Markets and the Middle East
Financial markets fell again over the week. Investors are weighing inflation, central bank decisions, rising tensions in the Middle East, higher oil prices and the possibility of a Democratic sweep in the US mid-term elections. Global bond yields were slightly lower, but equities struggled as the AI theme gave back recent gains and investors focused on rising corporate debt. This prompted some rotation between sectors after the long rise in bond yields. Resources fell 7.6% over the week, while Banks gained 4.1%.
Australian data
Domestic October preliminary Purchasing Managers’ Index data showed a material slowdown, with both services and manufacturing showing signs of contraction. This week brings September Consumer Price Index data, with headline inflation forecast at +0.7% for the month and 4.2% over the year, alongside Producer Price Index and credit data. Higher energy prices are likely to keep input costs elevated and add to inflation pressure.
The RBA and bond yields
The trimmed mean Consumer Price Index is forecast at 3.6%, which makes it the key number ahead of the RBA’s November meeting. The RBA has already raised rates four times in 2026, so we believe a December increase is more likely than November. We now expect the cash rate to peak between 4.85% and 5.10%, which should lift bond yields slightly from here. Bond valuations have improved and now offer a reasonable entry point for increased allocations.
The US and China
In the US, the focus is housing data, the Fed’s FOMC meeting, September Personal Consumption Expenditures price data (forecast 3.6% over the year) and third-quarter GDP (forecast 3.5%). The US continues to drive global growth while Europe (GDP forecast about 1.0%) and parts of Asia remain weak. In China, Purchasing Managers’ Index data is the focus, with expansion expected across sectors.
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