Market & Economic Update - July 2026

Quarterly Highlights:

• Global share markets powered higher over the June Quarter, with the US-Iran peace agreement helping to reduce geopolitical uncertainty late in June (although this helped performance in the quarter, we note conflict and negotiations continue at time of writing). Markets had already looked through much of the conflict, while resilient corporate earnings and renewed AI enthusiasm drove the earlier rebound. US shares softened in June as investors took profits from technology names after a strong run, while property and infrastructure enjoyed a steadier finish as interest-rate sensitive assets found firmer footing.
• Australian shares delivered a solid gain over the quarter, with leadership rotating between information technology, materials, healthcare, consumer staples and consumer discretionary stocks. This helped offset weakness in energy, as easing oil prices took some heat out of the sector. Materials also softened late in the quarter after earlier strength, while smaller companies lagged larger peers overall, suggesting the market advance remained relatively narrow rather than broad-based.
• International shares rallied strongly, although June exposed a wider split across markets, with Europe setting the pace while the US lost momentum. US technology’s pullback looked more like a pause after a powerful run than a broader retreat from risk. Japan finished higher, while Korea and Taiwan supported emerging markets as AI supply-chain demand remained strong.
• Australian and global fixed interest markets delivered positive returns. Australian bonds benefited as local yields moved lower, while global bonds also gained despite US yields edging higher late in the period. Credit markets remained calm, with tight spreads suggesting confidence in corporate fundamentals despite lingering uncertainty.

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Market Observations & Outlook

The geopolitical backdrop improved late in the June quarter following the peace agreement between the US and Iran, easing immediate concerns around a broader regional conflict (as mentioned, we note conflict and negotiations continue at time of writing). Oil prices fell, reducing the risk that higher energy costs flow through to inflation (noting oil prices have risen since the end of the June quarter, although not to the level of recent highs). While this was encouraging for central banks and financial markets during the June quarter, the risk has not passed. Oil prices remain volatile as conflict continues and uncertainty persists around shipping routes and regional energy infrastructure.

Earlier in the quarter, Middle East tensions drove volatility across asset classes, with oil supply disruption posing risks to growth and inflation. Even so, the broader outlook remained constructive, supported by resilient economic data, strong earnings and expectations that the conflict would ease.

In the US, new Federal Reserve Chair Kevin Warsh has begun with a clear message: inflation remains the priority. His first meeting marked a noticeable change in tone, with the Fed removing its bias towards lower rates and putting price stability back at the centre of the policy debate. Markets have interpreted this as a firmer stance on inflation.

This has contributed to a flatter yield curve, where the gap between short and long-term interest rates has narrowed, and reinforced investor focus on earnings quality and valuation discipline. For now, US shares continue to be supported by strong earnings, healthy margins, solid employment and resilient spending. The AI investment boom also remains a powerful engine of growth across technology, communications and related sectors, although sticky inflation and slower earnings growth remain key risks.

In Australia, the RBA is facing a difficult balancing act. The economy is under pressure from elevated inflation, higher interest rates, weak productivity and a softer housing market. At the same time, the labour market remains tight, and household spending has been stronger than consumer confidence surveys suggest. While the RBA’s June pause has encouraged the view that rate increases are finished, inflation risks remain elevated.

While US shares remain supported by earnings growth, Australian shares warrant greater caution given domestic demand and interest rate risks. Australian bonds continue to offer diversification benefits if growth slows, though valuations are less compelling than when yields were higher.

Overall, the current environment continues to reward selectivity. Strong earnings, sensible valuations and a clear understanding of central bank policy remain important when assessing risks and identifying the most compelling opportunities.