important to the Fed’s decisions, but the release was delayed due to the ongoing government shutdown. According to economists, the

read-through for PCE inflation is above the Fed’s target of 2%. The Fed cited increased downside risks to employment as the main reason for the further reduction in interest rates. Tension remains between the Fed’s dual mandates as inflation is still high while labour/ employment data are coming in weaker.

The Fed cooled expectations of a further cut in December. Fed Chair Powell suggested there were diverging views among members on the path of monetary policy in the short-term.

In a volatile month on the trade front, President Trump agreed to cut tariffs on Chinese imports by 10% to 47% in exchange for China resuming US soybean purchases and lifting its restrictions on rare-earth exports.

Outlook

While global growth is expected to slow moderately in the coming quarters, fiscal and monetary policy stimulus should provide support for an improving growth outlook. Global equities are entering their historically strongest period. This will likely be supported by solid earnings and corporate balance sheets and further increases in corporate spending on AI initiatives. Volatility will likely remain a characteristic as markets react to several key factors, including inflation and labour market data in both the US and Australia,

that will provide further guidance as to the trajectory of interest rates. Trade relations are also expected to continue to swing investor sentiment, particularly between the US and China. In an evolving investment climate, a flexible approach supported by sound fundamentals is essential for managing resilient portfolios.

Major market indicators

Sources: Quilla, Refinitiv Datastream

Summary

Equity market returns were mixed in September, with global equity markets delivering reasonably strong gains, while Australian equities experienced a modest decline.  Emerging Market equities were the best performers, led by Asian regions. Bond markets experienced relatively minor moves, and within Commodities, Gold rose sharply.  In the US, the Federal Reserve (the Fed) cut interest rates by 25 basis points, while in Australia, the Reserve Bank of Australia (RBA) kept interest rates on hold.

Selected market returns (%), September 2025

Sources: *FTSE EPRA/NAREIT DEVELOPED, **FTSE Global Core Infrastructure 50/50 Index

Key market and economic developments in September 2025

Financial markets

Global equity markets continued to perform strongly through September.  Emerging Markets delivered particularly strong gains, up 7.18% in USD, with Asia leading the rally due to the strong performance of technology and semiconductor stocks. Bond markets experienced relatively minor movements throughout the month, and Gold had another strong month, rising 11.41%.

Australian equities

The Australian equity market experienced a moderate pullback in September, retreating from August’s record high. Weakness was broad-based across sectors, led by the energy sector, which declined by 10%. Financials also weighed on performance, with the big 4 banks declining amid ongoing concerns around interest rates, consumer sentiment, and valuations. In contrast, gold producers outperformed strongly on the back of record-high gold prices.  Whilst the broad Australian equity market declined 0.54%, small companies delivered strong gains, with the S&P/ASX Small Ordinaries Index finishing the month up 3.44%.

Global equities

Global equity markets advanced in September, extending solid gains for the year to date. In the US, the S&P 500 Index (+3.65%, USD), Nasdaq Composite Index (+5.61%, USD), and Russell 2000 Index (+2.69%, USD) all experienced gains, with the telecommunications and information technology sectors leading the way.

European equities also experienced reasonable gains in September, with the Euro 100 Index (EUR) up 4.4%. Emerging markets were the best performing equity markets during the month, with notable gains coming from South Korea’s Kospi Index (+6.50%) and Taiwanese equities (+7.26%). Growth in artificial intelligence, semiconductors, and digital infrastructure underpinned the rally, with tech leaders such as Taiwan Semiconductor, Alibaba, and Samsung benefiting from surging investment in AI and chip manufacturing.

Commodities

Gold extended its rally in September, climbing toward record highs and delivering its strongest monthly performance in 14 years with an 11.41% gain. The surge was driven by renewed investor demand amid concerns over a potential US government shutdown, softer labour market data, and a weaker US dollar.

Meanwhile, West Texas Intermediate (WTI) crude oil fell 1.8%, marking its second consecutive monthly decline, pressured by surplus supply from OPEC+ and weak demand in China.

Bond markets

US Treasury yields experienced relatively minor declines throughout September as softer than expected employment data signalled a cooling labour market, increasing expectations that the Fed will take a more dovish stance towards rate cuts. The US 10-year government bond yield ended the month at 4.15% down 8 basis points.

Australian 10-year government bond yields rose slightly to 4.31% due to stronger than expected inflation data in August.

