Global market update October

There has been no shortage of signals for the global economy. The U.S. Federal Reserve is trimming rates, and Europe remains a patchwork story, with improving business sentiment in Germany offset by weaker retail spending across the eurozone. Meanwhile, the U.K. is holding up better than expected, as shoppers continue to spend despite persistent uncertainty.

In the Asia-Pacific, Australia is grappling with sticky inflation, keeping the Reserve Bank cautious, while China’s property sector woes continue to weigh on confidence across the region. Markets remain constructive, but volatility is set to remain part of the journey.

Australia’s inflation story continues to surprise. CPI rose 3.0% year-on-year in August, up from 2.8% in July. This is higher than expected and suggests inflation may be “sticky,” limiting how far the RBA can cut rates.

Unemployment held steady at 4.2%, but there are signs the jobs market is softening, which could weigh on consumer confidence. With China’s economy still fragile, Australia’s export outlook remains closely tied to developments in Asia.

The U.S. economy remains resilient despite mixed signals.

• Federal Reserve: The Fed cut its benchmark rate by 25bps, bringing it to 4.00–4.25%. This continues the global easing trend.
• Growth & services: The ISM Services PMI jumped to 52.0, showing healthy expansion in the service sector.
• Retail sales: U.S. shoppers remain strong, with retail sales up 0.6% in July and August, beating expectations.
• Jobs: The labour market is cooling. Job openings fell to 7.18 million, while unemployment edged up to 4.3%—a four-year high.

Overall, consumer spending is holding up, but the jobs slowdown raises some caution flags

Europe continues to deliver a mixed picture:

• UK: Retail sales volumes rose 0.6% in July, ahead of expectations, which suggests consumers are still spending.
• Germany: Sentiment improved, with the ZEW Economic Index rising to 37.3 in September, well above consensus.
• Eurozone overall: Retail sales slipped 0.5% month-on-month in July, showing pockets of weakness.

Europe is struggling with uneven growth. Business confidence is improving, but consumer data remains shaky.

China’s policy support and liquidity injections remain crucial to regional growth. However, risks tied to the property sector remain high. We could see slower growth and potential deflationary pressures if stimulus measures don’t stick.

China’s resource demand will be a key swing factor for Australia and broader Asia. More substantial Chinese stimulus could support regional growth, while ongoing weakness could drag on commodity markets.

Our base case is that markets remain cautiously optimistic. Liquidity, fiscal stimulus, and resilient earnings should keep growth ticking, but we expect short-term volatility from tariffs, inflation, and geopolitical events.

• Risks: An aggressive U.S. tariff policy, weaker global consumer demand, or a stall in central bank liquidity support could push economies toward slower growth.

If inflation falls faster and productivity gains, such as those from AI adoption, materialise, markets could see stronger-than-expected growth.

We remain constructive on equities, particularly in structural growth themes like AI infrastructure and energy transition.

• Precious metals: Useful as inflation hedges.
• Cash & flexibility: We’re keeping reserves to take advantage of market dislocations.

In short, while volatility may rise, we continue to see opportunities. Pullbacks should be viewed as chances to increase exposure to long-term growth assets.