Quarterly economic update: July - September 2025
Key events for the quarter to 30 September 2025
Global and Australian financial markets posted robust gains over the September 2025 quarter, buoyed by optimism surrounding artificial intelligence (AI), lower interest rates, and signs of improving economic stability across key regions.
Global equities surged, with the MSCI World Index (hedged) delivering an impressive 8.0% return. A stronger Australian dollar against major currencies trimmed unhedged returns to 6.4%. Investors were encouraged by progress in AI-related industries and expectations of further monetary easing in the United States. Wall Street’s S&P 500 Index climbed 8.0%, finishing the quarter near record highs. Markets largely looked past concerns that President Trump’s renewed tariffs would rekindle inflation or significantly disrupt global trade.
Asia led global performance, with China rebounding sharply — its share market soaring 19.7% in local currency terms. Government stimulus measures to support the property sector and counter tariff pressures reinvigorated investor sentiment. Taiwan (19.3%) and Korea (17.2%) also benefited from the global semiconductor boom, while Japan advanced 10.4% as the Bank of Japan maintained a cautious approach to policy tightening despite persistent inflation.
Bond markets reflected a more dovish interest rate outlook. Global bonds (hedged) returned 1.0%, as investors anticipated continued rate cuts from the US Federal Reserve amid moderating employment growth. In contrast, Australian bonds delivered a modest 0.4% return, constrained by higher-than-expected inflation readings in July and August that tempered hopes for further Reserve Bank easing this year.
Australian shares returned 5.0% for the quarter, supported by strong gains in the resources sector (up 19.8%) as improving Chinese growth prospects boosted commodity demand. Industrials (4.3%) and listed property (4.8%) also posted solid returns, aided by lower domestic interest rates following RBA cuts in May and August.
Economic conditions in Australia remain mixed. Consumer spending remains subdued, and job creation has slowed, yet households are beginning to feel some relief as wages growth finally outpaces inflation. Combined with lower mortgage rates, these trends suggest a gradual recovery in household confidence after several years of cost-of-living pressures.
The outlook and implications for investors
Looking ahead, the investment landscape remains shaped by a mix of optimism and caution. Enthusiasm for AI and technology continues to underpin global share markets, supported by moderating inflation and selective interest rate cuts across major economies. These conditions have created a generally favourable environment for equities, as lower borrowing costs tend to enhance corporate profitability and investor sentiment.
However, risks remain. President Trump’s tariff agenda could still trigger higher inflation and rising bond yields if trade tensions escalate — particularly given ongoing disputes with China, Brazil and India. While recent agreements with Europe and Japan have provided some relief, the potential for renewed volatility should not be underestimated.
Geopolitical uncertainty also lingers, with the Russia-Ukraine conflict and instability in the Middle East posing potential threats to energy markets and global growth. For Australian investors, trade frictions between the US and China represent a key vulnerability, given Australia’s heavy export reliance on China.
After a period of exceptionally strong market gains, investors should also be prepared for a phase of greater volatility and potentially more subdued returns. Elevated valuations, shifting monetary policy expectations, and ongoing political risks could all contribute to short-term fluctuations. A disciplined, diversified approach — balancing growth opportunities with defensive assets — remains essential to navigating what is likely to be an unpredictable investment environment.
As always, investors should stay focused on long-term goals rather than reacting to short-term market moves. Maintain a diversified portfolio across asset classes and geographies, and remember that market corrections are normal, and downturns often create future opportunities.
| Asset Class Summary – 30 September 2025 | 1 Year % including dividends |
|---|---|
| Australian Shares | 10.8 |
| Global Shares (hedged) | 16.9 |
| Global Shares (unhedged) | 22.8 |
| Australian Property Securities | 4.3 |
| Australian Bonds | 4.1 |
| Global Bonds (hedged) | 2.4 |
| Cash | 4.2 |
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