Economic developments

The RBA kept rates on hold

The RBA kept the cash rate on hold at 3.60% at its September meeting, with any rate cuts now likely delayed. Stronger than expected inflation data for Q3 2025, indicating a trimmed mean CPI rise of around 0.9% – 1.0% quarter-on-quarter, well above the RBA’s forecast of 0.64%, has added caution to the RBA’s approach.

Private demand is recovering more rapidly than anticipated, supported by rising real household incomes, easing financial conditions, and a strengthening housing market. Labour market conditions remain stable but mildly tight, with unemployment remaining unchanged at 4.2% in August and employment growth slowing slightly.

This cautious stance reflects an evolving outlook where inflation may remain elevated near the upper end of target for some time, but overall economic activity and labour markets signal no immediate need for further tightening.

The Fed cut its policy rate by 25bps

In the US, the Fed cut its policy rate by 25bps on 17 September, in line with expectations, citing signs that economic momentum had slowed in the first half of the year. The Fed reiterated its dual mandate of promoting maximum employment and price stability, noting that risks to the labour market have increased and the broader economic outlook remains uncertain.

Policy decisions from President Trump have added further complexity. Immigration restrictions have created a negative supply shock in the labour market, while tariffs may result in inflationary pressures. Hiring has slowed significantly, though the impact on unemployment has so far been muted due to a shrinking labour force.

The Fed’s latest Summary of Economic Projections pointed to the likelihood of two additional 25bps cuts by year-end, though estimates varied widely. Fed Chair Powell stressed that the Fed remains data-dependent and has no fixed path for future moves.

Outlook

Markets remain supported by resilient company fundamentals and easing monetary policy across key economies, yet policy uncertainty continues to cloud the global outlook. Investor sentiment has improved amid greater policy clarity, yet geopolitical tensions and uneven global growth remain key sources of potential market disruption. In this environment, a patient, flexible investment approach anchored in fundamentals remains essential.

Major market indicators

Source: Quilla, Refinitiv Datastream

Summary

Global and domestic equity markets posted solid gains in August, buoyed by resilient corporate earnings and growing expectations of further interest rate cuts. Commodity performance was mixed, with iron ore and gold advancing while oil retreated. In fixed income, US bond yields declined as markets brought forward expectations of rate cuts, though investors remained cautious, awaiting clearer economic signals before factoring in additional policy adjustments.

Selected market returns (%), August 2025

Sources: *FTSE EPRA/NAREIT DEVELOPED, **FTSE Global Core Infrastructure 50/50 Index

Key market and economic developments in August 2025

Financial markets

Global equity markets continued to deliver strong performances in August, with the MSCI World (USD) up 2.6%. The broad rally can be attributed to improved investor sentiment due to the increased probability of interest rate cuts, as well as solid company earnings continuing to support equity markets. US bond yields declined, driven by weaker-than-expected employment data.

Australian equities

The ASX 200 rose 3.2% in August, bringing the calendar year-to-date (YTD) return to 12.3%. The company reporting season dominated the news flow and share price movements, with most sectors delivering positive returns for the month. The strongest returns came from the Materials, Consumer Discretionary and Utilities sectors, delivering returns of 9.2%, 7.6% and 5.3% respectively. Healthcare and Information Technology underperformed, returning -13.2% and -1.7% respectively.

The reporting season delivered generally strong earnings, with a greater number of companies exceeding profit expectations than falling short, underscoring the resilience of the Australian economy. Other notable takeaways included earnings beats largely driven by stronger-than-expected margins rather than revenue growth, highlighting companies’ effective cost management, while healthy balance sheets supported a surprising rise in dividends and share buybacks.

Global equities

Broad strength was seen across global equity markets, driven by robust corporate earnings and improved investor sentiment. In the US, the S&P 500 Index (USD), Nasdaq Composite (USD), and Russell 2000 Index (USD) rose 2.0%, 1.6% and 7.0% respectively, signalling a rebound in smaller companies that had lagged in performance recently. On a sector basis, Consumer Staples and Telecommunications were the best performing, returning 4.2% and 3.4% respectively.

Second quarter 2025 earnings from US companies exceeded expectations, alleviating concerns over a potential slowdown in economic growth. 81% of the S&P 500 companies reported a positive earnings and revenue surprise, the highest since the second quarter of 2021. The yearly earnings growth rate rose to11.9% with technology and communication services companies providing a significant proportion of the growth.

European equity markets were a laggard, with the Euro 100 (EUR) rising 0.6% due to uncertainty around the outcome of tariff negotiations between the US and Europe. Conversely, the Nikkei (JPY) increased by 4.1% driven by the momentum of the US and Japan reaching a trade deal and thus reducing uncertainty for investors. The Chinese market continued its rally, with the Hang Seng Index (HKD) returning 1.3%, driven by positive progress in trade talks between the US and China, as well as stimulative policies from the Chinese government.

