Master Trust Markets Update
September 2026
Global markets experienced headwinds in September but are only 2% below all-time highs and are up more than 12% through the year to 30 September. US equities were among the strongest performers.
Rising bond yields weighed on global market as central banks reassessed options to manage high inflation. A hawkish shift from central banks to deal with persistent inflation weighed on shares as borrowing costs increased for companies that are already dealing with higher production and supply costs. In the Reserve Bank of Australia’s (RBA) semi-annual financial system health check, the body noted that the “disorderly repricing” of the sovereign bond market could spill over to a wide range of asset markets, including in Australia. Global markets experienced headwinds in September though through the quarter are off all-time highs by just 2% and are up more than 12% through the year to 30 September. US equities were among the strongest performers. Rising bond yields weighed on global market as central banks reassessed options to manage high inflation. A hawkish shift from central banks to deal with persistent inflation weighed on shares as borrowing costs increased for companies that are already dealing with higher production and supply costs. In the Reserve Bank of Australia’s (RBA) semi-annual financial system health check, the body noted that the “disorderly repricing” of the sovereign bond market could spill over to a wide range of asset markets, including in Australia.
In the US, markets finished with quarterly gains for the S&P 500 and Nasdaq, driven primarily by AI demand in the tech and associated sectors. Rising interest rates were a headwind across different sectors, however, particularly those that are heavily reliant on borrowing; 10-year US Treasury yields reached a 24-year high of 5.3%. Magnificent 7 companies experienced broad growth in the period, with Nvidia, Apple and Microsoft ending positive. The Dow Jones Industrial Average fell during the quarter, related largely to manufacturing concerns due to surging energy prices; volatility in September broke a five-month positive streak for the index. Resilient economic conditions supported growth, despite volatility in energy prices. US GDP grew 2.2% in the second quarter and payrolls stabilised with around 50,000 jobs added per month in the September quarter. Inflation data was softer than expected as well, with August headline personal consumption expenditures (PCE) inflation rising 3.4% year-over-year, which was below expectations.
The Australian dollar (AUD) closed the quarter at a two-month low against the US dollar (USD) following the release of August inflation figures. The AUD was as high as US$0.72 in mid-September before falling to US$0.69 to end the month, around where it closed at the end of the previous quarter. Despite the intra-quarter volatility, the AUD finished flat against the USD across the quarter.
Central bank activity
Persistently high inflation led the US Federal Reserve (Fed) to increase interest rates to curb inflation in September. Prior to the meeting, new Fed Chair Kevin Warsh primed markets for a potential increase in August, noting that the Fed would take whatever steps necessary to contain inflation. The increase of 25 basis points in September, from 3.75% to 4.00%, was the first rate increase in the US in three years. By late September, markets were already pricing in as many as two additional rate hikes this year including at the Fed’s next meeting in late October. New York Fed President John Williams, meanwhile, made comments that the Fed could wait until December before again raising interest rates. William’s comments carry weight because he is the vice chair of the Fed’s Open Market Committee, which sets interest rates.
The European Central Bank (ECB) raised all three of its key interest rates by 25 basis points in September. The ECB meets every six weeks to review conditions and early indications are that it will again raise rates in December, with markets pricing in another 0.25% in yields. Energy price pressures have driven inflation in the region, with benchmark natural gas prices nearly doubling since June. Food price inflation has also been a weight, worsening due to unusual weather patterns.
The Reserve Bank of Australia (RBA) has increased interest rates four times in the year and once in the quarter, increasing the cash rate by 25 basis points to 4.60% at the end of September. High and persistent inflation was cited as the reason. The consumer price index (CPI) in the year to August came in at 4.0%, led by increases to housing costs and transportation. While it was an increase over July (3.5%), it was below forecasts.
Australian activity
The Australian share market experienced volatility in September but ended positive for the quarter, with the S&P/ASX 300 Accumulation Index returning 1.26%.
Australian share markets were beset by volatility and significantly underperformed global equities during the period. A surge of growth on the final day of September prevented one of the worst monthly performances since March, with markets giving back gains after hitting an all-time high in August.
The consumer price index (CPI) in the year to August came in at 4.0%, led by increases to housing costs and transportation. While it was an increase over July (3.5%), it was below forecasts. Over the year, the price of electricity has risen more than 13% due to the end of Commonwealth and State Government electricity rebates. Fuel prices are up more than 13.5%, which was the primary driver of inflationary increases in transportation. Trimmed mean inflation, which is the measure the RBA prefers, was 3.6%, unchanged from the July measurement. Overall CPI through July came in at 3.5% which is above the RBA’s 2-3% target range; the trimmed mean was 3.6%. Increased housing costs – particularly an increase in utilities – was the primary inflationary driver. This was due in part to the end of rebates as well as the price increases for water and sewerage as well as gas following annual price reviews; prices for electricity fell modestly. New dwelling costs and rent were also up.
Under its current forecasts, the RBA expects inflation to remain above-band until early 2027, returning to the target range by mid-2027.
The Australian unemployment rate increased in the year to August, to 4.6% from 4.5% in the year to July. Underemployment moderated modestly, to 6.2% from 6.3% in the year to July. The labour force participation rate increased to 67.1% from 66.9%.
Fixed income performance
Global bonds experienced volatility in the September quarter, with the Bloomberg Global Aggregate Index – $A Hedged returning -2.42%.
Global bonds experienced a sell-off through most of September as central banks shifted expectations to rate increases to deal with persistently high inflation. Over the quarter, bond prices have experienced one of the largest selloffs in years as bond yields have hit multi-decade highs across major global economies. The US 10-Year Treasury was around 5.24% at the end of the month, its highest level since 2007 while the 30-Year briefly touched its highest intraday level since 2004. In Germany, the 10-Year Bund reached 3.60%, its highest level in 17 years while the Japanese 10-Year exceeded 3.0%, which is the highest level in 30 years.
The Australian bond market experienced volatility, with the Bloomberg AusBond Composite 0+ Year Index returning -1.15%. Australian bonds produced negative capital growth during the quarter as investors priced in expected and realised interest rate increases from the Reserve Bank of Australia (RBA). Persistently high inflation due to global macroeconomic factors including oil price shocks from the ongoing conflict in the Middle East also weighed on Australian fixed income.
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