Global market update September 2026

Welcome to the September market update. There is plenty going on across the globe, and the US-Iran conflict is consistently in the headlines. As a result, global investment markets are balancing resilient economic growth and corporate earnings against persistent inflation. There appears to be little respite against geopolitical uncertainty, which results in renewed tightening of monetary policy.

While negative news gets the headlines, there have been some encouraging developments. Australian inflation and wage growth have remained relatively contained, while economic growth in Europe has been stronger than expected.

On the flip side, labour markets are showing signs of softening, China continues to struggle with weak domestic demand, and central banks remain concerned that higher energy prices could keep inflation elevated.

Our base case remains constructive for risk assets, although we continue to expect greater volatility and dispersion across investments.

The Reserve Bank of Australia held the cash rate at 4.35% on 11 August, following three increases earlier this year. The next meeting is later this month, and the big four banks are predicting a rise in the official cash rate.

While underlying inflation remains above target, the June-quarter trimmed mean inflation came in at 3.6%, slightly below the RBA’s expectations. The RBA nevertheless continues to see upside risks to inflation, particularly from energy prices and global supply pressures.

Australian wage growth has also remained relatively contained. The Wage Price Index increased 0.8% during the June quarter and 3.2% over the year. This suggests that, despite continuing inflation pressures, there has not yet been a significant acceleration in wages that could add another layer of domestic price pressure.

In the US, recent August data showed annual headline inflation at 3.4%, although a 3.9% monthly rise in gasoline prices demonstrated that energy remains an important risk.

Europe delivered better-than-expected economic growth, with euro-area GDP increasing 0.4% in the June quarter after being flat in the March quarter. The result suggests the region has so far proved more resilient to higher energy costs than initially feared.

Australia’s labour market is slowing. The unemployment rate increased to 4.5% in July, its highest level in the post-COVID period.

The US labour market also softened. Non-farm payroll employment fell by 23,000 in July, while the unemployment rate was 4.1%. That tension materialised on September 16th, when the Fed raised its target interest rate range by 0.25 percentage points to 3.75–4.00%. The Fed said inflation remained elevated despite economic activity continuing to expand at a solid pace.

Inflation pressures have strengthened in Europe. Euro-area inflation increased from 2.9% in July to 3.2% in August, with energy as the primary contributor. The European Central Bank responded by raising its three key interest rates by 0.25 percentage points in September, taking its deposit facility rate to 2.50%.

China remains another area of concern. Retail sales barely moved in August, following growth of just 0.6% in July.

Our base case remains that the global economy continues to grow, although the path is becoming more complicated. The conflict around Iran continues to influence energy markets and global supply chains. While the situation remains volatile, the global economy, credit markets and corporate profits continue to provide a reasonable foundation for investment markets.

The key challenge is the combination of moderating economic growth and persistent inflation. Recent Australian inflation and wage data have been encouraging, but energy prices remain elevated, and inflation has accelerated again in parts of Europe and the US.

If households reduce spending, corporate revenues could come under pressure at a time when equity valuations remain relatively high. If this coincided with a slowdown in the investment currently flowing into artificial intelligence, the economic impact could be greater.

Persistent inflation makes this scenario more difficult. Higher energy prices could keep inflation trending upward and prevent central banks from cutting interest rates to support growth. September’s rate increases from the Fed and the ECB show that central banks remain prepared to tighten policy when inflation requires it.

A longer-term reduction in tensions in the Middle East will help lower energy and transportation costs, although this is unlikely at this stage. If it did eventuate, central banks would have greater flexibility and could make monetary policy more supportive.

Artificial intelligence could provide another important catalyst. If technological advances and increased competition reduce the cost of chips, computing power and data centres, the benefits of AI could spread from the companies building the infrastructure to the much larger group of businesses using it. This could broaden productivity gains and corporate profit growth across more industries.
For Australia, an easing of global inflation and an eventual end to the current interest-rate tightening cycle would encourage stronger domestic growth.