Commodities

Gold performed strongly in August, returning 4.4% resuming its strong run driven by investor demand.

Iron ore continued its recent recovery, up 3.6% fuelled by Chinese plans to build a mega hydroelectric dam with an estimated cost of $250bn.

The lithium price also staged a recovery following the announcement that Contemporary Amperex Technology (CATL), China’s largest battery manufacturer, suspended operations at a major mine. The unexpected halt sparked immediate concerns over supply and fuelled speculation about potential broader production disruptions.

West Texas Intermediate (WTI) Crude fell 8.5% in anticipation of higher supply after OPEC+ announced it would reverse its voluntary production cuts a year earlier than planned.

Bond markets

US Treasury yields fell in August as softer-than-expected employment data signalled a cooling labour market, increasing expectations that the Federal Reserve (Fed) will implement a rate cut in September. The US 10-year government bond yield ended the month at 4.22% down 13 basis points.

The Australian 10-year government bond yield rose slightly to 4.29% as the RBA delivered an expected rate cut in August.

Economic developments

Reserve Bank of Australia (RBA) cuts in August

The RBA reduced the cash rate by 0.25% to 3.60%, as the Board became confident that inflation has sustainably moderated. Commentary from the RBA indicates that they are now comfortable with the level of inflation and that their policy priority is maintaining full employment in the economy.

The unemployment rate fell from 4.3% in June to 4.2% in July, as forecast by economists. Trimmed mean inflation, however, increased from 2.1% to 2.7%, well above forecasts of 2.3% as it was impacted by an increase in travel and electricity prices.

The RBA remains focused on economic data to inform its future policy decisions, and the market is currently pricing in one additional rate cut over the remainder of 2025 and two additional rate cuts in the next 12 months.

The Federal Reserve (Fed) is expected to cut in September

US equity markets and bond yields fell sharply at the start of August following data revisions that indicated that the labour market had weakened more than previously anticipated. This led investors to raise the probability of a likely rate cut in September. Fed Chair Powell highlighted the softer employment trends, signalling that the labour market would be a key focus for upcoming policy decisions. While some Fed governors have publicly supported a September rate reduction, others remain cautious, prioritising ongoing inflationary pressures over the slowing jobs market.

Producer price inflation (PPI) rose, suggesting that higher import costs driven in part by US tariffs may soon feed into consumer prices. So far, broad based increases in consumer prices have been limited, but rising producer costs could be passed on in the coming months. Trade policy uncertainty remains elevated, with several of President Trump’s tariffs facing legal challenges, including rulings against the use of the International Emergency Economic Powers Act. Concerns over Fed independence have also been raised following the controversial dismissal of Governor Lisa Cook, which may create a vacancy that could influence the Fed’s future policy direction.

The upcoming September employment report will be closely monitored, likely playing a decisive role in the timing and magnitude of the Fed’s next rate adjustment.

Outlook

Markets remain supported by resilient company fundamentals and easing monetary policy across key economies, yet policy uncertainty continues to cloud the global outlook. Investor sentiment has improved amid greater policy clarity, yet geopolitical tensions, evolving central bank stances, and uneven global growth remain key sources of potential market disruption. In this environment, a patient, flexible investment approach anchored in fundamentals remains essential.

Major market indicators

Summary

Global and domestic equity markets delivered strong performance in July, supported by resilient company fundamentals and improved investor sentiment amid greater clarity on US trade tariffs. Commodity prices rallied in response to newly announced tariff measures, while bond markets remained stable as central banks adopted a more cautious stance, awaiting clearer evidence on how tariffs may influence inflation before adjusting policy.

Selected market returns (%), July 2025

Sources: *FTSE EPRA/NAREIT DEVELOPED, **FTSE Global Core Infrastructure 50/50 Index

Key market and economic developments in July 2025

Financial markets

Global equity markets continued to deliver strong performance in July, with the MSCI World (USD) up 1.3%. The broad rally can be attributed to improved investor sentiment due to greater clarity on US tariffs, as well as company earnings continuing to support equity markets. US bond yields remained stable, grappling between a slower growth outlook and the potential for a resurgence in inflation.

Australian equities

The ASX 200 rose 2.9% in July, bringing the calendar year-to-date (YTD) return to 6.6%. Most sectors saw positive gains in July, led by Health Care at 6.9% with strong returns from the likes of CSL and Pro Medicus. The Energy, Utilities and Materials sectors were also strong contributors, delivering returns of 4.4%, 5.7%, and 9.2% respectively.

