Blair Vernon

AMP is calling for social media companies to be included in reforms to strengthen governance and accountability across the financial system following the collapse of Shield and First Guardian.

ASIC research found close to two thirds of Australians aged 18 to 28 use social media for financial information and guidance. As more Australians turn to social media as a gateway to financial decisions, AMP says digital platforms should be part of any comprehensive framework designed to protect consumers from financial harm

AMP Chief Executive Officer Blair Vernon said: “The Government is right to examine the responsibilities of trustees, fund managers, advisers, licensees and lead generators. Those of us running financial services businesses, including AMP, should expect scrutiny and accept our responsibilities.

“But social media cannot be left out. ASIC’s own research shows social media is increasingly being used to inform financial decision-making for younger Australians. A social media post, search result or targeted advertisement can be someone’s first contact with an investment opportunity, leading to decisions about savings they have spent years building.

“Some social media platforms have introduced checks on financial advertising. Those checks are welcome, but they are only part of the comprehensive governance framework needed to protect retirement savings and hold businesses accountable where they contribute to financial harm.

“Advice businesses and superannuation trustees are helping fund the Compensation Scheme of Last Resort, including many small businesses with no involvement in the failures it covers.

“Where social media companies have helped facilitate harm, and potentially profited from it, their contribution to the scheme should also be given due consideration.

“The Compensation Scheme of Last Resort is more than a compensation mechanism. It is a powerful way to drive accountability and, most importantly, prevention across the financial system.

“Australians should be able to access useful financial information and quality advice wherever they seek it. Protecting them requires accountability across the entire financial value chain, including the digital platforms that increasingly sit at its front door.”

The post AMP calls for social media accountability for financial harm appeared first on AdviserVoice.

Edwina Maloney

AMP has launched North Protect, giving eligible clients a simpler way to access or transfer group insurance with as few as three yes-or-no risk control questions*.

Underwritten by TAL, North Protect brings group insurance together with super and investments on North, giving advisers flexible cover options and a streamlined way to help clients consolidate their existing insurance arrangements.

Edwina Maloney, AMP Group Executive, Platforms, said: “Advisers told us they wanted a simpler way to bring their clients’ super, investments and insurance together. North Protect gives them practical options to do that.

“For clients with super and insurance spread across different funds, consolidation can be complicated by the need to retain appropriate protection. North Protect gives advisers another option to help simplify those arrangements.”

Three pathways to cover

North Protect complements North’s existing retail insurance offer through:

• Standard Cover – providing eligible clients with access to straightforward death and TPD insurance through a small number of risk control questions. Cover automatically adjusts as clients age.
• Tailored Cover – offering fully underwritten death, TPD and income protection insurance for eligible clients requiring greater flexibility.
• Insurance Transfers – allowing eligible clients to transfer existing cover from another super fund. Transfer limits include up to $2 million in death and TPD cover and up to $20,000 a month in income protection cover, subject to risk control questions and eligibility requirements.

Eligible clients can also continue existing North Protect death cover when moving from a North or MyNorth Super account into the corresponding pension account. This continuation applies to death cover only, with cover ending at age 70, subject to policy terms.

Advisers can generate quotes, submit and track applications, and manage cover online through the AGI portal.

Gai Ferrington, AMP General Manager, Product and Pricing, said: “We know many advisers are looking for an easier and more practical way to help clients protect what is often their most valuable asset: their ability to earn an income.

“They also want greater flexibility in how they support different client needs, from straightforward insurance requirements through to more tailored solutions as clients’ circumstances change over time.

“North Protect has been shaped by that feedback, giving advisers more ways to support their clients’ protection needs.”

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*Minimum and maximum cover limits, eligibility criteria and other terms and conditions will apply. Further details provided in the North Protect Insurance Guide.

The post AMP launches North Protect, simplifying insurance cover appeared first on AdviserVoice.

Global share markets were mixed over the last week with US and Eurozone shares down as bond yields rose further, whereas Japanese shares surged helped by expectations that the BoJ won’t speed up the pace of rate hikes. Chinese shares also fell. Australian shares had a volatile ride with a 2% plunge on Thursday but were little changed for the week with no real surprises from the RBA, but with falls in resources and bank stocks offsetting gains in IT, retail and telco shares.

Gold fell on the back of rising bond yields and a rise in the $US, but Bitcoin managed to rise slightly. Metal and iron ore prices fell. The $A fell below $US0.70 as the $US rose.

Oil prices bounced around above $US100 with Saudi Arabia restoring half the flow through its East West pipeline and ongoing signs of tankers getting through the Strait of Hormuz keeping a lid on prices, but the lack of any deal to decisively reopen the Strait along with reports that the US is considering sending another aircraft carrier and more troops to the Middle East keeping them elevated. The risks on the upside remain high as Iran may be motivated to push oil prices up going in to the midterms to punish Trump and we can’t keep running down global oil reserves indefinitely. Disrupted Russian oil product exports have added to upwards pressure on diesel prices.

The bond vigilantes are back. The past week saw another rise in bond yields. Bonds have been oversold for several weeks now but their continued sell off is a sign of the strength in the bear market that is now engulfing them. As with the Australian housing market they are getting hit by a perfect storm with: high energy prices adding to inflation worries; rising expectations for central bank rate hikes; stronger economic data adding to concerns that maybe the neutral short term rate has moved up; worries about big budget deficits in the US, UK, France and elsewhere; increased corporate borrowing to fund data centre investment; erratic US policy marking; and a rising trend in Japanese bond yields leading to a reversal of the so-called carry trade. And in Europe we are seeing a renewed widening in the bond yield spread between French, Italian, Spanish and Greek bonds on the one hand and German bonds on the other reminiscent of the Eurozone crisis. Put simply bond investors are starting to demand a higher risk premium in order to buy government bonds globally and also in Australia. The US 10-year bond yield briefly rose to its highest since 2002 and Australia’s 10 year bond yield is around its highest since 2011.

From TINA to TARA. The ongoing back up in bond yields has significant consequences for other asset classes. The multi decade super cycle downswing in bond yields from the 1980s drove a “search for yield” that pushed investors out along the risk frontier into corporate debt, equities, commercial property, infrastructure, housing, private credit etc. It culminated in TINA or “There Is No Alternative” where investors put money into shares because bonds and cash paid such low returns. Its reversal this decade after 10-year bond yields bottomed out around 0.5% or sub zero in some cases in 2020 threatens to reverse this – with talk of TARA or “There Are Reasonable Alternatives” – putting downwards pressure on the valuations of other assets as investors demand higher yields from them too.

In the near term this leaves shares vulnerable to a further correction. US shares have held up well and moved through the seasonally weak months of August and September without a major problem. But Eurozone shares are down 5.7% from their August high and Australian shares which are down 6.7% from their August high. The risk of a deeper correction in shares remains high. Along with the back up in bond yields at a time when equity risk premiums are low (see the next chart) the worry list for shares remains high and includes: the likelihood of more central bank rate hikes; the ongoing oil supply shock; worries about an AI bubble; and political uncertainty ahead of the US midterms with a Democrat win potentially flagging the risk of US tax hikes and Trump possibly ramping up tariffs and the Iran War once the midterms are over as he becomes a lame duck president.

In Australia, the RBA provided no surprises with a hawkish hike taking the cash rate to a 15 year high of 4.6%. Put simply upside risks to its inflation forecasts – flowing from excess demand but made worse by higher energy prices and booming AI data centre investment – materialised so it hiked rates again as it indicated it would. Failure to have done so would have risked a further loss of confidence in its commitment to the 2-3% inflation target. As expected, and as necessary with underlying inflation well above target and having been so for five of the last six years, it remains hawkish warning that it will raise rates again if needed.

Our base case is that rates have probably peaked as the RBA has likely done enough to weaken demand sufficiently to push inflation back to target by the end of next year – but expect the RBA to remain hawkish for a while yet with no rate cut until late next year. Mortgage interest payments as a share of household income are now pushing back to around the highs reached in 2024 which when combined with higher petrol bills will act as a big constraint on consumer spending, falling home prices will drive an increasing negative wealth effect on consumer spending, household spending in August showed signs of starting to slow, unemployment is continuing to drift higher, the NAB survey shows business conditions at their weakest since the pandemic and home building approvals are now starting to trend down pointing to less home building. And while underlying or trimmed mean inflation remained at 3.6%yoy it was fractionally less bad than feared and didn’t add any further to the upside risks on inflation that the RBA responded to with its September hike. So, while another hike is a very high risk for November, by the time we get to the next RBA meeting there is likely to be enough evidence of cooling demand in the economy to enable the RBA to leave rates on hold and return to “wait and assess” mode, albeit with an ongoing tightening bias and this to remain the case going into next year. But while our base case is that rates have peaked, we don’t see the RBA being able to start cutting until late next year. So, expect a long hold at current high rates with constant concern that rates may still go higher. At present the money market sees a 28% chance of a November high (which is probably a bit too low), but still sees one or two more hikes ahead (which is probably a bit too pessimistic).

Australian inflation rose to 4%yoy in August with a 15% rise in auto fuel prices with trimmed mean inflation holding at 3.6%yoy – both were fractionally better than expected but don’t really change the outlook. September quarter trimmed mean inflation looks on track to come in around 1%qoq or 3.6%yoy, which is above the RBA’s August forecast for a 3.5%yoy rise but the RBA looks to have already adjusted to that with its September rate hike.

As can be seen in the next chart the breadth of above target inflation rises as quite high with more CPI items still seeing inflation above 3% than below 2%. This tells us that its not just the Iran War and surge in fuel prices that’s driving inflation but more broadly reflects excess demand in the economy. The impact of the AI data centre boom was evident too in higher prices for computing equipment and games (X Box) via higher processing & memory chip prices.

The RBA’s latest Financial Stability Review characterised the Australian financial system as remaining resilient with most household and business borrowers likely to be able to manage through slower growth and falling home prices. In particular, the FSR notes that housing and business loan arrears are low, the proportion of home borrowers with a cash flow shortfall is likely to remain low based on RBA assumptions from August and even with a 20% fall in home prices only around 5% of mortgages would fall into negative equity, and it suggests banks should be able to absorb a 20% fall in home prices because of strong capital reserves. So, in short, the RBA does not see a major threat to financial stability from domestic risks. Rather it sees more risks from external factors like high levels of public debt in some countries and low risk premia associated with optimism about AI. Of course, saying that financial stability risks are low from domestic sources does not mean that the economy is not vulnerable to rate hikes and falling home prices and while “most” households and businesses are in good shape the problems could still be significant for “some” and this can often have a significant impact on the wider economy. So, the RBA still needs to be cautious not to raise rates too far.

