Market Key Points
- The Trump Administration has made progress in trade agreements with major economies including the EU, UK, Japan, South Korea, and a preliminary deal with China to pause the most extreme tariffs.
- With tariffs now likely to stabilize around current levels we expect softer, but still manageable macroeconomic conditions.
- The August reporting season points to a more optimistic growth outlook, particularly in the US.
Australian equities
The S&P/ASX 200 Accumulation Index rose 3.1% in August, with nine of the 11 sectors finishing higher. Materials (+9.2%) led gains as investors were buoyed by positive commodity outlooks and lower interest rates. Other strong performers included Consumer Discretionary (+7.6%), Utilities (+5.3%), and REITs (+4.5%). In contrast, Health Care (-13.2%) fell sharply after disappointing results from major companies.
CSL Limited (CSL) dropped 21.4% following its FY25 results and FY26 outlook, citing weaker-than-expected performance in Behring and Seqirus, removal of FY28 margin targets, and announcing transformational changes including US$500m cost cuts, a vaccine business spin-off, and share buybacks. Telix Pharmaceuticals (TLX) also disappointed, falling 30.6%. Conversely, IDP Education (IEL) was the top performer, surging 57.9% after signaling a slightly improved FY26 outlook and reinforcing its value proposition despite expected volume declines of 20–30% versus FY25.
On the economic front, Australia’s unemployment rate eased to 4.2% in July, in line with expectations, following a 10,200 reduction in unemployed persons. Inflation accelerated, with CPI rising 2.8%, the highest since July 2024, driven by housing costs and higher electricity prices. The figure exceeded forecasts of 2.3% but remains within the RBA’s 2–3% target range. The RBA cut the cash rate by 25bps to 3.60%, as expected, and markets anticipate further cuts, with a 3.0% cash rate priced in by mid-2026.
Global Equities
Global equities posted another positive month in August, with Developed Markets rising 0.9% (MSCI World Ex-Australia Index, AUD). US equities outperformed, with the S&P 500 up 1.9%, reaching record highs throughout the month. Performance was driven by strong Q2 corporate earnings, which rose double digits year-on-year, with over 80% of companies beating estimates, alongside growing optimism that the Federal Reserve will begin cutting rates.
Across developed markets, Value (+3.0%) and Quality (+2.0%) stocks outperformed Growth (+1.2%), while Momentum (+1.0%) also delivered gains. Global small caps continued to outperform, returning 3.4%. European markets were mixed, with Germany’s DAX down 0.7%, while the UK’s FTSE 100 rose 0.6%. In Japan, the Nikkei 225 surged 4.0%, supported by improved trade optimism following a US agreement, a weaker Yen, and increased foreign capital inflows.
In economic news, US inflation rose to 3.1% in July from 2.9%, its highest since February and slightly above expectations, reinforcing the Fed’s decision to hold rates. Retail sales grew 0.5%, in line with forecasts, while nonfarm payrolls increased by 22,000, well below prior readings and estimates, pushing unemployment up to 4.3%, the highest since October 2021.
Commodities were mixed, with the S&P Goldman Sachs Commodity Index down 0.8%. Oil fell 7.6% on oversupply concerns after months of gains, while gold rose 4.8%, bringing its 12-month gain to 37.7%. Industrial metals rallied, with iron ore up 2.9%, copper up 4.3%, and aluminum up 7.0%, supported by stimulus measures from the People’s Bank of China.
Emerging Market Equities
Emerging market equities declined 0.4% in August (MSCI Emerging Markets Index, AUD), underperforming developed markets. China continued its rally on improving domestic sentiment, with the CSI 300 up 10.3%. Economic data was mixed: the manufacturing PMI remained below 50 at 49.4 for the fifth straight month, signaling contraction, while services PMI stayed in modest expansion. Industrial production grew 5.7% year-on-year in July, missing expectations and slowing from the prior reading, while retail sales rose 3.7%, also softer than expected.
Fixed Income
Global financial markets remained relatively stable compared to the tariff-driven volatility earlier in the year, though yields mostly rose across major economies. In the US, July’s jobs report was weaker than expected, while inflation surprised to the upside. Fed Chair Jerome Powell’s comments at the Jackson Hole Symposium signaled a likely rate cut in September. U.S. 10-year Treasury yields ended the month 1 basis point lower at 4.23%.
Eurozone yields climbed, with France’s 10-year yield up 16 basis points to 3.50%, amid political uncertainty and softer inflation. Germany’s Bund yield rose 3 basis points to 2.71%, widening the spread with France to its highest since January 2025. UK Gilt yields jumped 16 basis points to 4.72%, driven by the highest inflation reading since January 2024 and weaker manufacturing PMI data.
In Japan, inflation eased to 3.1% in July from 3.3%, its lowest since November 2024, while manufacturing PMI improved to 49.7. Japanese 10-year yields rose 5 basis points to 1.60%, briefly touching three-year highs of 1.62% late in the month.
Domestically, the RBA cut rates as expected after holding off in July, citing falling inflation as the key driver. Markets still anticipate one to two more cuts, potentially lowering the cash rate to 3.10% by year-end. Australian bond yields edged higher, with the 10-year yield up 1 basis point to 4.27%.
Property and Infrastructure
The S&P/ASX 200 A-REIT Accumulation Index extended its gains, rising 4.5% in August and pushing rolling 12-month returns to 14.5%. Global real estate equities rebounded after July’s weakness, up 3.6% (FTSE EPRA/NAREIT Developed Ex Australia Index, AUD Hedged), while global infrastructure returned 1.2% (S&P Global Infrastructure TR Index, AUD Hedged).
Australia’s residential property market continued to strengthen, with the Cotality Home Value Index (covering eight major capitals) rising 0.7%, the largest monthly gain since May 2024. Brisbane led with +1.2%, followed by Perth (+1.1%) and Darwin (+1.0%). Sydney (+0.8%) and Melbourne (+0.3%) posted solid increases, while Hobart declined 0.2%
This article contains information first published by Lonsec. Voted Australia’s #1 Research House for 2019.
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