Consumer Staples and Financials underperformed, returning -1.9% and -3.4% respectively. Financials were weak following the Reserve Bank of Australia’s surprise decision to hold rates steady rather than cut as widely expected.

Global equities

Broad strength was seen across global equity markets, driven by robust corporate earnings and improved investor sentiment. In the US, the S&P 500 Index (USD), Nasdaq Composite (USD), and Russell 2000 Index (USD) rose 2.2%, 3.7% and 1.7% respectively in July, indicating a broad rally that benefitted larger and smaller companies. On a sector basis, the Technology sector led the rally, driven by a resurgence in the Artificial Intelligence (AI) trade, followed by Industrials, where defence stocks were boosted from higher federal defence spending.

European equity markets were a laggard, with the Euro 100 (EUR) rising 1.0% due to uncertainty around the outcome of tariff negotiations between the US and Europe. Conversely, the Nikkei (JPY) increased by 1.4% driven by the US and Japan reaching a trade deal and thus reducing uncertainty for investors. The Chinese market continued its rally, with the Hang Seng Index (HKD) returning 3.1%, driven by positive progress in trade talks between the US and China, as well as stimulative policies from the Chinese government.

Commodities

Gold saw muted performance in July, returning 0.4% due to markets being in a risk-on environment. Industrial metals such as steel and copper saw much stronger price action, with the former rising 6.5% driven by the US announcing 25 to 50% tariffs on steel imports. The latter saw an intra-month high of 14.7% before retreating to being down -12.9% for the month, as an initially touted 50% copper tariff was scaled back to just apply to copper pipes and wiring. West Texas Intermediate (WTI) Crude rose by 6.1% after Trump threatened to impose sanctions on Russian oil if Russia did not agree to a ceasefire with Ukraine by August 30^th.

Bond markets

US bond markets were flat, whilst yields rose slightly in Australia. The US 10-year government bond yield ended the month at 4.36% up 13 basis points. The increase in the US core Consumer Price Index (CPI) from 2.8% in May to 2.9% in June, and the US Federal Reserve’s (Fed) indication of no rate hikes in the short-term, left US yields rangebound.

The Australian 10-year government bond yield rose to 4.32% rising 11 basis points.   Expectations for an RBA rate cut did not transpire, resulting in a recalibration of market expectations and yields remaining elevated.

Economic developments

RBA paused in July, but an easing bias remains intact

The RBA left the cash rate unchanged at 3.85%, citing continued moderation of inflation as a positive. This was countered by heightened uncertainty driven by US tariffs and tight Australian labour market conditions, which culminated in a decision to leave rates unchanged.

The unemployment rate rose from 4.1% in May to 4.3% in June, coming in above expectations. Trimmed mean inflation, however, eased from 2.9% in Q1 to 2.7% in Q2, in line with expectations.

The RBA remains focused on economic data to inform its future policy decisions, and the trajectory of these key economic indicators is supportive of a rate cut in August. The market is currently pricing in two additional rate cuts over the remainder of 2025.

US continues to finalise trade deals

The US announced several important trade deals with various countries during the month. These included a 20% tariff on Vietnamese exports, a 15% tariff on Japanese, South Korean and European exports and a 25% tariff on Indian. The Trump administration continues to engage in trade talks with other major trade partners, including China and India. The effects of Trump’s tariff policies on the US economy are starting to be observed, such as the US goods trade deficit reducing 10% month-on-month to $86 billion in June, as well as core inflation rising from 2.8% in May to 2.9% in June.

On July 30^th, the Fed held rates steady at 4.25-4.50%, citing a strong labour market and inflation concerns remaining elevated. The Fed also reiterated its goal of returning inflation to its 2% objective. However, weak job numbers released on August 1^st caused market expectations to reset following the Fed’s rate decision, and the probability for three rate cuts by December 2025 increased to 52.8%. Trump continues to apply pressure on the Fed to cut rates, and it is notable that two members of the Federal Open Market Committee (FOMC) voted in favour of cutting rates.

Outlook

Markets remain supported by resilient company fundamentals and a softening inflation trajectory across key economies, yet policy uncertainty continues to cloud the global outlook. Investor sentiment has improved amid greater policy clarity, yet geopolitical tensions, evolving central bank stances, and uneven global growth remain key sources of potential market disruption. In this environment, a patient, flexible investment approach anchored in fundamentals remains essential.

