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Welcome to September’s market update from Bendigo Bank, with our latest forecasts and insights on the domestic economy and global markets.

Today, we’ll take a look at: which central banks will be cutting rates this month,
the latest GDP growth numbers locally, and the relentless march higher in the
price of gold.

After the August RBA rate cut as forecast, we still expect only quarterly cuts this cycle, so we’re not expecting a back-to-back cut in September, especially after a higher read for inflation in the latest monthly indicator for July, and noting the cautious language from the RBA in their Policy announcement on August 12th.

The Reserve Bank wouldn’t have been surprised by the rise in CPI in the monthly numbers due to electricity rebates and other one-off factors, but core inflation was a little higher so the RBA will want to see the full 3rd quarter data out on October 29th before cutting again.

Elsewhere, the pace of central bank cuts has eased as rates get closer to ‘neutral’, although the US Federal Reserve are now expected to cut rates later this month after weaker jobs data and after Fed Chair Jerome Powell gave his clearest message yet that a cut is imminent.

Despite this, bond yields in the US and in a range of other countries have risen as short-term monetary policy is overshadowed by medium term fiscal concerns... especially in the UK where their 30-year gilt yield rose to its highest level since 1998.

This is all a reminder of the dangers the
US Fed faces in cutting rates while inflation is starting to trend higher and if
US debt doesn’t get as much relief from tariffs that that their administration expects - so further bond market volatility is expected.

Back in Australia, our bond yields are more stable and our AAA credit rating suggests debt is less of an issue here, and the growth outlook is starting to look brighter as cost-of-living pressures ease, in line with inflation moderating.

The latest GDP numbers were stronger than forecast with Q2 growth of 0.6% and annual growth of 1.8%.

The data showed a healthy dose of household consumption, supported by the rebound in disposable income responding to RBA cuts and
less of a drag from inflation- which aligns to our view that the private sector will increasingly take the reins from public spending.

Productivity growth rebounded modestly in Q2, but is still down year-on-year,
so broad policy reform remains urgent.

Our next RBA rate cut is still forecast in November, but we are getting closer to the low in the easing cycle, so jobs data and export demand will be important in this timing, and whether the RBA need to keep cutting rates next year.

Global policy uncertainty remains a key theme as the size and full extent of tariffs continues to ebb and flow, so defensive assets such as gold have maintained their extraordinary rallymaking fresh record highs in US Dollar and A$ dollar terms.

This bull market won’t last forever, but investors have continued to diversify away from the US Dollar, and gold has recently jumped to Australia’s third largest commodity export.

Further US Dollar weakness may emerge as the Fed cuts rates in this unique environment- any break above 66 ¼ cents would add to this scenario for the Aussie Dollar.

And lastly, property prices continue to edge higher (up another 0.7% in August, or 4.1 % year-on-year) - still with the fastest appreciation in Queensland and Western Australia,
but now more evenly balanced between urban and regional locations.

And that’s the market update from Bendigo Bank.