Following on with Alberts Productions…one of the first hits Vanda and Young had in Australia with one of their songs after The Easybeats was with Ted Mulry and the ballad Falling in Love Again. Of course, Ted quickly changed style to rock a few years later. One of the biggest Vanda and Young success stories though was John Paul Young starting in particular with their song Yesterday’s Hero which was in part based on their Easybeats experience. The Alberts’ sound was clearly evident on that song.

Major global economic events and implications

US economic data was a mostly solid. June quarter GDP growth was revised up to 2.2% annualised from 1.5% with strong 4.6% growth in domestic demand, the level of personal income was revised up and real consumer spending rose solidly in August. The September manufacturing conditions ISM fell but remains strong. Against this consumer confidence fell again in September.

Job openings and quits data suggests an okay but not booming US jobs market, while still low jobless claims and a fall in layoffs suggest it’s strong. The Atlanta Fed GDP tracker for the September quarter has slowed from 5% annualised growth but to a still strong 3.7%.

Meanwhile, downwards revisions to private final consumption expenditure (PCE) inflation give the Fed a bit of breathing space. Core PCE inflation for July was revised down to 3%yoy from 3.3% thanks to methodological changes that revised down inflation for portfolio management fees, software and legal services and August inflation held at 3%yoy. This should give the Fed a bit of breathing space to hold rates at its October meeting consistent with Fed Vice Chair Jefferson NY Fed President Williams assessments that the Fed can be patient. That said, inflation is still too high at 3%yoy, the monthly rise was a “high” 0.247%mom, the ISM showed a rise in price pressures and with mostly strong growth data the Fed is still likely to hike again at its December meeting. The US money market is still pricing in 3.3 more 0.25% Fed hikes – which looks a bit excessive.

Japanese economic data was mixed with falls in industrial production and retail sales, albeit annual growth in both is good, and strong readings for the September quarter Tankan business survey.

Chinese business conditions PMIs rose but remain in the same subdued range they have been in for the last few years. There also appears to be more targeted monetary and fiscal stimulus measures on the way following Premier Li’s call for more measures to help reach the growth target.

Australian economic events and implications

Household spending stalled in August and actually fell after excluding the impact of surging fuel prices. Annual growth is still strong at 6.8%yoy and it did follow three strong monthly gains, but weakness was also evident in falls in spending on discretionary items like clothing, footwear and recreation. This is consistent with the renewed weakness being seen in consumer confidence on the back of the rate hikes and rising costs. It’s too early to be definitive but it is a case of watch this space and consumer spending could be at a tipping point.

Home building approvals fell another 6% in August and look to have peaked around an annualised rate of 210,000 homes reflecting the impact of rate hikes and tax hikes on investors consistent with falling new home sales. The fall was due to falling unit approvals with house approvals still trending up but we need more units if we are to boost housing supply to catch up to Housing Accord target for 240,000 homes a year.

Overall credit growth remained solid in August, but there was a further slowing in housing credit growth to investors reflecting the impact of the tax changes and rate hikes.

The slump in home prices continued in September with another 1.2% fall in home prices and accelerating declines in Brisbane, Adelaide and Perth. We have been expecting a 10% top to bottom fall in prices but with national average prices already down 5.2% with no loss of negative momentum, the drags on demand from rate hikes, tax hikes and poor confidence set to continue for a while yet and a likely rise in distressed selling likely to add to listings particularly as unemployment increases, we are revising our expected fall to a range of 10-15%. This is deeper than the range of average capital city property price declines seen over the last 40 years or so but is consistent with the perfect storm now hitting the property market and in particular the structural shifts in terms of the taxation of investors and the rising trend in interest rates along with the rising risk of a sharp rise in distressed selling on the back of rising unemployment. The risk is for an even deeper fall, particularly if the RBA ends up over tightening and tipping the economy into recession resulting in much higher unemployment which in turn could drive a sharp rise in distressed selling. The negative wealth effect from the property slump is expected to knock around 1% to 2% off consumer spending.

The ABS measure of job vacancies fell again in August reflecting falling private sector vacancies. They remain high relative to pre-pandemic levels, but the trend is down suggesting a gradual cooling in the labour market.

The trade surplus shrunk in August. While exports rose 3.7%mom, imports surged 5.8%mom reflecting a further surge in IT imports in response to the data centre boom. The former suggests that data centre investment is surging again this quarter but its impact on GDP growth will be offset to some degree by surging imports.

The final Federal Budget deficit for 2025-26 came in at $22bn (or 0.8% of GDP), down from a forecast $28bn in the May Budget and $37bn in the December MYEFO. The improvement was mainly due to stronger than expected revenue. Monthly data up to May had already indicated an improvement so it was no surprise and the $6bn difference is only 0.2% of GDP and so is not significant in terms of the economic outlook. And we are still creeping into deeper budget deficits. That said Australia’s budget deficit at 0.8% of GDP is a fraction of those in the US, UK and France which average around 6-7% of GDP.

A broader concern is that Federal spending as a share of GDP rose to 26.9%, its highest level outside the pandemic since 1986-87. This is well above the pre-pandemic norm and reflects real growth in spending in the last three years averaging 4.2% pa. The problem is that the high level of public spending is contributing to capacity constraints in the economy and lower than otherwise productivity driving contributing to high inflation and rate hikes. And revenue as a share of GDP rose to 26.1%, also its highest since 1986-87 and this comprised the highest level of tax revenue as a share of GDP since the mining boom in the mid-2000s. With the boom in revenue, we should have a decent surplus.

What to watch over the next week?

In the US, the minutes from the last Fed meeting (Wednesday) that saw rates hiked are likely to reiterate a hawkish tone. The ISM services conditions index for September (Monday) is likely to remain strong around 55.

In Australia, the Westpac/MI consumer confidence survey (Tuesday) is likely to show a further fall following the latest rate hike. The MI Inflation Gauge (Monday) and ANZ-Indeed job ads data (Tuesday) will also be released.

Outlook for investment markets

Global and Australian share markets are at risk of a further correction given the lack of any resolution to the Iran War and high oil prices, rising bond yields and stretched valuations, sticky inflation and central bank rate hikes, political uncertainty associated with the midterm elections and worries about the impact of AI and whether there is an AI bubble. However, returns should still be okay for the next 12 months as a whole thanks to continuing economic growth with recession likely to be avoided, albeit it’s a rising risk in Australia, and strong global profit growth and likely rate cuts next year.

Bonds are likely to see subdued returns.

Unlisted commercial property returns are likely to be solid helped by strong demand for industrial property associated with data centres. Rising bond yields could become a constraint though.

Australian home prices are expected to fall around 10-15% top to bottom, of which they have already done 5.2%, out to the June quarter next year as a result of poor affordability, RBA rate hikes, reduced investor demand flowing from the winding back of negative gearing and the capital gains tax discount and poor confidence. Rising distressed sales risk also becoming a drag.

Cash and bank deposits are expected to provide returns around 4-5%.

The $A is likely to rise reflecting the wider interest rate differential to the US, although Fed hikes may limit this. Fair value for the $A is around $US0.72.

By Shane Oliver

The post Weekly economic and market update – week ending 2 October, 2026 appeared first on AdviserVoice.

Global share markets mostly rose over the last week helped by strong US economic data, a return of AI optimism and renewed hopes for a diplomatic solution to the Strait of Hormuz blockage. US, European and Japanese shares all rose but Chinese shares fell. The Australian share market remained under pressure falling around another 0.8% not helped by ongoing expectations for RBA rate hikes on top of worries about the impact of rising oil prices, rising bond yields which act as a drag on share market valuations and falling property prices. The falls in the ASX 200 were led by utility, telco, energy and bank shares.

Gold fell on the back of increased expectations for Fed rate hikes and rising bond yields which raise the opportunity cost to holding gold, but Bitcoin broke decisively above $US80,000. Metal prices rose but iron ore prices fell as did the $A with the $US up.

Despite a fall early in the week on hopes for a diplomatic solution flowing from US/Iran talks during the UN General Assembly, Saudi Arabia moving to reopen its east-west pipeline and signs of more ships getting through Hormuz, oil prices rebounded as the talks didn’t appear to make much progress. Trump’s comments threatening to “annihilate” Iran again before then saying the talks were “very good” didn’t add much clarity. Trump is likely to try and do what he can to cap energy prices given the increasing probality of a Republican wipe out in the midterm, but the risks are high with the now more hardline Iranian leadership likely wanting to keep it bubbling along to inflict more damage on Trump politically.

Petrol prices in Australia at around $2.39/litre have now caught up with and overshot the rise in oil prices. This is partly due to a blow out in oil product prices relative to crude oil prices due to Ukranian attacks on Russian oil refineries which have curtailed Russian fuel exports. A failure to resolve the crisis could see oil head to $US150/barrel and petrol prices head above $2.70/litre.

The past week saw another surge higher in bond yields reflecting ongoing concerns about high energy prices adding to inflation, rising expectations for central bank rate hikes, worries about big budget deficits in the US and elsewhere, increased corporate borrowing to fund data centre investment, erratic US policy marking and a rising trend in Japanese bond yields leading to a reversal of the so-called carry trade. The US 10-year bond yield rose to its highest since 2007. As US bond yields are the base for global yields their rise has continued to flow through to Australia with the local 10-year bond yield rising to its highest since 2011. Bonds are oversold and due a tactical rally but their continued sell off despite being oversold is a sign of the strength of the bear market in bonds.

Rising expectations for Fed rate hikes are progressively flattening the US yield curve, which if it inverts (shorter term rates above long-term rates) will start to drive renewed talk of recession, even though an inverted yield curve gave a false signal in 2022-24. Rising bond yields present big problems for governments as they mean more revenue has to be devoted to paying interest on past debt. This in turn is likely to drive pressure for spending cuts or if not then even higher budget deficits. Australia is less at risk than most but is not immune.