Major market indicators

Sources: Quilla, Refinitiv Datastream

The 2025 financial year unfolded in two distinct phases. The first six months were marked by strong equity market performance, supported by solid corporate earnings, stable economic growth, and declining inflation trending towards central bank targets. As the calendar year began, geopolitical uncertainty took hold, with US trade policy becoming a key concern for markets. Fears over the impact of tariffs on inflation and growth prompted an investor shift away from US equities, increased interest in European markets, and greater volatility in bond yields. Investor demand for gold also rose as risk aversion returned to the forefront.

Key market and macroeconomic developments over the 2025 financial year

2025 FINANCIAL YEAR RETURNS

*FTSE EPRA Nareit DEVELOPED, **FTSE Global Core Infrastructure 50/50 Index  

Looking ahead

As we enter the 2026 financial year, we maintain a constructive outlook for global economic growth and the performance of both equity and bond markets. However, the path of returns is unlikely to be smooth, with various risks that could influence expectations as the year unfolds.

Structural themes and key risks

The most significant structural driver of markets currently is the evolving policy landscape under President Trump. The push and pull between protectionist trade measures and fiscal stimulus efforts will be a defining influence across asset classes. Markets are likely to remain sensitive to these policy announcements.

The Artificial Intelligence (AI) theme has been a key growth driver for equity markets over the past few years. This trend is likely to continue as spending in the sector remains robust and the productivity benefits for a broader array of corporates and consumers become more evident. The extent of measurable returns on AI investments will be an important factor in AI’s role as a fundamental catalyst for growth.

Global economic growth

The outlook for global economic growth is moderately constructive, though policy uncertainty in the US presents a critical variable. A key consideration is the conflict between “Tariff Trump” and “Pro-Growth Trump.” While signs of fiscal stimulus are emerging through the administration’s “One Big Beautiful Bill”, the resulting fiscal expansion carries risks. In particular, widening deficits may begin to exert pressure on bond markets and investor sentiment, potentially offsetting the intended growth benefits.

Another downside risk stems from the sizeable volume of US debt scheduled for refinancing over the next 12 months. Elevated yields may amplify fiscal concerns and restrict policy flexibility, adding a layer of complexity to the US growth outlook.

In Australia, economic momentum remains subdued. Government spending has underpinned recent growth, while private sector activity has yet to show meaningful recovery. A sustained uplift in private investment would be necessary to shift the domestic economy onto a more dynamic trajectory.

Inflation and central bank policies

Inflation has generally returned to central bank target ranges across most developed economies, prompting the start of rate cutting cycles in many countries. In contrast, while the US has initiated rate cuts, inflation remains a key concern for the Fed. The potential inflationary effects of proposed tariffs have added to the uncertainty, leading the Fed to pause further easing. At the same time, political pressure to lower rates is expected to intensify as President Trump aims to bolster economic activity.

Australia appears positioned for further monetary policy easing. Inflation has decelerated into the RBA’s target range, and with economic growth lagging, the market is now pricing in three rate cuts before year-end. This policy backdrop should provide support for both household confidence and asset prices.

Fixed income markets

Volatility is expected to remain a defining feature of global fixed income markets, particularly in the US. The interplay between fiscal expansion, trade policy uncertainty, and Fed actions suggests a risk that Treasury yields remain elevated and rangebound for an extended period. Meanwhile, credit spreads remain tight, offering more limited compensation for risk.

Australian fixed income presents a more attractive profile. Inflation is contained, a steady path of cash rate cuts is anticipated, and credit spreads remain more reasonably valued compared to global peers. These factors combine to offer a potentially favourable environment for domestic fixed income investors in the coming quarters.

Equity markets and corporate earnings

Corporate earnings have softened globally over the past six months, though US earnings look to have stabilised and remain at relatively healthy levels. That said, valuations across US large-cap equities continue to appear elevated both in a historical context and relative to international markets. This leaves the market vulnerable to downside surprises should earnings growth disappoint.

In Europe, recent equity outperformance has largely been driven by more attractive valuations rather than improving fundamentals, as earnings growth has also declined. Outlooks remain cautious, with muted expectations for earnings expansion in the near term. However, increases in government fiscal spending, particularly from Germany, may support corporate sector earnings on a medium to longer term view.

Australian equities face more pronounced headwinds. Earnings growth expectations are weaker than many other developed markets and valuations remain expensive relative to historical norms. This combination may limit the upside case for domestic large cap equities.

US small-cap stocks have been particularly affected by recent equity market volatility, reflecting heightened uncertainty around the US centric earnings outlook. Small caps continue to trade at a discount to large-cap peers, but this valuation gap may present selective opportunities should macro conditions become more supportive.

