Market Commentary

Global share markets were positive but experienced volatility at the end of August. The MSCI World Index – Net returned 0.53% in unhedged AUD terms. In hedged AUD terms, the index returned 2.43%. The MSCI ACWI – Net returned 0.62% unhedged; it returned 2.38% in hedged AUD terms. 

Global markets grew in August though experienced volatility toward the end of the month as renewed tensions in the Middle East drove energy prices higher and renewed inflationary concerns. 

August started with relative geopolitical calm as evidenced by improved shipping activity through the Strait of Hormuz which brought oil prices back to near pre-conflict escalation levels. Global markets fell sharply on the final day of the month following inflation concerns driven by higher oil prices from a renewed conflict in the Middle East. Despite that, US markets were broadly positive with tech-heavy Nasdaq rising 3.9% on renewed AI optimism. The S&P 500 rose 2.6% and the Dow Jones Industrial Average was up 1.3%, its fifth consecutive positive month. Emerging Markets outperformed Developed Markets (+3.4% vs 2.6%).

Commodity prices were up in the month, benefitting the materials sector. The MSCI World Materials Index was the top-performing equity sector; energy also outperformed.

Comments by US Federal Reserve (Fed) Chair Kevin Warsh weighed on markets late in the month as he signalled controlling inflation as the central bank’s priority. This strengthened expectations for a rate rise, with markets pricing in a 60% chance of a rate rise in September, 90% chance by October and second hike likely in early 2027. High inflation figures have other central banks leaning toward potential rate rises in the near term, including the Bank of Japan, which is widely expected to increase interest rates due to weakness in the yen.  

The Fed’s next move will be guided by employment data, which will be released in early September and CPI figures on 11 September. Core inflation in the US, which strips out food and fuel costs, eased to 2.5% in July from 3.3% in June. Core consumer prices rose by 0.2% in July after being flat the month prior. Unemployment has continued to ease, reported at 4.1% in July, down from 4.2% in June and 4.3% in May. 

The Reserve Bank of Australia (RBA) Monetary Policy Committee held rates stable at its August meeting. The decision was unsurprising as comments ahead of the meeting, along with reasonably stable employment figures and slowing – if still elevated – inflationary figures, reduced pressure on the RBA to take urgent action as it appeared that previous restrictive measures were having their intended impact on the markets.

Australian shares were positive for the fifth consecutive month, with the S&P/ASX 300 Accumulation Index closing the month up 1.62%. 

Relative stability in the conflict in the Middle East meant oil prices held steady, trading between US$80 and US$95 per barrel, spiking as trading closed on the final day of the month on a fresh round of attacks in Iran. Shares also experienced volatility toward the end of August as fresh macroeconomic figures ignited expectations for a near-term rate hike from the Reserve Bank of Australia (RBA). 

Core inflation, which removes volatile items such as housing and petrol, remained at 3.6%. Inflationary increases were due to a variety of factors including increases in food and non-alcoholic beverage prices as well as alcohol and tobacco. Housing was the biggest mover, up 5.0% in the year to July with new dwelling prices up 5.7% due to higher costs for both materials and labour. The nation’s employment rate remained relatively stable in July, sitting at 4.5%. Comparing to a year ago, both unemployment and underemployment rates are elevated, 0.2% and 0.5% respectively. Unemployment has been slowly climbing since bottoming out in mid-2022 at 3.4%.

Materials – specifically gold and related miners – performed well as the price of gold continued a climb started in July, giving back gains late on a higher US dollar and volatility in the Middle East. Lithium and specialty miners experienced rallies on strong corporate updates and target upgrades.

Reviewing the August reporting season, around 25% of S&P/ASX 200 companies beat expectations; roughly half of reporting companies were broadly in line with earnings guidance.

Global bonds were mixed to negative in August, with the Bloomberg Global Aggregate Index – $A Hedged returning 0.16%.

Despite relative calm in the conflict in the Middle East, US-led attacks on Iran at the end of the month drove up oil prices and caused a global bond sell-off, pushing up bond yields. Fed Chair comments identifying controlling inflation as a top priority also drove yields higher. 

The Australian bond market was lower, with the Bloomberg AusBond Composite 0+ Year Index down -0.22%.

Bond yields rose in August, particularly toward the end of the month as markets priced in rate hikes following hawkish comments by the Reserve Bank of Australia (RBA) in meeting minutes, despite holding rates stable.  

The Australian dollar (AUD) is ahead by more than 5% for the year and closing near US$0.7166 after rising steadily (around 2%) through August.