MONTHLY ECONOMIC & INVESTMENT REVIEW – OCTOBER 2025:
- Executive Summary
Global markets continued their positive trajectory in October 2025, driven by firm earnings, rate cuts from major central banks, and stable commodity prices. Developed markets outperformed again, especially in the U.S. and Japan, while Australian equities were flat as weakness in consumer-linked sectors offset strength in resources. Emerging markets posted modest gains amid geopolitical tensions and mixed macro data. Bond yields were stable to lower, with dovish central bank signals easing financial conditions. Commodities remained resilient—gold and iron ore rose again, benefiting Australian producers. Currency markets were influenced by diverging rate paths, with the AUD weakening slightly. Investor sentiment improved moderately, but downside risks from global policy uncertainty, soft consumer demand, and trade frictions persist.
2. Asset Class Monthly Performance
- Australia (S&P/ASX 200) – The S&P/ASX 200 Accumulation Index rose a modest 0.4% in October. Strength in Materials and gold stocks helped offset softness in consumer, health care, and real estate sectors. Small caps underperformed as economic growth concerns mounted. Notable corporate developments included a rebound in iron ore miners and cautious earnings guidance from major retailers.
- Global Developed Equities — The MSCI World ex-Australia (AUD) gained approximately 2.0%. The S&P 500 rose 2.3%, driven by strong Q3 earnings and the second Fed rate cut of the year. Japanese stocks gained again, supported by momentum in the tech sector and the weakness of the yen. European markets rose moderately, with the UK leading on improving services data. Global small caps rose 1.2%.
- Emerging Markets — The MSCI EM (AUD) index advanced 1.9%, underperforming developed peers. China’s CSI 300 was flat amid trade tensions and soft domestic demand. Brazil and India experienced modest growth, driven by firm commodity prices and foreign capital inflows.
- Listed Real Assets — AA-REITs continued their downward direction, falling another -1.2%, as long-duration sectors lagged amid sticky domestic inflation. Global REITs rose 0.6%, supported by lower bond yields. Listed infrastructure gained 1.4%, buoyed by earnings and capital inflows into defensive sectors.
- Fixed Income — The bond yields were broadly stable to slightly lower. U.S. 10-year Treasury yields dropped 6 bps to 4.17% following the Fed’s second rate cut (now 3.75–4.00%). Australian 10-year yields declined 4 bps to 4.26%. Credit spreads narrowed slightly, and global investment-grade credit rose 0.8%.
- Commodities — Commodity prices remained firm overall. Gold gained 3.4% to finish the month near USD 2,080/oz, supported by central bank purchases and geopolitical tensions. Iron ore prices rose 2.7% on sustained Chinese steel production and supply disruptions in Brazil. Oil prices fell marginally (-1.5%) amid concerns about oversupply and weaker demand signals from Europe. Copper rose 1.9% on EV-related demand.
- Currencies — The Australian dollar (AUD) depreciated 1.1% to end October near USD 0.653. AUD underperformance reflected a more cautious RBA and weaker labour market data. The U.S. dollar weakened slightly against the euro and yen, with the Fed’s rate cut narrowing yield differentials. The euro benefited from stronger-than-expected GDP in Germany, while the yen held steady amid continued BoJ policy support.
- Global Macroeconomic and Corporate Earnings Overview
Global economic data in October painted a mixed picture. In the U.S., inflation eased further (headline CPI at 2.7%, core at 2.9%) while unemployment ticked up to 4.4%, prompting the Federal Reserve to deliver its second rate cut of 2025. Corporate earnings surprised positively, with S&P 500 earnings growing 10.7% YoY in Q3, driven by tech and industrials. Europe’s outlook stabilised as services PMI improved, although manufacturing remains weak. Germany avoided recession with flat Q3 GDP. The UK economy grew 0.2% despite persistent cost-of-living pressures.
Japan’s economic growth was supported by semiconductor demand and AI-linked capital expenditure, while the weaker yen further aided exports.