Investment implications

Portfolios should remain well-diversified and strategically positioned to optimise returns while managing for uncertainties. Disciplined risk management and a proactive approach to tactical asset allocation will be critical in navigating the coming opportunities and challenges.

Major market indicators

  Source: Quilla, Refinitiv, and Datastream

Summary

June was a strong month for global financial markets, marked by dramatic geopolitical events that tested and highlighted market resilience. Key developments included:

• The outbreak and swift resolution of direct military conflict between Israel and Iran, with the US intervening in an effort to delay the Iranian nuclear programme. This represented the most significant geopolitical shock to financial markets since the tariff announcements earlier in the year. Despite the initial volatility, markets remained resilient, with major equity indices reaching new highs by month-end.

• Concerns on the trade front further abated through the month, with the confirmation of an agreement between the US and China. The agreement builds on the May truce, with specific agreements on the easing of export restrictions for rare earth minerals from China. While this is welcome news, the end of the 90-day delay in tariffs between the US and other major trading partners is quickly approaching on July 9.

• The US Federal Reserve again opted to hold interest rates steady, due to diminishing, but still elevated, economic uncertainty. In Europe, the European Central Bank delivered a 25 basis point cut.

Selected market returns (%), June 2025

Sources: *FTSE EPRA/NAREIT DEVELOPED, **FTSE Global Core Infrastructure 50/50 Index

Key market and economic developments in June 2025

Financial markets

Global equity markets delivered strong performances in June, driven by improving trade relations and increased investor confidence. News of increased hostility and subsequent US involvement in the conflict between Iran and Israel weighed on markets mid-month. However, the confirmation of a ceasefire buoyed markets into the end of the month, seeing the MSCI World (USD) ending the month up by 4.4%.

Australian equities

The ASX 200 finished the month up 1.4%, closing 1% under its all-time high reached on 11 June. This saw the Australian index post a year-to-date (YTD) gain of 6.4%. The energy sector led the index, posting a 9% return, with the proposed Emirati takeover of Santos (STO) being a major driver. The financials sector continued its recovery from the depths of the “Liberation Day” sell-off off with the sector finishing the month up 4.3%. This was underpinned by the Commonwealth Bank of Australia (CBA), with June seeing Australia’s largest company post a 5% gain, bringing its YTD return to 22%. The materials sector continued its lacklustre year, falling 3.1%.

Global equities

US equity markets spearheaded the global advance, as the S&P 500 (USD) continued its rebound from its low in April. The index rose 4.5%, recovering from the drawdowns at the beginning of the year, finishing the month at all-time highs. The technology sector underpinned the gain, rising 9.8%, with Nvidia (NVDA) up 17%. US small caps followed large caps in their rebound, with the Russell 2000 (USD) rising 5.3%.

European equity markets were broadly weaker, with the Euro 100 (EUR) falling by 0.5%. The German DAX (EUR) followed this trend, decreasing by 0.4%. This was in contrast to Asian markets, with the Nikkei (YEN) rising by 6.8% and CSI 300 (CNY) rising by 3.3%. The Chinese market was buoyed by hopes, and later confirmation, of a trade deal between the US and China, which drove emerging markets, with MSCI Emerging Markets (USD) continuing its impressive 2025, rising 6.1%.

Commodities

Geopolitical concerns, specifically surrounding the Iran-Israel conflict, drove commodity markets, with June characterised by increased volatility. Gold finished the month at $3310 USD/ounce, after rising to $3440 at the peak of the conflict. The conflict also drove a significant rise in WTI Crude from the month’s low of $62.50 to $73.84, ending the month up 8.5% to $66.66. This was in contrast to iron ore, which slid 2.1% for the month.

Bond markets

US treasury markets saw yields decline across most maturities during June. The benchmark US 10-year government bond yield exhibited volatility, ending the month at 4.23%, having traded up as high as 4.51% earlier. The fall was driven by several factors, including a downward revision of Q1 GDP from -0.2% to -0.5%, falling consumer expectations of inflation, and speculation that President Trump will name a more dovish Federal Reserve chair. Increased spending on account of the ‘One Big Beautiful Bill’ remains an upward pressure on yields.

Moves in the Australian 10-year government bond yield, on the other hand, were more muted, declining from highs of 4.3% to 4.16%.

