Monthly Market Commentary
As at 31 December 2025
Economic review
Australia
Chinese beef import quotas may slow beef exports
China has introduced an import quota on beef, with tariffs applied to volumes above the quota. Imports of Australian beef to China will be capped at 205,000 tonnes, below the volume imported in 2025.
The RBA held rates steady at 3.6% at their December meeting, in line with market expectations. The RBA noted that the stronger-than-expected October monthly inflation data was a key concern.
Australian GDP grew by 0.4% quarter-on-quarter in Q3’25, below the expected 0.7%, bringing annual growth to 2.1% year-on-year, just under the forecast 2.2%. Growth was supported by private investment and stronger household spending but was held back by firms running down inventories and imports rising faster than exports.
The unemployment rate stayed at 4.3% in November, even as employment fell by 21,300, against expectations for a 20,000 increase. Full-time jobs dropped by 56,500, while part-time roles rose by 35,200, partly unwinding October’s strong gains. The participation rate also dropped. This recent volatility in the labour data is making it harder for the RBA to assess the outlook.
International
Geopolitical risks remain high into the end of the year
Geopolitical risks remain elevated heading into 2026, with the US staging a military operation in Venezuela on the 3rd January, to capture and arrest Venezuelan President Maduro. Tensions between Japan and China also intensified after Japanese Prime Minister Takaichi stated that Japan would deploy its military in the event of an attack on Taiwan, prompting angry reactions from China and threats of economic retaliation.
Several central banks met in December to determine monetary policy with all acting in line with market expectations. The Bank of England (BoE) reduced interest rates by 0.25%, the Bank of Japan (BoJ) increased interest rates by 0.25% to 0.75%, and the Fed lowered the federal funds target range by 25bps to 3.5-3.75%.
US labour market data for October and November, released in December, showed conditions were weaker than expected, with a sharp drop in October payrolls and unemployment rising to 4.6%.
In the UK, real GDP fell by 0.1% in October, a second consecutive month of contraction. The economy has now shrunk in three of the last four months and stagnated in the fourth. The October decline was broad-based with weakness in the construction and services sectors.
Market Review
A positive month for Australian shares in December
Australian shares rose 1.4% in December, outperforming international shares.
The materials sector was the strongest performer in December, up 6.8%, on the back of higher commodity prices, followed by financials, which increased by 3.4%.
The larger weighting of materials and financials in the Australian share market contributed to its outperformance versus international shares in December.
Information technology was the largest detractor for the third consecutive month, down -8.1%, continuing to reflect the higher valuations.
International share markets continue higher in December
International shares (hedged) rose 0.5% in December, supported by the US Federal Reserve (Fed) rate cut.
In line with the Australian share market, financials and materials were the two best performing sectors in December. Financials rose 4.1%, while the materials sector gained 3.2%, as metal prices continued higher in December.
The utilities sector was the worst performing for the month, down -3.3%.
Emerging market shares rose 1.3%.
Commodities higher, precious metals continued to appreciate in December
Precious metals had another strong month; silver saw large gains, up 25.1%, while gold climbed 2.9%.
Australian government bonds fell in December due to rising yields
Australian government bonds were down -0.8% in December. Significant repricing of interest rate expectations saw yields climb for a second month.
Australian 10-year government bond yields rose by 23bps over the month, as markets priced in interest rate hikes in 2026 following the strong inflation data released last month.
The Australian Dollar (AUD) saw gains against most currencies
Higher bond yields in Australia relative to the US have made the AUD more attractive to investors. In December, the AUD appreciated 1.9% against the US dollar, rose 0.6% against the euro, and gained 2.2% against the Japanese Yen, while remaining unchanged against the British Pound.
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