Global Markets
Financial markets were weaker over the week, with rising bond yields, expectations of higher cash rates and renewed hostilities in the Middle East contributing to a broad sell-off across both risk and defensive assets.
US Economy and Interest Rates
The week ended with a stronger-than-expected US jobs report, with 162,000 jobs added compared with market expectations of 55,000. The previous month’s figure was also revised higher. While the unemployment rate remained steady at 4.1%, the result highlights the continued strength of the US economy.
The strength of the jobs data pushed bond yields higher, increasing pressure on the US Federal Reserve (Fed) as it considers the future direction of interest rates. Key inflation data will be released this week, with markets forecasting core CPI to remain at 2.4% year-on-year and headline CPI at 3.5%. PPI is forecast at 4.6% year-on-year excluding food and energy, with headline PPI expected at 5.2%.
While these figures remain above the Fed’s preferred target, we expect the Fed to hold rates steady in the near term. However, we anticipate at least one rate hike during the second half of 2026, taking the terminal rate to 4.25–4.50%. This is likely to continue placing pressure on bond markets and other interest-rate-sensitive sectors in the near term.
Global Central Banks and Geopolitical Risks
The US Fed is not the only central bank in focus this month, with several major central banks across the Asia-Pacific region and Europe also scheduled to meet in September. Ongoing tensions in the Middle East are likely to add to market uncertainty and investor nervousness.
Australian Economy and Interest Rates
Domestically, Q2 2026 GDP growth came in at 2.1%, above market expectations, but below the previous corresponding period’s 2.5%. The result points to a continued moderation in the Australian growth outlook.
With residential property prices expected to decline by around 15% from peak to trough, while inflation remains above the RBA’s target range, we believe both the September and November RBA meetings remain live. However, given the RBA has already increased rates three times in 2026, we expect the next rate hike to come in November, with a 0.25% increase.
This week, markets will also focus on September consumer and business confidence data. Following weaker-than-expected August results, we expect this softer trend to continue, pointing to further challenges for the domestic economy.