Australian shares are down around 4.6% so far this month, consistent with the historical track record of September being a weak month. Eurozone shares are also down 2.3% but US shares are up slightly. However, the risk of a deeper correction in shares remains high. Along with the back up in bond yields at a time when equity risk premiums are low (see the next chart) the worry list for shares remains high and includes: the likelihood of more central bank rate hikes; the ongoing oil supply shock; worries about an AI bubble; and political uncertainty ahead of the US midterms with a Democrat win potentially flagging the risk of US tax hikes.

The extension of the US/China trade truce for another two months into January is good news but the Trump/Xi summit didn’t really resolve the economic and geopolitical tensions between the two countries, including around AI or the Iran War. But at least they are still talking with more summits likely. Investment market implications are minimal. US tariffs on China are currently around 20-25% – comprising tariffs from Trump’s first term and the forced labour tariff of 12.5% – which is below where they were when the truce was first agreed but are still likely to ramp up again with “excess capacity” tariffs probably after the midterms and maybe even more next year if the truce expires.

AI-nnihilation. Talk of AI ranges from super optimism based on a huge boost to productivity to extreme pessimism with worries about a jobs wipeout (even though it seems to be generating more jobs than its destroying so far) to panic over the last few weeks that it will wipe out humanity by the end of the decade. The latter emanated from Anthropic and was then backed by Sam Altman at Open AI and Elon Musk but it looks more like a virtue signalling publicity stunt to support lofty valuations ahead of capital raisings and protect US AI from cheaper Chinese models combined with a bit of nervousness about being locked in an unsustainable AI arms race and a desire to find an off ramp to slow the AI capex boom. There are lots of risks with AI and some guardrails are wise. But the threat of harm applies to all new technologies – whether it be fire, steam engines, electricity, cars, nuclear energy, etc. Humanity has long had a fascination with things that could wipe it out – whether it’s the bomb in films like Fail Safe, nuclear energy in The China Syndrome, Hal the computer in A Space Odyssey, population growth in Paul Ehrlich’s The Population Bomb, global cooling and more recently global warming. AI is just the latest of a long list of things the handwringers can worry about.

In Australia, the RBA (Tuesday) is expected to hike the cash rate by 0.25% for the fourth time this year, taking it to 4.6%, its highest level since October 2011. While unemployment surprised on the upside in August the data was messy, and the RBA will likely still see the jobs market as a “bit tight” and consistent with meeting its full employment objective. But this is not the case for its inflation objective with underlying inflation at 3.6% running well above target and July inflation data along with the latest surge in energy prices, the AI spending boom and extreme weather indicating it will take longer to get back to target than the RBA was forecasting just last month. While cooling economic growth, the rising trend in unemployment and the downturn in home prices should start to take pressure off inflation, after more than five years of inflation being above target threatening RBA credibility it does not have the luxury of continuing to “wait and assess”. Recent commentary from the RBA has been pretty clear in indicating that unemployment needs to rise, that its not too concerned about the fall so far in home prices and that inflation is its top priority right now. Of course, RBA commentary has left a bit of wiggle room but it’s August post meeting statement referred to “increasing the cash rate target further if upside risks [to inflation] materialise” and Governor Bullock told the House Economics Committee a week ago that “some of these upside risks to inflation appear to be materialising”. So, with the upside risks to inflation now materialising it’s likely to tighten in the week ahead as it has suggested it would.

We also expect it to be a hawkish hike with RBA commentary continuing to warn that it may have to raise interest rates further, albeit the move may not be unanimous. But by the time it gets to the November meeting there is likely to be more evidence of a cooling economy, falling home prices, a softer jobs market and rising recession risks so we don’t think a second hike let alone a third will be necessary. So, while a second hike is a high risk it’s not our base case and we should see an extended hold out to around mid-next year at 4.6%. The rising trend in unemployment evident in the August jobs data is consistent with this. The money market has priced in a 90% probability of a hike on Tuesday which we agree with but its expectation for another one or two hikes beyond that looks too hawkish.

Another double whammy hit for households. For mortgage holders another 0.25% rate hike would mean roughly an extra $110 a month in mortgage interest payments. This would bring the increase since January to around $440 a month or $5400 a year. For the property market it will reduce the capacity to pay for a home for a buyer on average earnings with a 20% deposit by another $10,000 bringing the total reduction after four rate hikes to around $40,000. At a time when petrol prices are nearing their March record high again the cost to the average household to fill up the car is pushing around $84 a week, up nearly $22 from where it was back in January. So around a $530 a month extra impost since January for those with a mortgage and petrol car which is quite a hit.

The Australian Government’s latest Intergenerational Report painted a somewhat bleak picture for the next 40. The key takeaways are:

• Treasury sees a further slowing in economic growth to just 2% pa for the next 40 years. This is depressing as 3% pa used to be the norm for Australia. The slowing is mainly due to slower workforce growth as a result of falling fertility and rising old age dependency.
• Lower projections for per capita GDP than in any of the IGRs so far. This means lower material living standards and partly reflects the low starting point – where real per capita GDP today is 13% or $15000 below what was projected for now in the 2002 IGR. But it would be even lower were it not for an optimistic assumption that productivity will grow 1.2% pa over the next 40 years, which is the same its been over the last 40 years. The trouble is that over the last decade its just been 0.2% pa and even if the Productivity Commission’s expectation that AI will boost productivity by 2.3% over 10 years is correct that maybe only gets us to 0.5% pa.

• Ongoing high levels of government spending and a budget deficit forever. The latter partly reflects the capping of tax revenues as a share of GDP at past highs on the realistic assumption that future governments will give back future bracket creep – in contrast to the May Budget that assumed an ever-rising trend in the revenue share to bring the budget back to surplus. But the bigger issue is that the IGR projects a permanently higher share of government spending in the economy due to the cost pressures flowing from an aging population and more spending on defence, NDIS and debt interest.

The good news is that the cap on revenue implies tax cuts ahead, but the problem is that IGR is not really fulfilling its original purpose which was to highlight the fiscal impact of an aging population and support spending cuts or restraint as an offset. More broadly to turn the budget back into a surplus and provide confidence that productivity will be at least as good as the 1.2% pa assumption and so improve the outlook for material living standards the IGR highlights the need for more serious economic reform:

• to get government spending back down to more in line with levels prevailing prior to the pandemic – the IGR estimates that the growth in the non-market or mainly public sector of the economy has cut 0.3% pa off productivity growth since 2017-18;
• substantially reduce the regulatory burden on business – Productivity Chair Danielle Wood’s pointing out that a doubling in company board time spent on compliance issues and the cost of this in becoming too risk averse is an example of the problem here; and
• tax reform to reverse the rising reliance on income tax, boost reliance on the GST & move to a road user charge.

While other factors including starting working life later are impacting, weak productivity is likely a key driver of those born in the 1990s not seeing the lift in real incomes relative to those born in the 1980s early in their careers, like previous generations had seen. So weaker productivity is likely a driver of angst about intergenerational equity.

In the 1970s Sydney based Alberts Productions ruled the rock and pop charts with what became known as the Alberts sound. This became synonymous with Australian pub rock and was characterised by a driving relentless drum beat, memorable razor sharp guitar riffs, heavy low end bass and a high energy delivery. A bit like a V8! It got its start with The Easybeats but is perhaps most well-known with AC/DC. Central to this sound was the songwriting and production team of former Easybeats’ Harry Vanda and George Young. After The Easybeats split they spent four years writing and producing songs in London but returned to Australia and Alberts in 1973. Their song Evie, Parts 1, 2 & 3 performed by fellow former Easybeats Stevie Wright is emblematic of the Alberts sound. Running 11 minutes it’s the longest Australian single to hit the charts, reaching number 1 and staying on the charts for 26 weeks. Apparently, disc jockeys loved it as they could go off for a cup of tea. The performance of Evie, Parts 1, 2 & 3 in June 1974 on the Sydney Opera House forecourt is an absolute classic with Stevie Wright, George Young and Harry Vanda performing together for the first time since The Easybeats.

Major global economic events and implications

Developed country business conditions PMIs for September were strong on average but with strength in the US and to a less degree Europe offsetting falls in the UK, Japan and Australia. Input and output price pressures rose and remain elevated with delivery times depressed.

It’s a similar story in the US but with conditions being much stronger, particularly in manufacturing. And US price indicators rose, particularly for input prices.

In other data US new home sales rose but remain weak and are likely to fall further as mortgage rates continue to rise on the back of rising bond yields. Jobless claims remain low pointing to ongoing labour market strength.

In Europe the Swiss and Swedish central banks left their policy rates on hold, but the Norwegian central bank hiked. Both the Swedish and Norwegian banks leaned hawkish.

Australian economic events and implications

Australian business conditions PMIs fell to a soft 50.8, with falls in employment and orders. Both cost and output price pressures rose consistent with ongoing high inflation.

Jobs data for August was messy. On the one hand unemployment rose to 4.6% – 4.646% to be precise! – and full-time employment fell but on the other hand total employment rose by 39,500, hours worked rose solidly, both are up 1.6-1.7%yoy, underemployment fell to 6.2%, the ratio of employment to the population remains near a record and participation rose to 67.1%. There was also some statistical issues that may have distorted the data. The overall picture though is that jobs growth is still solid but unemployment is continuing to trend up gradually.

Forward looking labour market indicators are now mixed. Job ads are either stable or rising…

…whereas business surveys point to a slowing trend in employment. While the RBA is boxed in by too high inflation necessitating a rate hike in the week ahead the rising trend in unemployment and the mixed outlook for jobs growth suggest it shouldn’t have to hike again.

New company insolvencies spiked in August reflecting the insolvency of the 542 companies in the Bathla Group. It’s not so bad if Bathla is excluded running in the same range as over the last two years. While the Bathla spike will reverse this month the trend may remain up given rising interest rates, slowing demand and tough conditions for home builders with rising costs but falling home prices.

What to watch over the next week?

In the US, the focus will be on core private final consumption inflation data for August (Wednesday) which is expected to rise 0.3%mom or 3.3%yoy validating the Fed’s decision to hike. Jobs data for September (Friday) are expected to show a solid 100,000 rise in payrolls with unemployment remaining at 4.1% but with wages growth remaining benign at 3.2%yoy. Other data is expected to show still soft growth in consumer confidence (Tuesday), solid growth in personal income and spending (Wednesday) and the manufacturing ISM (Thursday) remaining strong at around 55.

Eurozone inflation for September (Friday) is expected to rise to around 3.4%yoy with core inflation rising to 2.6%yoy.

