Global market update October 2026

Global investment markets continue to show resilience, but the balance between economic growth and inflation is becoming increasingly difficult.

Australia’s economy is still growing, US employment and consumer spending remain strong, and European businesses are performing better than expected. These are encouraging signs in an environment where higher energy prices and geopolitical tensions continue to create uncertainty.

However, interest rates are rising again across several major economies, including Australia, putting additional pressure on households, businesses and investment markets.

The broader outlook remains constructive, supported by resilient company earnings and government spending. Nevertheless, investors should be prepared for greater volatility as central banks work to contain inflation without significantly slowing economic growth.

Australia’s economy continues to grow. The Australian economy expanded by 0.4% in the June quarter, slightly ahead of expectations. Despite higher interest rates and fuel costs, household spending has helped support economic activity.

US employment and consumer spending remain resilient. American employers added 162,000 jobs in August, considerably more than the 53,000 expected, while unemployment remained at 4.1%. Retail sales also increased by 1.2%, suggesting consumers are continuing to spend despite higher borrowing costs.

Europe is performing better than expected. Business activity reached its highest level in almost three and a half years, supported by growth in the services sector. This suggests European economies are managing higher energy costs better than initially anticipated.

India remains a bright spot for global growth. Economic growth of approximately 6–7%, supported by strong domestic demand, continues to distinguish India from many other major economies facing slower growth.

Australian interest rates have risen again. The Reserve Bank of Australia increased the cash rate to 4.60% on 29 September, its fourth increase this year. With underlying inflation remaining above the RBA’s target, higher borrowing costs continue to place pressure on households and businesses.

US interest rates are also moving higher. The Federal Reserve raised rates for the first time since 2023 and signalled that further increases may follow. Longer-term US borrowing costs have also climbed, putting pressure on property markets, businesses and investment valuations.

European inflation remains a concern. Inflation increased to 3.3%, prompting another interest rate rise from the European Central Bank. Higher energy costs continue to make inflation difficult to control without slowing economic activity.

China’s economic recovery remains weak. Consumer spending continues to disappoint, while the property market remains under pressure. Although manufacturing activity returned to modest growth in September, weak domestic demand remains a concern for global growth, particularly Australia’s resource exports.

The most likely scenario remains one of continued global economic growth, although investors may experience greater volatility.
Company earnings have remained resilient, government spending continues to support economic activity, and access to credit provides a reasonable foundation for markets.

The main challenge is persistent inflation, particularly where higher energy prices and geopolitical conflicts are increasing business costs. With tensions surrounding Iran and the ongoing war in Ukraine disrupting supply chains, central banks face difficult decisions about interest rates.

Higher rates can help contain inflation, but they also increase borrowing costs and can slow economic growth. Rising longer-term interest rates may also put pressure on share prices, even when company profits remain relatively strong.

Looking further ahead, investment in artificial intelligence, manufacturing and energy infrastructure continues to offer opportunities for longer-term growth.

Overall, the outlook remains positive, but a more cautious approach may be appropriate while inflation and interest rate uncertainty persist.

The greatest downside risk is a significant slowdown in consumer and business spending, particularly in the United States.

If households reduce spending while inflation remains elevated, company revenues and profitability could weaken. Higher interest rates would make this more challenging, particularly if central banks are unable to reduce rates to support economic growth.

Further increases in oil prices or worsening geopolitical tensions could add to these pressures.

Another concern is the significant investment flowing into artificial intelligence. If development costs continue rising without delivering the expected returns, highly valued technology companies could experience considerable pressure, potentially affecting broader share markets.

China’s struggling property sector adds another layer of uncertainty, particularly for Australian businesses dependent on Chinese demand.

In this scenario, a more defensive investment approach, including greater cash holdings and exposure to more stable industries, may become appropriate.

A more optimistic outlook could emerge if geopolitical tensions ease and inflation begins to moderate.

Lower energy prices, improved supply chains and progress towards resolving conflicts in the Middle East and Ukraine would reduce costs for businesses and households.

This could give central banks greater flexibility to stop raising interest rates, supporting economic growth and investor confidence.

Artificial intelligence could also provide an important boost. If technological advances and increased competition reduce the cost of developing AI infrastructure, productivity benefits could spread across a much wider range of industries.

For Australia, easing inflation and an eventual end to the interest rate tightening cycle would support consumer spending, business investment and economic growth.

Under these conditions, sectors that typically benefit from stronger economic activity, including industrials, materials and financial services, could experience renewed growth.