Economic developments

Australian economic data paves the way for further monetary easing

Following the 25-basis point rate cut delivered by the Reserve Bank of Australia (RBA) in May, market expectations solidified around an additional cut at the July 7-8 policy meeting. The release of Q1 GDP data early in the month fuelled this expectation, with GDP rising by just 0.2% in the quarter and by 1.3% year-on-year to the end of March, continuing the trend of lacklustre growth within the Australian economy. The datapoint came in below the already downwardly revised forecast of 0.4%.

The release of monthly CPI further buoyed expectations of a July rate cut. Monthly CPI slowed from 2.4% in May to 2.1% below economic forecasts of 2.4%. This leaves CPI at the lower end of the RBA’s 2-3% target range. The release also saw a moderation in trimmed mean CPI from 2.8% to 2.4%, also below economists’ forecasts of 2.6%. This broad moderating trend, paired with the continued lack of economic growth, underpins the view of increased monetary easing, with market pricing for interest rate cuts now sitting slightly above the RBA’s May forecast of two to three cuts by the end of the year.

US tariffs remain at the front of investors’ minds

The news of a trade deal between the US and China was welcomed by markets. The agreement, hatched on 26 June, builds on the framework announced earlier in the month. This will see China ease restrictions on the acquisition of Chinese magnets and rare earth minerals by American firms. The US also announced it would stop seeking to revoke the visas of Chinese students. While the easing of tariff tensions between the two nations is positive for markets, the 9 July deadline for the initial 90-day tariff pause is fast approaching.

Despite this, the Trump administration has continued to downplay the deadline, with President Trump noting the impossibility of negotiating trade deals with all nations within that period. Meanwhile, Treasury Secretary Scott Bessent stated that the administration expects negotiations to continue beyond the deadline, with trade agreements involving 10 to 12 of America’s most important trading partners expected to be finalised by September.

Outlook

Despite subdued confidence, economic and market fundamentals have demonstrated notable resilience. However, ongoing uncertainty around economic and political developments reinforces the importance of staying active and vigilant to both risks and opportunities. While downside risks remain and may trigger periods of volatility, several supportive factors continue to underpin global economic growth and market performance.

Major market indicators

Sources: Quilla, Refinitiv Datastream

Summary

The Trump administration signalled a shift toward diplomacy, engaging in multiple bilateral trade negotiations and securing a temporary but significant reduction in tariffs with China. This move helped restore investor confidence, with equity markets rebounding from April losses. US markets are increasingly pricing in the prospect of ongoing dialogue and a reduced economic impact from trade tensions.

Despite these developments, the US maintained a broadly protectionist stance, notably raising tariffs on steel and aluminium. However, a recent unfavourable court ruling has raised legal questions around President Trump’s ‘Liberation Day’ reciprocal tariffs.

On the monetary policy front, the US Federal Reserve opted to hold interest rates steady, citing elevated uncertainty. In contrast, the Reserve Bank of Australia (RBA) took a more proactive stance, cutting the official cash rate to 3.85% in an effort to support domestic growth.

Selected market returns (%), May 2025

 Sources: *FTSE EPRA/NAREIT DEVELOPED, **FTSE Global Core Infrastructure 50/50 Index

Key market and economic developments in May 2025

Financial markets

Global equity markets quickly recovered losses from April, with the MSCI World (USD) rising a sizable 6.0% during the month, led by the US market, with the S&P 500 rising 6.3%. The US market total return is now positive for the 2025 calendar year, although it is yet to reach its previous high on February 19.

Australian equities

The ASX 200 posted a strong gain of 4.2% in May, pushing calendar year returns into positive territory and bringing the index just shy of its all-time high set in February 2025. The Financials sector remained the primary driver of performance, returning 5.1% for the month, led by index heavyweight Commonwealth Bank of Australia (CBA), which rose 5.6%. Over the past 12 months, CBA has delivered an impressive 52% return, making it by far the largest contributor to Australian equity market gains.

Information Technology was the standout performer in percentage terms, surging 19.8% as global growth and tech stocks rallied sharply. Energy also delivered solid gains, rising 8.6% despite relatively flat oil prices. Meanwhile, the Resources sector continued to underperform on a relative basis, managing a modest 1.8% increase for the month.

Global equities

There was widespread strength in global equity markets, as a relief rally was broadly felt across developed and emerging markets. The US market was driven higher by large cap technology, with a 9.2% rise in the Nasdaq 100 (USD) index. The broader S&P 500 (USD) was up 6.3%, while the Russell 2000 (USD) small cap index was up 5.8%. Markets across key trading partners were also very strong, with the Euro Stoxx 50 (EUR) index, Japanese Nikkei 225 (JPY) and the Hang Seng (HKD) rising 6.0%, 5.3% and 6.6% respectively.