Chinese business conditions PMIs for September (Wednesday) are likely to remain soft at around 50.

In Australia, as noted earlier the RBA (Tuesday) is expected to hike for the fourth time this year raising its cash rate by another 0.25% taking it to 4.6%, its highest since October 2011.  August CPI data to be released on Wednesday is likely to confirm that inflation remains a problem with a 0.5%mom rise taking annual inflation back to 4.1%yoy, not helped by a 17% rise in fuel prices, and trimmed mean inflation rising 0.3%mom leaving it at 3.6%yoy. Elsewhere on the data front, expect increased fuel costs to drive a 0.6%mom/7.6%yoy rise in household spending (Tuesday), a 6% fall in building approvals but a further slowing in housing credit growth particularly for investors (both Wednesday), a 1%qoq rise in job vacancies for August and the trade surplus to rise to around $2.2bn. Cotality home price data for September is expected to show a further 1% or so fall in property prices with prior months falls revised even lower as the combination of rate hikes, the tax hikes on investors and poor confidence continue to impact. Sydney is likely to lead the fall but with Adelaide, Brisbane and Perth catching down but falls slowing in Melbourne.

Outlook for investment markets

Global and Australian share markets are at risk of a correction given the lack of any resolution to the Iran War and rising oil prices, rising bond yields and stretched valuations, sticky inflation and central bank rate hikes, political uncertainty associated with Trump & the midterm elections and worries about the impact of AI and whether there is an AI bubble. However, returns should still be okay for the next 12 months as a whole thanks to continuing economic growth with recession likely to be avoided and strong global profit growth and likely rate cuts next year.

Bonds are likely to see subdued returns.

Unlisted commercial property returns are likely to be solid helped by strong demand for industrial property associated with data centres. Rising bond yields could become a constraint though.

Australian home prices are expected to fall around 10% top to bottom, of which they have already done 3.6%, out to the June quarter next year as a result of poor affordability, RBA rate hikes, reduced investor demand flowing from the winding back of negative gearing and the capital gains tax discount and poor confidence.

Cash and bank deposits are expected to provide returns around 4-5%.

The $A is likely to rise reflecting the wider interest rate differential to the US, although Fed hikes may limit this. Fair value for the $A is around $US0.72.

The post Weekly economic and market update – week ending 25 September, 2026 appeared first on AdviserVoice.

Sharyn Baker

North has announced a new partnership with talent development and recruitment specialist Striver, reinforcing its commitment to supporting the future of the financial advice profession.

To mark the partnership, North will host Striver’s flagship Brimstone Sydney event, bringing together students, graduates, career changers and industry leaders to explore opportunities in financial advice.

The partnership comes at a critical time for the profession, with demand for financial advice continuing to grow while adviser numbers remain constrained.

Through initiatives such as Brimstone, North and Striver aim to help create stronger pathways into advice and inspire more people to pursue careers in the profession.

Helping encourage the next generation of advisers

North has a long-standing commitment to supporting advisers and helping Australians achieve better financial outcomes.

The partnership with Striver builds on that commitment by investing in emerging talent and helping strengthen the profession for future generations.

Brimstone Sydney will provide attendees with insights into the financial advice profession, opportunities to connect with advisers and industry leaders, and practical guidance on entering and building a career within the sector.

The event will be hosted by North at AMP’s Sydney headquarters on 15 September 2026.

Alisdair Barr, Founder and CEO of Striver, said Brimstone was designed to showcase the opportunities available within financial advice and connect aspiring advisers with industry leaders.

“At Striver, we’re passionate about creating clearer pathways into financial advice and connecting talented people with meaningful careers in the profession. Brimstone brings together students, graduates, career changers and industry leaders to showcase what’s possible in advice.

“For many attendees, these events provide their first exposure to the profession and often the moment they realise financial advice can be a rewarding and purpose-driven career. North’s commitment to growing the profession and supporting emerging talent makes them a natural partner.

“Together, we’re helping create opportunities for the next generation of advisers to learn, connect and take their first step into the industry.”

Sharyn Baker, Director, Operations, Platforms at AMP, said supporting the adviser community and its future talent pipeline was central to North’s purpose.

“At North, we believe great advice changes lives. It helps Australians navigate important financial decisions and achieve better outcomes throughout every stage of life.

“Supporting advisers has always been part of who we are, and this partnership with Striver reflects our commitment to helping attract, develop and inspire the next generation of advice professionals.

“Brimstone Sydney is about more than a single event. It’s about bringing together future talent, experienced professionals and industry leaders to help strengthen the profession, expand career pathways and ensure more Australians can access quality financial advice in the years ahead.”

The post North teams up with Striver for next generation of advice talent appeared first on AdviserVoice.

Shane Oliver

Key points

• The Fed is likely to start raising interest rates to combat sticky inflation and affirm its credibility.
• First Fed rate hikes in a tightening cycle don’t normally signal the end of the bull market in shares but are consistent with volatility and the risk of a correction.
• A Fed hike is unlikely to impact the RBA which started hiking before the Fed & was already likely to hike again this mth.

Introduction

After much debate and anticipation, the US Federal Reserve looks likely to raise interest rates at its meeting this week by 0.25% taking the Fed Funds rate to a range of 3.75-4%. This will be its first hike since 2023.

In moving to hike the Fed will join numerous central banks in doing so including the ECB and those in Norway, Japan, Korea, Indonesia, and the Philippines, the RBNZ and of course the RBA which has hiked three times.

Why is a Fed hike likely?

As in other countries, the hike is likely because inflation is above the Fed’s 2% target with upside risks. Some Fed officials have been arguing for a hike for a while. The Fed’s June meeting saw half of the officials on the Federal Reserve’s Open Market Committee that sets interest rates flag an expectation for a rate hike this year and the Fed’s easing bias was dropped. Recent commentary from Fed officials indicated a need to see a downtrend in inflation to leave rates on hold with new Fed Chair Warsh turning hawkish and effectively backing this in a speech last month. Then underlying US consumer price inflation data for August surprised on the upside pointing to a 0.25% monthly rise in core private final consumption (PCE) inflation for August, which is not consistent with Fed officials’ requirement for a falling trend in inflation. At the same time, US economic data has generally been solid and the renewed surge in the oil price has added to upside risks. So, the US money market sees an 86% chance of a 0.25% hike this week, and has factored in 3.5 hikes by June next year.

Trump’s illogical intervention a week ago trying to get the Fed to “LOWER THE RATE” will have only made it more likely that more Fed officials will support a hike in order to reinforce Fed credibility. Were it not for Trump’s tariffs and War with Iran the Fed may have cut again by now! Like the RBA, after nearly six years of inflation running above target Fed credibility is now on the line and Trump’s interventions are not helping.

How far will the Fed hike?

It’s often said that central bank rate hikes are like cockroaches “if there’s one there’s probably more”. Fed communication following the meeting is likely to remain hawkish warning of further tightening to come and this is likely to include the so-called “dot plot” of Fed officials’ interest rate expectations signalling another hike by year end. And while I am not a great fan of historical overlay charts like the next one for US inflation – the US and the global economy have become more inflation prone thanks to deglobalisation, rising defence spending, bigger government, Trump’s erratic pro inflation policy making, etc.

And this provides a warning to the Fed to be cautious. After the surge in inflation in the early 1970s the Fed relaxed and then inflation came back with a vengeance, ultimately necessitating a far more aggressive monetary tightening to get it under control. The same could occur again.

Things probably aren’t that bad now though given the Fed and other central banks now have firm inflation targets – albeit the risk is there. But to head of this risk the Fed will likely hike again. However, at present it looks more like fine tuning. US inflation is not yet showing a renewed surge and nor is it in most countries. Rather, the concern in the US is that at 2.4%yoy for core CPI and around 3.2%yoy estimated for core PCE inflation, it is just above target rather than necessarily taking off again.

So, our base case is for one more Fed hike in this cycle, probably in December – as it’s October meeting is just before the midterm elections.

What does it mean for share markets?

The experience of the last 35 years suggests that while first Fed rate hikes in a tightening cycle can cause a dip in shares, the bull market usually resumes until rates become onerously tight, which weighs on profits. This can be seen in the next chart. US shares had wobbles when rates first started to move up in February 1994 (US shares had a 9% correction), in June 2004 (US shares had an 8% correction) and in December 2015 (US shares had a 13% correction) but thereafter they resumed their rising trend and a bear market did not set in till 2000, 2007 and 2020 after multiple hikes. Of course, the 2020 bear market was ostensibly due to the pandemic. Recession did not come for seven years after the February 1994 first hike, for three and a half years after the June 2004 first hike and for four years after the December 2015 first hike. This is because the first rate hike only takes monetary policy to less easy, and it’s only when monetary policy becomes tight that the economy gets hit. The start of Fed tightening in the last cycle in March 2022 was different as shares were already in a falling trend and this continued until October 2022 culminating in a 25% fall. But inflation was much higher then – with US core CPI inflation of 6.5%yoy when the Fed started to hike necessitating a more aggressive increase in interest rates whereas now it’s much lower.

One guide to whether monetary policy is tight or not is the shape of the yield curve (long-term bond yields less short-term rates) – with a period of long-term bond rates falling below short-term rates often preceding recession. Of course, this doesn’t always work and it gave a false signal from late 2022 through 2024. At present, different versions of the yield curve are both in positive territory and not signalling recession.

Correction risks

While past experience suggests little reason to be too concerned by the first US rate hike, there are two main risks:

• Correction risk is already high for shares – a Fed rate hike combined with worries about the rebound in oil prices, Trump’s latest tariff announcements, rising bond yields, AI bubble worries and concerns about the US midterm elections could combine to further push shares down in the near term in what is a seasonally weak period.
• There is a high risk that Trump turns up both the tariff war (with maybe more countries retaliating) and the Iran War post the midterm elections once political constraints from the midterm elections recede. This would add to inflation.

Impact on Australian interest rates and the $A

The RBA sets rates for Australian conditions and does not just follow the Fed. As the first chart shows the link between US and Australian rates has been tenuous in recent times with the RBA hiking in 2009-10 when the Fed did nothing and the RBA cutting or on hold when the Fed raised rates over 2015 to 2018. They only move together if there is cyclical alignment. However, the RBA led the Fed in hiking starting back in February and is on track to hike probably later this month and maybe once more this year, and the Fed’s likely hike this week won’t alter that either way.

