Monthly Market Commentary
As at 31 August 2026
Economic review
Australia
We expect the RBA to remain on hold in 2026
The RBA left interest rates unchanged at 4.35% in August, noting that inflation remains above its 2–3% target range, with some firms continuing to pass higher costs on to consumers. It also expects inflation to remain elevated for some time. While the Board views monetary policy as restrictive, it will continue to monitor how economic conditions evolve. Given weak confidence, falling house prices, and the delayed effects of earlier rate hikes, we expect the RBA to remain on hold in 2026 while maintaining a hawkish tone.
Australia’s unemployment rate rose to 4.5% in July, while employment fell by 15,800 jobs. Employment fell short of expectations following the previous month's increase.The figures suggest the labour market is softening, but with inflation still high, the RBA is unlikely to respond.
Australia’s July inflation data showed CPI rose 1.0%, slightly above market expectations, reversing the weakness seen in the previous month. Transport was the main contributor, increasing 2.6%, as oil prices rose amid the ongoing conflict in the Middle East.
International
Fed reaffirms its inflation target
At the Fed’s Jackson Hole Economic Policy Symposium, Fed Chair Kevin Warsh warned that inflation is not slowing enough and reaffirmed the Fed’s commitment to its 2% target. While not explicitly signalling a rate hike in September, Warsh said that the Fed may still need to do more if underlying inflation does not improve.
The US introduced 50% tariffs on roughly US$20bn of Canadian goods after trade talks collapsed. President Trump also said tariffs on Canadian cars, auto parts and steel will rise to 50% from 1 January 2027. The tougher tariff stance followed Prime Minister Mark Carney’s statement that Canada would respond to the US tariffs.
The Strait of Hormuz situation has seen no material improvement. The US has shifted to a strategy of “strategic patience”, with economic pressure being applied on the regime in Tehran and with President Trump announcing economic sanctions on Iran as well as consequences on any countries helping Iran.
Market Review
Australian shares rose with the healthcare sector outperforming
Australian shares rose 1.6% in August. The healthcare sector was the strongest performer, up 18.1%, as CSL Limited made an agreement to reduce prices and expand manufacturing capacity in the US, to potentially avoid tariffs. Materials was the second best performer, up 12.4%, supported by stronger commodity prices in August.
The consumer discretionary sector was the weakest performer, down -7.3%.
International shares rose on the back of strong corporate earnings
International shares (hedged) increased 2.5%, following strong US corporate earnings reporting. The S&P500 index increased 2.7%, as reported US corporate earnings were up 52% YoY, driven largely by the technology sector.
The best performing sector was materials, up 9.1%, followed by communication services, up 6.3%. The largest detractor was the utilities sector, down -3.5%.
Emerging market shares (unhedged) rose 1.3%, as tech stocks in Taiwan and South Korea performed well during the month.
Real assets experienced negative returns
Australian listed property fell -6.6% in August, while international listed property fell -3.1%. Both sectors were affected by rising bond yields, ongoing inflation and expectations that the Fed will keep interest rates high.
The AUD recorded a second consecutive strong month
The AUD posted a second straight strong month, rising 2.1% against the USD to end the month at US$0.72. Higher commodity prices supported the currency, while uncertainty around the outlook for US monetary policy persisted ahead of the Fed’s Jackson Hole Economic Policy Symposium.
Australian fixed interest markets softened in August
Australian government bonds fell -0.3%, as bond yields moved higher in August. Comments from the Fed’s Jackson Hole Economic Policy Symposium caused global yields to move higher, while domestically higher inflation data increased the likelihood of local interest rate hikes.
International credit returned 0.4% in August. Credit spreads continued to remain tight by historical standards.
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