In China, manufacturing PMI slipped to 49.5, reflecting persistent domestic weakness. Ongoing stimulus measures provided modest support, while tensions over rare earth exports and import curbs on Australian commodities created uncertainty.
In Australia, October’s economic data reinforced the view of a softening domestic backdrop. The unemployment rate rose to 4.5% in September (data released mid-October), marking the highest level since 2021. Consumer sentiment declined for the second consecutive month, as measured by the Westpac-Melbourne Institute Index, amid rising cost pressures and mortgage stress.
Inflation data released at the end of October showed that the Consumer Price Index (CPI) rose by 1.3% in Q3 2025 and 3.2% year-on-year, with the sharpest increases seen in electricity (+9.0%) and housing. This marked the fastest quarterly rise in over two years. While headline inflation has now entered the RBA’s target range, the size of the quarterly jump raised concerns about persistent inflation in non-discretionary categories.
Additionally, consumer inflation expectations increased to 4.8% in October, suggesting that households anticipate inflation will remain elevated, which may influence wage demands and pricing behavior. The ABS also announced a shift to monthly CPI reporting starting in November, improving real-time inflation tracking.
Taken together, these developments have left the RBA cautious. Although growth is clearly softening and labour markets are loosening, the inflation pulse—particularly in essentials like energy and rent—remains uncomfortably strong. Markets have now pushed back expectations for near-term rate cuts, anticipating a prolonged pause by the central bank.
4. Central Bank Interest Rate Policy
The U.S. Federal Reserve cut rates again by 25 bps to 3.75–4.00%, citing slowing job growth and easing inflation. Market participants now expect one more cut by year-end, though Fed commentary remained cautious.
The ECB and BoE left rates unchanged, maintaining a wait-and-see approach amid improving inflation dynamics. The Bank of Japan reiterated its accommodative stance.
In Canada, the Bank of Canada paused at 2.5%, but signalled readiness to ease further if growth continues to slow.
The Reserve Bank of Australia (RBA) held the official cash rate steady at 3.60% for the fifth consecutive meeting. Despite inflation returning within target, the RBA flagged ongoing risks to the inflation outlook and financial stability, keeping markets unsure about near-term easing.
5. Outlook
As we approach the end of 2025, global economic momentum remains subdued but broadly stable. Central banks are beginning to ease, though at a measured pace, and inflation continues to decline. This should support financial markets, though upside may be capped by softening growth and lingering geopolitical risk.
The U.S. economy is likely to continue decelerating into early 2026 before fiscal tailwinds and monetary easing spur a recovery. Europe appears to be stabilising, while Japan benefits from structural tailwinds in tech and exports. China’s recovery remains fragile and heavily policy-dependent, with trade frictions posing renewed risks.
In Australia, commodity price resilience offers a partial buffer to an economic slowdown, and inflation broadly remains within the RBA’s target band, which provides some hope for further rate cuts in 2026, which will support the domestic stock market. However, the Australian economy faces its own challenges, with elevated household debt, rising unemployment, and tight financial conditions likely to dampen consumer and housing market strength. Earnings growth in the key Banking and Resources sectors is forecast to be anaemic, with the remaining parts of the market trading on stretched valuations. For these reasons, we are moving from neutral to a modest underweight for Australian Equities.
Overall, we remain cautiously constructive on risk assets but expect returns to moderate as valuations are stretched and policy uncertainty persists.
6. Portfolio Strategy & Asset Allocation
| Asset Class | Strategy |
| Equities: | Underweight U.S.; Underweight Australia; Overweight Japan, Europe, and Emerging Markets, where valuations are relatively attractive. |
| Bonds & Credit: | Extend duration modestly after September’s rally; prefer high-quality sovereigns and investment-grade credit over high yield. |
| Alternatives: | Hold positions in listed infrastructure and private credit for diversification and yield. |
| Commodities: | Overweight Gold and Industrial metals (Copper & Iron Ore) for portfolio insurance and inflation hedging, Underweight Oil exposure due to oversupply concerns and slowing global growth. |
| Cash & FX: | Maintain a healthy cash buffer; keep AUD hedges in place given a weaker USD outlook. |