A Fed rate hiking cycle is not necessarily bad news for the $A because it depends on how much the RBA raises interest rates. Current money market expectations suggest some slight narrowing in the rate differential between Australia and the US which would be negative for the $A. However, our view is that $A is yet to catchup to the widening in the rate differential this year, expectations for 3.5 Fed hikes look too hawkish and solid commodity prices should support the $A. So, unless there is a global recession, we continue to see the $A rising a bit over the next year.

By Dr Shane Oliver, Head of Investment Strategy and Chief Economist, AMP

The post The Fed looks like it’s going to hike – implications for investors & Australia appeared first on AdviserVoice.

Global share markets fell again over the last week as both oil prices and bond yields pushed higher with more upwards pressure on central bank interest rate expectations. Despite higher than expected US core CPI inflation data for August making a Fed hike in the week ahead almost certain, a small dip in oil prices on Friday saw US shares pare their losses but they still fell 1.2% for the week. Over the week Eurozone shares fell 0.9%, Japanese shares fell 1.6% and Chinese shares fell 0.8%. The Australian share market was particuarly hard hit with a 2.9% fall not helped by talk of back to back hikes by the RBA on top of worries about the impact of rising oil prices, rising bond yields which act as a drag on share market valuations and falling property prices. Energy shares rose but this was offset on the ASX 200 by big falls in IT, retail, property and mining shares.

Bitcoin and gold both fell as rising bond yields and rising expectations for Fed rate hikes reduced their relative attractiveness. So far Bitcoin is holding above its 200-day moving average which is a positive sign, but gold has fallen back below its 200-day moving average.  Metal and iron ore prices fell as did the $A despite a slight fall in the $US.

Oil prices are heading into a danger zone with Brent pushing near $US110 a barrel for the first time since May as the US-Iran conflict escalated further with more attacks on ships in the Strait of Hormuz, more US strikes on Iran, more retaliatory action by Iran on neighbouring countries and new Houthi attacks on Saudi Arabia. While oil prices dipped a bit on Friday, this looks temporary with Saudi Arabia shutting it’s East-West pipeline following attacks on it. This has been a key way of by-passing the Strait of Hormuz for 7 million barrels of oil a day and with Hormuz effectively remaining closed the risk to global oil supplies is rising as global reserves can’t be run down indefinitely. With oil now above the top of our $US70-$US100 range Trump is likely to do something – another TACO anyone? – to get them back down but the risk of a further rise is high. The hardline Iranian leadership may want to keep it going to inflict more damage on Trump politically and run the risk of what he may do after the midterms.

Particularly at risk are gas prices – with very little gas getting out through the Strait at all and few diversions from Qatar and very low European gas stockpiles as the northern winter approaches – and refined product prices especially for diesel given a hit to Russian refineries and exports. Petrol prices in Australia at around $2.12/litre have already retraced around half the fall from their March high but are likely heading even higher with rising global oil prices.

The past week saw another surge higher in bond yields reflecting concerns about big budget deficits in the US and elsewhere, increased corporate borrowing to fund data centre investment, worries about higher for longer inflation partly flowing from higher oil prices, a related need for central banks including the Fed and RBA to run higher interest rates for longer and a rising trend in Japanese bond yields leading to a reversal of the so-called carry trade. This is being compounded by US Government actions:

• While US Treasury Secretary Bessent tripled the size of the long-term bond buyback operation to $6bn this was largely ignored by the bond market and adds to fears that the US will monetise its debt and threatens to make the US Treasury a more erratic issuer of bonds demanding a higher risk premium. While he’s talking of reducing the budget deficit it’s hard to see it happening given the inability of DOGE to do much last year and given that Congressional approval will be required.
• Trump’s offer of $US5000 per adult if the Republicans retain the House and Senate underscore that the risk is a further deficit blowout not consolidation. That said, his election bribe is unlikely to be passed by Congress.
• Trump ramped up tariffs on Canada even further in response to Canadian retaliation, adding more to costs.
• And of course, Trump’s War with Iran is adding to energy costs which is adding to inflation.

Higher than expected US inflation data for August now points to a Fed hike in the week ahead. The CPI wasn’t all bad with core inflation dipping to 2.4%yoy and less items with 3-month annualised inflation now above 3%. But the monthly rise in core CPI inflation of 0.29%mom is likely too high to satisfy Fed officials who want to see a downtrend in inflation in order to leave rates on hold. Particularly with the renewed surge in oil prices posing a renewed threat to inflation. As a result, a Fed rate hike on Wednesday is now looking highly likely, with the money market now putting the probability of a hike at 88%. The Fed could decide to wait but that is complicated by its October meeting being just ahead of the midterm elections and waiting till December to move will be too long. Trump’s illogical intervention a week ago trying to get the Fed to cut will have only made it more likely that more Fed officials will support a hike in order to reinforce Fed credibility. Were it not for Trump’s tariffs and War with Iran the Fed may have been cutting by now!

While the Fed is likely to remain hawkish and signal a second hike, money market expectations for 3.5 hikes from here look over the top.

Bonds are starting to get oversold suggesting a short-term rally – it could be a case of sell on the rumour and then buy on the fact after Wednesday’s likely Fed hike. But the risk is skewed towards a further rise in yields longer term. As US bond yields are the base for global yields their rise has continued to flow through to rising Australian bond yields made worse by strengthening expectations for RBA rate hikes.

The rise in bond yields points to: higher fixed mortgage rates; pressure on share market valuations; threats to commercial and residential property; and pressure on Federal & state budgets as borrowing costs surge.

The back up in public debt interest costs at a time when stamp duty revenue is falling due to the slump in the property market comes at a difficult time for state governments with Queensland seeing its credit rating downgraded from AA+ to AA by Standard and Poors. S&P also cited large infrastructure spending programs in Queensland including for the Olympics. The downgrade to AA could add another 0.1 to 0.15 percentage points to Queensland’s borrowing costs pointing to further pressure to cut spending for a state government philosophically averse to hiking taxes. While some of the reasons for the Queensland downgrade were beyond the state government’s control, this arguably could have been avoided if it had focussed more on containing spending after the last election. That said I am not sure that cutting its rating to the same as Victoria’s is warranted! NSW moved from AA+ (negative watch) to AA+ (stable).

Trump’s election bribe should be seen in its wider context as a sign of desperation. If the US had the “tremendous strength and success” he claims, then the bribe would not be needed. But things are going the wrong way – the Iran war is an unpopular disaster, oil prices are surging again, the hardline Iranian government may want to keep it going, tariffs are on the way up again and the Fed is at high risk of hiking again. And the mid-terms are just two months away. Betting markets put Democratic control of the House at over 85% and the Senate is back to around 50%. The risk for markets may be that a Democrat win (particularly for Democratic Socialist candidates) will fuel fears of tax hikes after the election.

The RBA is looking like its seen enough bad news on inflation and will most likely hike this month, so we have moved forward our expectation for the next hike from November to September. Since before the July CPI release, we had been expecting another rate hike this year, most likely in November. The high CPI and okay GDP data released in the last three weeks then suggested its 50/50 as to whether its September or November, but RBA communication over the last week suggests its likely to be this month. Comments by RBA Assistant Governor Hunter and Deputy Governor Hauser were decidedly hawkish – despite both coming after soft consumer and business confidence data. The clear message was that the RBA sees growth around trend, unemployment as still low and is not too fussed about the fall in home prices as they are still up 3%yoy and 50% this decade but that inflation is too high and upside risks to it appear to be materialising. As a result, according to Hunter “inflation is top priority right now” and according to Hauser “people are furious about inflation…[and] want us to do our job and bring inflation down”. So, while there is a rising risk of recession with a renewed surge in oil prices and a negative wealth effect from falling home prices the more pressing issue for the RBA is inflation. And with inflation on track to be above target for five of the last six years including the current year, waiting till November to hike risks further damaging RBA credibility in terms of its commitment to getting inflation back to target. And once that credibility is lost it will be even harder to return inflation to target. As a result, we now expect the RBA to hike at its next meeting late this month and retain a tightening bias. A hike this month is not inevitable – as it could still be blown around by global developments or a very weak jobs report the week before the RBA meeting – but we would see it as odds on with a 75% probability. A second hike in say November would probably be overkill as it would risk tipping many households with a mortgage over the edge risking in turn a crash in property prices, much higher unemployment and a deep recession. That said, the probability of a second high is probably 50/50, and a third hike would definitely be overkill. Interestingly the money market now has nearly three hikes priced in by October next year – but that looks like an overreaction to the surge in oil prices.

Proposals to allow access to super to cover living costs may be popular but like other “cost of living” relief measures is not the way to address the “cost of living” crisis and could make it worse. A common approach offered by all sides of politics over the last few years to the cost-of-living crisis has been to offer support via things like energy rebates, fuel tax cuts, low home deposit schemes and access to super with another proposal on the super front from a minor party in the last week. The problem with all these schemes is that they don’t solve the underlying cost of living/inflation problem and by putting more money into the hands of people could make it worse by boosting demand in the economy adding to the inflation problem and leading to even higher RBA interest rates and then leave people with less in retirement and not much to show for it. Rather, the focus should be on reducing government spending to make more room for private spending in the economy and boosting productivity with deregulation and tax reform to expand the capacity of the economy to supply goods and services without adding to inflation.

The risk of a correction in shares is high. September has been the weakest month of the year on average over the last 40 years and shares are already down – with US shares down 1.8% from their high last month, global shares down 2.2% and Australian shares down around 5.7%. There are plenty of triggers for a further fall including: rising bond yields at a time when equity risk premiums are low; likely Fed and RBA rate hikes this month; rising oil prices; worries about an AI bubble; and political uncertainty ahead of the US midterms with a Democrat win potentially flagging the risk of US tax hikes. That said, with strong earnings growth we would see any pullback as a correction rather than the start of a new bear market.

Major global economic events and implications

US producer price inflation data for August was in line with expectations at 4.6%yoy for core PPI, but key components that feed into the core private final consumption (PCE) deflator were a bit higher than expected adding to upside risks to the core PCE and hence to the odds of the Fed hiking in the week ahead, similar to the message from the CPI. Meanwhile, jobless claims remained low.

The ECB hiked rates as expected by 0.25% taking its deposit rate to 2.5% with more hikes likely. Its messaging was hawkish seeing “inflation well above target for an extended period” with inflationary pressures from the Iran War still building and it revised up its inflation and growth forecasts. Another hike is likely by year end.