The US earnings season through May was again relatively robust, with 78% of companies exceeding Earnings per Share (EPS) estimates, in line with the 5-year average[1]. Companies reported annual earnings growth of 12.9%, which supported the market. There were concerns that companies would downgrade or withdraw their guidance for profits in upcoming quarters, which typically hurts investor confidence. However, from S&P 500 only 8 companies withdrew guidance and 37 downgraded, with 64 increasing and 139 maintaining guidance.

Commodities

Commodity markets delivered mixed performance in May. Gold posted a modest decline of -0.7%, reflecting a moderation in tariff-related concerns and a more tempered risk environment.

Crude oil prices continued to weaken amid a shift in OPEC+ dynamics. Led by Saudi Arabia, key producers ramped up output in an effort to reclaim market share and exert pressure on member nations exceeding production quotas. With global markets already well-supplied and demand outlooks uncertain, Brent Crude fell to $61 per barrel, weighed down by oversupply concerns and broader economic uncertainty.

Bond markets

US bond markets saw yields increasing through May, leading to lower prices, especially for longer dated bonds. The US House of Representatives narrowly passed the ‘One Big Beautiful Bill’ budget, which is estimated to add $2.4 trillion to the US deficit over a decade,[2] leading to further concerns around fiscal sustainability. This was compounded by a poor outcome from an auction of new 20-Year US Treasury Bonds and a sovereign credit downgrade from Moody’s, leading to pressure on bond prices. Long dated 20 and 30-year bonds finished the month just under the psychological 5% level, while the 10-year rose from 4.16% to 4.39%.

Domestically, Australian bonds also drifted higher but to a lesser extent, reflecting a better fiscal situation in Australia and market expectations of further rate cuts from the RBA.

Economic developments

RBA cuts interest rates

As anticipated, the RBA reduced the cash rate from 4.1% to 3.85% in May. The decision was largely driven by a more favourable inflation outlook, as we noted in April. The RBA highlighted that year-on-year trimmed mean inflation (to the end of March) eased to 2.9%, with headline CPI at 2.4%, and both measures are expected to remain broadly stable in the near term.

The RBA described domestic economic conditions as mixed. The labour market remains resilient, with the unemployment rate holding steady at 4.1%. However, consumer spending and sentiment have softened more than expected. While the RBA reiterated its data-dependent approach to future policy moves, market participants are now pricing in two to three additional rate cuts over the course of 2025.

US Court of International Trade throws tariff into doubt

In a surprise ruling in late May, the US Court of International Trade unanimously ruled that the Trump administration’s sweeping ‘Liberation Day’ tariffs, introduced under the 1977 International Emergency Economic Powers Act (IEEPA), were unlawful. President Trump had cited the US trade deficit as an “ongoing emergency” to justify the tariffs, but in a detailed 50-page judgment, the court found that the IEEPA does not grant the President the authority to impose tariffs in this manner. The ruling casts serious doubt over the legal foundation of the policy. The administration has since appealed, with expectations that the case could eventually reach the Supreme Court.

This legal setback exposes a vulnerability in President Trump’s trade strategy, particularly given the lack of precedent and the unanimous nature of the ruling. It also raises questions about the administration’s ability to impose tariffs unilaterally, as seen earlier in the year. The uncertainty may prompt trade partners to adopt a more cautious, wait-and-see approach to negotiations, potentially delaying progress on new agreements.

While the ruling specifically targets the IEEPA-based tariffs, other trade restrictions, such as those on steel, aluminium, and autos, remain in place under Section 232 of the Trade Expansion Act, which allows for tariffs on national security grounds. These measures, although also facing legal challenges, may serve as alternative tools for the administration to advance its protectionist agenda.

Outlook

Uncertainty with respect to US government policy, the economy and the market remains elevated. However, a closer look at economic and market fundamentals reveals several areas of resilience that should not be overlooked. While zero-sum trade tensions act as a drag on global growth, they may be partially offset by several constructive developments, such as continued advances in AI driving productivity, fiscal reform and rate cuts in Europe, and ongoing stimulus and structural reform efforts in China.

Although the range of potential outcomes is broad, our base case remains that the global economy and markets will likely experience bouts of volatility but continue to move forward. In this environment, we see strong value in diversification as a key risk management tool. We see significant benefit to investors in diversification to manage risk and believe that remaining active and alert to risks and opportunities is crucial.

Major market indicators

Sources: Quilla, Refinitiv Datastream

[1] According to Factset

[2] According to Yale Budget Lab