Quarterly Market Update - September quarter 2025

Global wrap

Asset class returns were all positive over the September quarter, led by global shares, which have now made gains for five months straight. The other strong performer has been gold, which is seemingly being driven by mounting concerns over the longer-term direction of US policy.

In FY26 thus far, global conditions remain positive with supportive fiscal and monetary policy in place and the technology productivity theme leading global stocks. But there remains an unease over the state of the US economy, as tariffs take full effect, net immigration slows, and government shutdowns reappear. It seems US payrolls are close to turning negative and indeed the Federal Reserve (the Fed) has started to ease interest rates on concerns over the state of the labour market. But at the same time, core inflation is well above target (2.9% vs 2.0%) and looks set to rise as tariffs are fully implemented.

Elevated inflation should limit how much the Fed can ease interest rates and there would be greater concerns, particularly from offshore investors, if the US administration continues to bully the Fed into further rate cuts at the expense of containing inflation.

While fiscal stimulus from the ‘One Big Beautiful Bill’ and monetary stimulus from the Fed would seem a positive backdrop to company earnings, there are rising questions over sustainability. How long can the US government continue to run ~$2 trillion budget deficits and how can the Fed ease interest rates, when inflation is well above target? These issues partly explain why gold is rallying (along with rising geopolitical tensions).

One positive is that US bond yields remain contained (US 10-year bond yield 4.14%), which suggests the above issues are not yet impacting the US bond market. We would expect to see bond yields above 4.5% and a weak USD, if US markets begin to lose confidence in US fiscal and monetary policy.

Australian wrap

We are generally more positive on the outlook for Australia, given core inflation has been retreating to target (2.0-3.0%), and the economy should receive a boost in FY26 from easing monetary and fiscal policy. The only real negative is the uncertainty surrounding global trade, particularly its impact on Asia, which is a major buyer of Australian commodities. So far, commodities have generally surprised on the upside with gold, copper and beef notably stronger, with even iron ore creeping higher. In addition, the US has maintained a relatively low tariff rate of 10% on Australian exports.

The major news in the September quarter was the RBA resuming interest rate cuts with the cash rate reduced to 3.60% (from 3.85%) in August 2025. Recent inflation figures suggest headline inflation is rising again but core inflation should remain contained at around 2.6% in the next quarterly inflation print, due in late October 2025. The RBA may have one more rate cut left this cycle, with the market placing a 50% probability on a 0.25% rate cut on November 4.

The Australian government fiscal position remains sound with the FY25 budget deficit coming in at a modest -$11bn and government debt levels remaining moderate at around 40-50% Debt/GDP. Australian retains its AAA sovereign credit rating, while the US has been downgraded to AA+.

The recent FY25 company reporting season showed very mixed results, with low earnings growth (on aggregate) and dividends generally being reduced in the resource/energy sectors. However, the outlook for earnings growth is expected to improve in FY26, based on supportive fiscal and monetary policy. Indeed, the resource sector has been recovering, with the sector leading returns over the September quarter. The main risks are around global trade and its impact on companies with global operations.

Outlook

The global outlook is complicated. There are positives like easing interest rates in Europe, an easing oil price (as Middle East tensions subside) and the technology theme could be a major boost for productivity. Complicating matters are the impact of US tariffs on global trade and indeed the US economy itself. Over FY26, we expect the US economy to slow and for inflation to rise – a tricky situation for the Fed. The Fed is going to have to ignore inflation to enable any further interest rate cuts.

For Australia, the outlook is less complicated with inflation returning to target (2-3%) and monetary policy being eased. The Australian economy should pick-up in FY26, with fiscal and monetary policy both supportive of growth. Only the export sector remains an area of risk but so far Australia seems to be muddling through with no material impact.

Overall, we remain bullish on Australia but cautious on Global, which mainly relates to US trade policy.

Key known risks

1. Trump's policies upset global trade and the US economy;

2. Inflation starts to rise again;

3. China’s economy disappoints on growth; and

4. Geopolitics and/or climate change events impact financial markets.

Next key events

• Fed meeting – 29 October 2025

• RBA meeting – 04 November 2025

• Australian AGM season – October/November 2025

• Australian Bank reporting season – November 2025

Bill Keenan

Principal, Portfolio Manager

Bill Keenan is the founder of Sunbird Portfolios. Sunbird provides independent advice to leading financial advisers across Australia.

Bill has 30 years’ experience in financial markets and holds a Bachelor of Business in Accounting and a Graduate Diploma in Finance and Investment.

Warnings

General Product Advice - any advice provided in this document, is general in nature only and does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, the reader must consider whether it is personally appropriate considering his or her financial circumstances or should seek independent financial advice on its appropriateness.

Past performance is not a reliable indicator of future performance.