The success of the far-right populist Alternative for Deutschland in the German state of Saxony-Anhalt highlights the ongoing rise of the populist right but is not a sign of another Eurozone crisis being on the way…well not yet anyway. The AfD is clearly continuing to rise in popularity reflecting cost of living issues and a backlash against high immigration levels. But it needs to be put in context: the AfD is not a Nazi party; Saxony-Anhalt is a middling east German state with East German resentments; the AfD failed to win a majority in the election; it was founded as an alternative to the Euro but around 90% of Germans support the Euro; while the current German government is unpopular the next federal election is not till 2029; the government is likely to respond with more fiscal easing and a further tightening in immigration rules which along with any economic recovery will tend limit support for the AfD more broadly in Germany; and even if the AfD does attain German government it will likely moderate its views a bit like Meloni in Italy. Next year’s French election poses a bigger risk regarding threats to the EU and Euro with Le Pen of National Rally being the front runner, but again if she forms government, she will likely soften her views albeit there could still be tensions with the EU in terms of reducing France’s budget deficit.

Japanese wages growth accelerated to 4.7%yoy consistent with more rate hikes from the BoJ.

Chinese import and export growth remained strong in August. The strength of import growth is surprising given that it would normally suggest strong growth in domestic demand whereas weak retail sales and fixed asset investment suggest softness.

Chinese inflation rose slightly in August largely on the back of higher energy prices, but core CPI inflation also rose but only to 1%yoy.

Australian economic events and implications

Consumer confidence fell 5% in September on the back of rate hike talk and higher fuel prices, with the Westpac/Melbourne Institute consumer sentiment index back to a weak level of 84. All components fell with mortgage holders being the group with the biggest fall.  Weak confidence is consistent with a slowing ahead in consumer spending.

The Westpac/MI consumer survey also showed that consumers remain cautious with their savings preferring paying down debt and bank deposits, with real estate being a less popular destination for savings than shares.

Consumers’ expectations for home prices gains fell further as did perceptions as to whether now is a good time to buy a property – albeit it’s still up from its lows.

The August NAB business survey saw conditions fall to their lowest since the pandemic.

Meanwhile, the NAB survey showed that selling prices fell but purchase and labour cost pressures remain elevated posing risks for inflation.

Data released over the last week wasn’t all weak with ANZ Indeed job ads up again in August and looking like they are on the rise again – which is a bit hard to believe.

What to watch over the next week?

Interest rates will likely be the focus over the week ahead with three major central banks meeting: the Fed, the Bank of England and the Bank of Japan and two of those likely to hike.

In the US, the Fed (Wednesday) is likely to hike interest rates by 0.25% taking them from 3.5-3.75% to 3.75-4% on concerns about sticky above target inflation. Core CPI inflation data for August came in on the high side putting in question the downtrend that Fed officials indicated that they need to see to be able to leave rates on hold. The Fed’s commentary and guidance is likely to lean hawkish with the dot plot signalling an additional hike ahead. On the data front, expect the New York and Philadelphia regional manufacturing indexes to soften but remain solid, retail sales (Wednesday) to show a solid rebound, housing starts (Thursday) to bounce after sharp fall in July & production (Friday) to show a small rise.

Canadian core inflation for August (Monday) is likely to show the underlying measures remaining around 2%yoy.

The Bank of England (Wednesday) is expected to leave rates on hold at 3.75%, although it’s likely to warn of upside risks to inflation flowing from ongoing high energy prices. Meanwhile, CPI inflation for August (Wednesday) is likely to remain around 2.9%yoy with core inflation around 2.6%yoy.

The Bank of Japan (Friday) is expected to increase its policy rate from 1% to 1.25% and indicate that further gradual increases are likely with inflation around target. Inflation data for August (Friday) is likely to show a rise in core inflation to 1.4%yoy.

Chinese activity data for August (Tuesday) is likely to have remained soft with industrial production up 4.8%yoy, but retail sales up just 0.8%yoy and investment down 7.3%yoy.

In Australia, parliamentary testimony by RBA Governor Michele Bullock (Friday) will likely reiterate the hawkish signalling from other RBA officials recently with the implication that another rate hike is likely.

Outlook for investment markets

Global and Australian share markets are at risk of a correction given the lack of any resolution to the Iran War and rising oil prices, rising bond yields and stretched valuations, sticky inflation and central bank rate hikes, political uncertainty associated with Trump & the midterm elections and worries about the impact of AI and whether there is an AI bubble. However, returns should still be okay for the next 12 months as a whole thanks to continuing economic growth with recession likely to be avoided and strong global profit growth and likely rate cuts next year.

Bonds are likely to see subdued returns.

Unlisted commercial property returns are likely to be solid helped by strong demand for industrial property associated with data centres.

Australian home prices are expected to fall around 10% top to bottom, of which they have already done 3.6%, out to the June quarter next year as a result of poor affordability, RBA rate hikes, reduced investor demand flowing from the winding back of negative gearing and the capital gains tax discount and poor confidence.

Cash and bank deposits are expected to provide returns around 4-5%.

The $A is likely to rise reflecting the wider interest rate differential to the US, although a move to Fed hikes may limit this. Fair value for the $A is around $US0.72.

By Shane Oliver

The post Weekly economic and market update – week ending 11 September, 2026 appeared first on AdviserVoice.

Shane Oliver

Key points

• Bond yields are being pushed higher by concerns about inflation, high public debt, rising corporate borrowing, rising Japanese bond yields and increasing economic uncertainty.
• This is part of a super cycle rise in bond yields that started in 2020, partly reversing the super cycle from the 1980s.
• The rising trend in bond yields could dampen other asset classes as it leads to a higher yield structure in the economy. This includes residential property.

Introduction

This year has seen a rising trend in bond yields with the US 30-year treasury bond yield reaching its highest in around two decades and the Australian Government’s 10-year bond yield rising to its highest since 2011. This is causing some consternation in terms of its impact on borrowing costs, public finances and what it means for shares and other assets. This note looks at why bond yields are likely now in a super cycle rising trend and what the implications are.

Bonds 101 – how bonds work

But first a quick refresher on how bonds work. Governments issue bonds to finance their budget deficits and companies issue bonds as a way to borrow to finance investment (as an alternative to borrowing from a bank). Since discussion of bond yields usually refers to government bonds we will focus on them, but the principles regarding their pricing and yields are the same. This can be a bit confusing, but my high school economics teacher belaboured the point that yields move inversely to price and so it’s always stuck with me. If the government issues a bond (which is basically a fixed amount of debt with a fixed interest payment) for $100 and agrees to pay $5 a year in interest, this means an initial yield of 5%. The higher the yield the better in term of the return that an investor will get. But in the short term the value of the bond will move inversely to the yield. If growth and/or inflation slows and the central bank cuts interest rates, investors might snap up the bonds paying $5 till the yield is pushed down to say 4%. In the process, the value of the bond goes up giving a capital gain which adds to the yield to give a strong return from bonds. But if growth or inflation pick up and bond yields rise, investors suffer a capital loss and whether the bond makes a return or not depends on whether the capital loss is greater than the yield on the bond. This is what’s essentially happened since 2020. For example, Australian bonds returned just 0.6% over the last year and lost 0.1% pa over the last five years and for global bonds it’s been 1.8% and -0.4% pa respectively. Of course, if you buy a 10-year bond yielding 16%, a level it reached in the 1980s, and hold it till it matures (10 years) the return will be 16%pa. But if the starting yield is say, 5.2% that’s all you will get for 10 years. And that 5.2%, which is the current Australian 10-year bond yield, is the rate of interest the government pays to borrow for 10 years.

Bond yield components

A bond yield reflects investors’ expectations for short term interest rates over the term of the bond plus compensation for locking their money away, called the term premium. So, a bond yield compromises:

• Investors’ expectations for inflation over the term of the bond for which they will want compensation. Central banks inflation targets of 2-2.5% are a good guide but with inflation running above target over the last five years or so, this may be seen as a less useful guide.
• A real rate of return. A key driver is expected real economic growth.
• And a term premium. This can be influenced by things like uncertainty about economic policy, budget deficits and public debt and how valuable bonds are as a diversifier to investors in their portfolios.

So: if inflation expectations rise; expected real economic growth picks up; and economic uncertainty increases, the government runs a bigger deficit and demand for bonds in portfolios falls investors will want a higher yield.

Super cycles in bond yields

It’s useful to see the recent back up in bond yields in their longer-term context. Over the last 80 years there’s been two big secular or long term moves in bond yields – up for around 40 years and then down.

• The near 40-year super cycle bear market in bonds that saw a rise in yields into the early 1980s was driven by rising inflation on the back of expansionist fiscal and monetary policies after the Great Depression and WW2, monetary financing of the Vietnam War, rising commodity prices, protectionism and slowing productivity along with rising economic uncertainty resulting in higher real yields, inflation expectations and the term premium. This saw 10-year bond yields in the US and Australia rise from 2-4% in the 1940s to around 16%.
• Then from the early 1980s a near 40-year super cycle decline in bond yields set in. This was driven by inflation targeting central banks, supply side reforms, globalisation, lower costs and rising competition flowing from digitalisation, rising inequality depressing spending, spare capacity and reduced worker bargaining power with worries about deflation post the GFC, rising demand for safe income yielding assets, strong demand for bonds as a portfolio diversifier, excess global savings & central bank bond buying post GFC. This saw a sharp downtrend in 10-year bond yields to around 0.5% or less in 2020.

A new super cycle bear market in bonds

However, starting in 2021 the long-term downtrend in bond yields started to reverse. There are several key drivers and my colleague Diana Mousina looked at some of these here in more detail:

• Higher inflation expectations – central bank inflation targets are starting to lose credibility. While inflation is down from its 2022-23 high, in many key countries it’s still above target including the US not helped by Trump’s tariffs and oil price spike in the last 18 months. And in Australia if this year is included it’s been above target for five of the last six years. Bigger government, the reversal of globalisation, increasing defence spending and less workers/more consumers with aging populations are making the world more inflation prone. By boosting productivity AI can act as an offset but for now the data centre boom is pushing up construction and computer chip costs.
• Higher expectations for central bank interest rates – sticky inflation is leading to expectations of higher rates higher for longer.
• Ongoing high budget deficits and public debt – e.g., the US budget deficit is around 6.5% of GDP and it’s hard to see much improvement in France with an election next year and the populist National Rally being the front runner. At least Australia is at the low end here.

• Surging corporate borrowing to fund data centre investment – this competes with public borrowing and combines to push yields up.
• Rising Japanese bond yields – this is reversing the “carry trade” where investors borrow cheaply in Japan and invest in say US bonds.
• Various factors are pushing up the term premium on bonds including: Trump’s erratic policies; US Treasury Secretary Bessent’s silly intervention in the bond market which revived concerns the US might monetise its debt (ie print money); and the correlation between bond and share returns has increased reducing investor demand for bonds.
• AI’s role is ambiguous. Over the long term, it may pull down inflation by boosting productivity but it could also boost real economic growth and hence real bond yields & in the short term it’s adding to inflation.

After years of being in abeyance it seems the “bond vigilantes” – investors who sell their bonds when they fear excessive public debt or inflation – may be back. At least they are a brake on silly populist policies. Since US bond yields are the base for global yields their rise has boosted Australian yields with the add on of higher expectations for the RBA’s cash rate. The risk is high that yields will rise further as it’s hard to see the drivers reversing soon. While the super cycle bear market in bonds – or rising trend in yields – likely has further to go with spikes and setbacks along the way the rise in yields is likely to be limited to well below 1980’s highs as central banks are still committed to their inflation targets. That said, the temptation of governments to monetise their debt is a tail risk supporting the case to have small exposures to gold and maybe Bitcoin as a hedge.

Implications of the super cycle rise in bond yields

The rise in bond yields has a number of implications for investors.

First, it means higher borrowing costs for governments. Public debt interest is the fastest growing major spending item in the Federal Budget currently accounting for around 5% of tax revenue. The more bond yields rise the faster this will rise and the more tax revenue it will take leaving less for welfare payments and other services. This means greater pressure for fiscal austerity. Which of course is what “bond vigilantes” want.

Second, it means higher corporate borrowing costs which can act as a dampener on company profit growth.

Third, it means banks are likely to raise their fixed mortgage rates which will reduce the attractiveness of fixed rate mortgages as an alternative to variable rate mortgages when the latter are likely to rise further. We expect the RBA to hike again soon, with a high risk of a second hike.

Fourth, it means bond returns are likely to stay mediocre. While starting points yields are up from 2020 which is good for returns this will likely be partly offset by the capital loss from rising yields over time.

Fifth, higher bond yields could pose a problem for shares as they already offer a very low risk premium over bonds, so a further rise in yields will reduce the relative attractiveness of shares. Right now, strong profit growth is providing an offset, but it could be an issue if profits weaken.

Finally, for all assets the rising trend in bond yields is reversing the tailwind they saw over the 1980s to 2020 whereby the fall in bond yields led to a “search for yield” which led to lower yields/higher prices for most assets – shares (with higher PEs), commercial property, infrastructure and housing. In terms of housing, it’s part of the reason why the super cycle surge in Australian home prices over the last 30 years may be over.

By Dr Shane Oliver, Head of Investment Strategy and Chief Economist, AMP

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David Hutchison

Managed portfolios have evolved from an efficiency tool into the default operating system for advice businesses today, with advisers increasingly adopting them to improve governance, scale their businesses and deliver more consistent client outcomes, according to North’s latest Managed Portfolios Insights Report.

The report finds Australia is increasingly following trends already established in the United States and United Kingdom, where managed portfolios have become the backbone of advice delivery.
In a sign of the growing maturity of Australia’s wealth market, managed portfolios now account for 30% of total advised FUA, up from just 16% in 2021, according to NMG^[1].

It reflects a broader shift across the advice profession, where managed portfolios are increasingly being viewed not simply as investment products but as the core infrastructure that enables advisers to serve more clients, because it delivers better client outcomes with improved efficiency and stronger investment governance.

North reaches new $28 billion milestone

The report highlights North’s managed portfolios surpassed $28.3 billion in funds under management, as at 30 June 2026. That marks an increase of over 31%, up from $21.5 billion a year earlier, with AI and retirement income thematics proving popular among advisers.

This momentum was driven by several exciting new additions to the platform, as North added 63 new portfolios, 18 new series and four new portfolio managers over the past 6 months.

The report also demonstrates how advisers are putting managed portfolios at the centre of their operating models. Leading providers are now combining scalable portfolio management with client segmentation, tailored solutions, advice technology and engagement tools to deliver a vastly enhanced advice proposition and better client experience.

Focus on retirement income and greater personalisation

Alex Berlee, Director of AGS Financial Group, said managed portfolios had become an important part of delivering better outcomes for clients while helping advisers manage growing business demands.

“We’re big believers in the value of SMAs for both clients and the practice and have had an excellent take-up so far. In terms of retirement income, we’ve implemented specific retirement SMAs to provide more stable, income-focused portfolios,” Berlee said.

“These differ from our accumulation client SMAs in two ways. Firstly, they’re core income focused, to help reduce volatility for retired clients. Secondly, we separate out the growth and defensive assets into two specific SMAs in line with the bucketing approach to help avoid drawdown from volatile growth assets.”

Aequitas Investment Partners chief executive officer Nino Ramunno noted there has been growing demand for bespoke managed accounts, greater portfolio personalisation and outsourced investment expertise.

“Practices want solutions that reflect their brand and investment beliefs while taking advantage of institutional-quality governance and portfolio management,” Ramunno said.

Andrew Yap, Head of Portfolio Solutions, Zenith Investment Partners said managed portfolios have grown because they fundamentally transform how advice practices scale and deliver portfolio management.

“With fewer advisers and growing client demand, managed portfolios provide a clear pathway to efficiency; automating trading, rebalancing and reporting, and freeing up adviser time for client engagement. They also enhance practice attractiveness in a market rich with M&A activity,” Yap said.
David Hutchison, General Manager, Managed Portfolios and Investments at AMP, said managed portfolios have become central to how advice businesses operate and grow.

“Managed portfolios have become a strategic operating model for many advice practices today. They deliver better client outcomes via better governance, streamlined and repeatable client experiences and they also provide practices with a scalable solution capable of delivering meaningful outcomes for more Australians.”

“The defining shift ahead isn’t growth in funds under management. It’s the better investor outcomes (beyond just investment returns) and what practices do with the capacity managed portfolios release. Firms that treat managed portfolios as core infrastructure rather than an investment product are already reporting more consistent client experiences and greater capacity to take on new clients.”

“The next phase of growth will be driven by technology, customisation and strong

————

Notes:
[1] Source: NMG SMA Market Report, June 2026

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Global share markets were mixed over the last week not helped by worries about rising oil prices and rising bond yields. US shares managed a small rise though as relatively dovish comments by Fed officials Williams and Waller implied that a September rate hike is not a dead cert. August inflation data in the week ahead will be key. But Eurozone, Japanese and Chinese shares fell. The Australian share market also fell around 0.9% with the hit from rising oil prices and bond yields compounded by falling home prices adding to concerns about the economic outlook at the same time that GDP growth was still strong enough to reinforce expectations that the RBA is on track to raise rates again with some now talking of two more rate hikes (versus none two weeks ago). Banks and financials rose on the ASX but were offset by falls in IT, mining and retail shares.

Bitcoin and gold both got a boost from the more dovish Fed comments which saw the $US fall, with both up for the week. Metal and iron ore prices also rose and the $A rose above $US0.72 for the first time since May.

Oil prices rose again with renewed military activity between the US and Iran. The renewed focus on sanctions by the US to pressure Iran had seen oil prices dip but the past week saw a return to US strikes after Iranian attacks on ships with Iran retaliating. Naturally Trump said the strikes would be short lived and he will no doubt soon proclaim something like “Iran wants to talk” or that the “war is over”. But the conflict remains as messy as ever with only bad options – return to full on war (which will go down very badly in the US and in any case its running low on key munitions) or agree a bad deal/just walk away (giving Iran what it wants). The bottom line is that nothing has been achieved by the War except the Iranian government is now more hardline and the Strait of Hormuz remains effectively closed with ships only getting through if they pay Iran or get military support from the US. Our base case remains that oil prices will stay in a $US70-100/barrel range with Iran preventing it going lower and the US moving to try and calm things down whenever it gets above $US100….but the risk is high that with no resolution the world will face much higher oil prices as reserves run down.

The past week saw the back up in bond yields continue taking the Australian 10-year bond yield to levels last seen in 2011.  The rise reflects a combination of concerns about huge ongoing budget deficits in the US and elsewhere, increased corporate borrowing to fund data centre investment, worries about higher for longer inflation partly flowing from higher oil prices, a related need for central banks to run higher interest rates for longer and a rising trend in Japanese bond yields leading to a reversal of the so-called carry trade. US Treasury Secretary Bessent’s silly intervention was a sign of desperation and taken that way by bond investors as it had no fundamental backing – like concrete moves to cut the massive US budget deficit which is running around 6-7% of US GDP versus 1% of GDP in Australia. It seems like the “bond vigilantes” are back after years of hiding in their caves. But it’s the sort of thing you would expect to see in a world of higher inflation and higher public debt. Since US bond yields are the base for global yields their rise has flown through to Australian bond yields with the add on of increased expectations for the RBA’s cash rate on the back of high inflation data. The risk is high that yields will rise further as its hard to see the key drivers going away any time soon. It wouldn’t be surprising to see the Australian 10 year bond yield push up to around 5.5%.

The rise in bond yields has a number of implications for in Australia. First its bad news for the Federal and state governments as it means public debt interest costs will rise even faster at a time for the states when their stamp duty revenue is going the other way. Public debt interest is the fastest growing major spending item in the Federal Budget currently accounting for around 5% of tax revenue but set to rise further. The more bond yields rise the faster the public debt interest bill will rise and the more tax revenue it will take up leaving less left over for welfare payments and other government spending. Second it means higher corporate borrowing costs which can act as a dampener on company profit growth. Thirdly, it means that banks are likely to raise their fixed mortgage rates which will reduce the attractiveness of fixed rate mortgages as an alternative to variable rate mortgages at a time when the latter are likely to rise further with RBA rate hikes. Finally, it could pressure the share market as the risk premium offered by shares over bonds was already very low.

In Australia falling home prices and cooling growth, but materialising upside inflation risks are providing a difficult choice for the RBA – but we expect it will prioritise dealing with inflation and hike rates again. Data over the last week showed a slowing in economic growth and an accelerating slump in property prices which – via wealth effects, a flow on to home building and housing related retail sales – will further weaken economic growth. Against this though growth is still running a little bit stronger than the RBA was expecting and wants to see to reduce excess demand and so far, property prices have just had a flick of the top with a fall of 3.6% nationally after a 50% rise since the pandemic. And in the meantime, July inflation data suggests that upside risks to the RBA’s inflation forecasts are materialising. This presents a real dilemma for the RBA but given that inflation is the more pressing problem and if left unchecked risks a bout of stagflation, which will come with more costs to the economy and all Australians than a recession, the RBA is likely to focus on inflation and hike rates again. This is also necessary to reinforce the credibility of its inflation target which at present is weakening. We have been of the view that the RBA will wait till the November meeting just to make sure that the high July inflation data is not an aberration, but a further delay risks damaging their credibility so there is a strong argument to move in September. At this stage we think its 50/50 as to whether its September or November, but either way we expect another hike. This is likely to be the top as two hikes risk tipping many households with a mortgage over the edge risking in turn a crash in property prices, much higher unemployment and a deep recession. That said, the money market sees a 63% chance of a hike this month, has fully priced a hike by November and puts about a 50% probability on a second hike.

The risk of a correction in shares remains high. Strong gains year to date have left US and global shares vulnerable as we enter September which has on average been the weakest month of the year for US and Australian shares over the last 40 years. A correction in the US would likely drag Australian shares down. There are plenty of triggers for a correction including rising bond yields at a time when equity risk premiums over bonds are low, potential Fed and RBA rate hikes this month, rising oil prices, worries about an AI bubble and political uncertainty ahead of the US midterms. But with strong earnings growth we would see any pullback as a correction rather than the start of a new bear market.

Meanwhile, the boom in sales of electric vehicles continues in Australia. In August EVs were 25% of new car sales from close to nothing six years ago. With hybrids they now make up 54% of new car sales. Its likely they have now reached a tipping point with prices collapsing, ranges getting longer, charge times heading to 10 minutes and fast chargers becoming increasingly ubiquitous. A bit like when cars replaced the horse and buggy – first a trickle then a flood and they are everywhere. And unlike in past oil price shocks this time drivers have an alternative! As with Dylan in 1965 once you go electric you probably won’t go back.

The latest ABS data on crime shows nice long-term falling trends in crime rates for homicide, robbery, theft and abduction. But that for sexual assault is in a depressing rising trend. Clearly there is more work to do on this front.

Like only a few other musicians Taylor Swift has an ability to churn out great song after great song! I Knew It, I Knew You is up there with her best. Here it is with August and All Too Well.

Major global economic events and implications

The US manufacturing and services conditions indexes remained solid in August, but with prices paid remaining relatively elevated, highlighting the ongoing risk of persistent above target inflation in the US. At least productivity growth was confirmed at a solid 2.2%yoy for the June quarter, leaving unit labour cost growth at just 1.4%yoy which is no problem for inflation. The trouble of course is that inflation is coming from other sources like tariffs and the flow on from higher energy prices.

Meanwhile labour market data remains consistent with a solid but stable jobs market with job openings and quits rates trending sideways, private sector employment growth moderating a bit and jobless claims remaining low. The Fed’s latest Beige Book of anecdotal evidence of the US economy basically noted solid growth, a stable labour market but persistent inflation.

Source: Macrobond, AMP

The Bank of Canada left rates on hold at 2.25% but leaned more hawkish noting upsides risks to inflation from higher energy prices. The money market still sees a rate hike coming by year end.

Eurozone CPI inflation rose to 3.3% in August due to higher energy prices, but core inflation fell slightly to 2.4%yoy. This is likely to not enough to head of an ECB rate hike in the week ahead, but it may limit future hikes. Meanwhile unemployment was flat in July at 6.4%.

Japanese industrial production, retail sales, housing starts and consumer confidence all rose more than expected. This along with higher inflation is adding to expectations for more BoJ rate hikes with the money market fully pricing in another hike this month and another one by year end.

Chinese business conditions PMIs improved slightly in August. They remain in the same range they have been in for the last three years though and are consistent with GDP growth around 4.5-5%yoy.

The Reserve Bank of New Zealand hiked by another 0.25% taking its cash rate to 2.75%. It continues to see monetary policy as easy, inflation too high and growth resilient and so further rate hikes are likely.

Australian economic events and implications

The pace of Australian GDP growth slowed over the last six months compared to the second half of last year.

But at 2.1%yoy in the June quarter, its running slightly above the RBA’s implied forecast of 1.9%yoy and a bit above its estimate of potential growth at 2%yoy. June quarter GDP growth was 0.4%qoq which was slightly stronger than the market expected. Smoothing out data centre investment related volatility, overall private demand growth remains strong averaging 0.9%qoq over the last six months which was the same as in the last six months of last year and its up 3.5%yoy.

Public spending remains too high. Sure, its slowed to 0.2%qoq or 2.1%yoy but it remains around 28% of GDP compared to a pre covid norm of 22-23%. This high level of public spending is using up spare capacity in the economy, depressing productivity and contributing to the inflation problem! Note that the May Federal Budget still had real Federal spending running at 4.3% through the last financial year – so not much slowdown there!

Unfortunately, productivity growth remains abysmal – flat in the June quarter, down 0.2%yoy and near stagnant over the last decade. This in turn is depressing growth in living standards and keeping inflation too high with unit labour costs up 3.6%yoy, well above the 2-3% inflation target.

Home building approvals fell 3.6% in July – this was after a 7.4% rise in June but that may be in the process of peaking. The good news is that approvals are trending around 210,000 at an annual rate which is well up from their lows a few years ago. The bad news though is that this is still well below the Housing Accord target for 240,000 new homes a year and the combination of rate hikes, falling existing home prices versus rising building costs for new homes, uncertainty around the tax changes for investors, falling new home sales and problems with developers point down for home building going forward. So, the housing supply shortfall is not likely to be removed anytime soon.

The collapse of Sydney property developer Bathla will compound the problems regarding housing supply. Interestingly though after a surge through 2022-2024 corporate insolvencies had been starting to fall. This fall may prove temporary. With inflation up and rates now rising again and growth slowing insolvencies may be on the way back up again, of which Bathla may be a forerunner!

Credit growth cooled in August, with continued solid growth in business credit but a sharp slowing in housing credit to investors reflecting the tax changes and rate hikes.

The slump in home prices deepened in August and likely has a lot further to go. We expect a 10% top to bottom fall in home prices, of which they have so far down 3.6%, as more RBA rate hikes, tax hikes on investors and poor sentiment continue to impact. The housing shortage, the 5% low deposit scheme for first home buyers and a lack of distressed selling are providing support. But the risks are for an even deeper fall – say 15-20% – given the structural changes from a long-term downtrend in interest rates to a rising trend and the tax changes for investors which could mean they require a 20-25% fall in property prices or rise in rents or some combination of the two to enter the property market. This could be compounded if the RBA ends up over tightening and tipping the economy into recession resulting in much higher unemployment which in turn could drive a sharp rise in distressed selling. Note that in a falling market Cotality tends to revise down the prior month’s price fall and so July was revised from a 0.7% fall to a 1.2% fall. So, the 0.9% fall reported for August is likely to be revised more negative too.

From an affordability perspective the fall in home prices is so far just a flick off the top after a 20% or so rise since the pandemic – so the negative wealth effect so far (which is about a 1% hit to consumer spending for every 10% fall in home prices) is likely to be small so far. And the gap between capacity to pay and home prices remain huge – which highlights the downside risk for home prices.

The Melbourne Institute’s Inflation Gauge for August showed a further worsening with both the headline gauge rising to 4.8%yoy and the trimmed mean gauge rising to 4.3%yoy. This adds to the risk that the high inflation seen in the official inflation data for July was not an aberration.

Australia’s goods trade surplus fell in July but remains around $2bn. Both exports and imports fell but capital goods imports rose consistent with a continuation of the data centre boom.

What to watch over the next week?

In the US, the focus will be on CPI inflation data for August (Friday) which is likely to show a 0.4%mom rise due to higher energy prices leaving annual inflation at 3.4%yoy and a 0.2%mom rise in core inflation resulting in a slight drop to 2.4%yoy. Following dovish comments by Fed officials Williams and Waller in the last week a 0.2%mom rise in core inflation may be enough to leave the Fed in a holding pattern at its September meeting but it’s a 50/50 call. If the CPI data implies a 0.25% or greater rise in the core PCE deflator for August, it will likely tip the Fed over into a hike. Existing home sales (Thursday) likely fell again.

The ECB (Thursday) is likely to hike by 0.25% again in line with recent guidance taking its deposit rate to 2.5%.

Chinese trade data for August (Tuesday) is likely to show continuing strong growth in exports and imports. CPI inflation data for August (Wednesday) is likely to have risen to 0.9%yoy with core inflation staying at 0.9%yoy.

In Australia, the NAB business survey for August is likely to show business confidence remaining weak but with price pressures remaining elevated and the Westpac/MI consumer sentiment index is likely to weaken in response to increasing talk of another rise in interest rates with both due Tuesday. Comments on Tuesday by RBA Chief Economist Sarah Hunter in a panel and in an ABC 7.30 Report interview will be watched for any clues on the interest rate outlook.

Outlook for investment markets

Global and Australian share markets remain at risk of a correction with the lack of any resolution to the Iran War and hit to global oil supplies, stretched valuations, sticky inflation, political uncertainty associated with Trump & the midterm elections and worries about the impact of AI and whether there is an AI bubble. However, returns should still be okay for the next 12 months as a whole thanks to continuing economic growth with recession avoided and strong global profit growth and likely rate cuts next year.

Bonds are likely to see returns around running yield or a bit less.

Unlisted commercial property returns are likely to be solid helped by strong demand for industrial property associated with data centres.

Australian home prices are expected to fall around 10% top to bottom, of which they have already done 3.6%, out to the June quarter next year as a result of poor affordability, RBA rate hikes, reduced investor demand flowing from the winding back of negative gearing and the capital gains tax discount and poor confidence.

Cash and bank deposits are expected to provide returns around 4-5%.

The $A is likely to rise reflecting the wider interest rate differential to the US, although a move to Fed hikes may limit this. Fair value for the $A is around $US0.72.

By Shane Oliver

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