Investor Intelligence – 7 September 2026

Taiwan was one of the strongest-performing share markets, surging 7.1% over the month, while the Nasdaq rose 4.2%. Rising bond yields tempered investor sentiment late in the month, slowing the rally in global equity markets as August drew to a close and into early September.

Emerging markets outperformed developed markets in August, returning 3.2% and 2.5%, respectively. Taiwan was among the standout performers, benefiting from its large semi-conductor sector and ongoing investor enthusiasm towards AI-related investment.

That theme gathered further momentum late in the month after Nvidia delivered another strong earnings report, reinforcing confidence that AI-driven demand remains strong and could continue to support investment in technology infrastructure.

Corporate earnings were broadly encouraging across the United States and extended beyond the technology sector. The solid reporting season helped underpin investor confidence despite ongoing economic and geopolitical uncertainty.

The focus also shifted back to inflation and interest rates. In the United States, inflation remains above the Federal Reserve’s 2% target, and unemployment is low at 4.1%. While AI-related investment continues to support economic activity, there are increasingly signs of strength across other parts of the economy. Against this backdrop, Federal Reserve officials adopted a more hawkish tone. Investors were caught off guard by comments from Federal Reserve Chair Kevin Warsh at the Jackson Hole symposium, which increased the likelihood of a near-term rate hike. Swap markets are currently assigning a 62% probability to a rate hike this month with a further increase fully priced by October and another expected in early 2027.

Interest-rate markets are currently assigning a 62% probability to a rate hike this month with an increase fully priced by October and another expected in early 2027.

Expectations for higher interest rates have also firmed elsewhere. Swap markets are pricing in further tightening from several major central banks, including the European Central Bank, Bank of England and Bank of Japan.

The conflict in the Middle East also continued to influence markets and contributed to strong commodity returns during the month. Oil prices remained volatile, trading between approximately US$78 and US$98 per barrel as concerns about supply disruptions were partially offset by reports that cargo volumes moving through the Strait of Hormuz have recovered to around half of pre-war levels.

Gold also moved higher as investors sought protection against inflation risks, geopolitical uncertainty and concerns about rising government debt levels. Gold was also supported by the US Treasury’s 19 August announcement (i.e. intervention) to step up purchases of longer-dated bonds. The precious metal rose to a three-month high of US$4,696.83 per troy ounce on 25 August before easing back below US$4,500/oz by month end. Over the last 12 months, spot gold in local-currency terms has returned 17.7%.

Healthcare was the best-performing sector, rebounding after coming under significant selling pressure earlier in the year. Performance across the sector was far from uniform, however. CSL’s key plasma business continued to recover, Cochlear exceeded expectations and ResMed demonstrated that the rise of weight-loss drugs is not proving to be a drag on demand for its sleep apnoea products.

Materials also performed well during the month, supported by stronger commodity prices. Iron ore and copper prices rose over August, aided by improving sentiment towards China and expectations of further policy support. The gains helped lift major mining stocks and provided support to the broader Australian share market.

Consumer discretionary was the weakest-performing sector with several large retailers reporting softer sales growth or warning of a more challenging period ahead. These included JB Hi-Fi, Temple & Webster and Nick Scali. The downturn in the housing market is increasingly weighing on retail turnover and sentiment, although Australian Bureau of Statistics data continues to point to some resilience in aggregate household spending.

Other underperforming sectors were also sensitive to the outlook for interest rates. While the RBA left the cash rate unchanged at 4.35% in August, the minutes reinforced concerns about upside inflation risks and the possibility that further policy tightening may still be required. A stronger-than-expected July inflation result further increased market expectations of another rate rise.

The housing downturn remains a key risk to the economic outlook. Cotality data shows dwelling prices have fallen for five consecutive months to August, as higher interest rates and Federal Government tax changes weigh on buyer sentiment. Major banks have reported sharp declines in mortgage applications, driven largely by weaker investor borrowing demand.

Government bond markets over the past month were heavily influenced by data pointing to more persistent inflation in Australia and other major economies, as well as growing investor concerns about public finances and the sustainability of government debt.

In Australia, 10-year bond yields rose 17 basis points over August to 5.09% and continued higher in early September, reaching 5.23%, their highest level in 15 years. The 2-year bond yield also rose by 17 basis points to 4.74% during August and continued to climb in early September, reaching 4.84%, its highest level since June 2011. The move reflected an increase in the probability of a near-term rate hike following July’s stronger-than-expected inflation report.

Global fixed interest returned 0.2% with US fixed interest returning 0.3% in local currency terms. US front-end yields drifted higher after Federal Reserve Chair Kevin Warsh acknowledged in his Jackson Hole speech that recent inflation data had not improved meaningfully. The US 10-year Treasury yield rose 2 basis points over August to 4.75% and subsequently reached a near three-year high of 4.80% on 1 September before easing slightly. By contrast, the 30-year Treasury yield finished the month lower, despite briefly reaching 5.32% on 18 August, its highest level since 2007. US Treasury announced on 19 August that it would increase the pace of longer-dated bond buybacks from September onwards, giving some support to bond prices.

Japanese government bonds were among the weakest performers in local currency terms. The 10-year Japanese government bond yield rose to a multi-decade high of 2.99% on 2 September, reflecting a looser fiscal backdrop and renewed inflation pressures. Shorter-dated yields rose more sharply as markets brought forward expectations for the Bank of Japan’s next interest rate increase to September. Expectations of further policy tightening were also supported by efforts to stabilise the yen following recent currency intervention.

Credit markets proved more resilient than government bonds. Both investment-grade and high-yield bonds generated positive returns during August. Investment-grade credit spreads remained relatively stable despite sizeable issuance expectations from major US technology companies, while high-yield spreads narrowed further. Emerging market debt also outperformed, supported by a softer US dollar and improving sentiment towards emerging market assets.

The Australian dollar rose 2.1% against the US dollar over August. The USD index weakened by 0.5% over the month, while expectations of higher Australian interest rates following stronger-than-expected inflation data provided additional support for the local currency. Firmer commodity prices also helped with the Australian dollar reaching US72.22 cents on 4 September, its highest level since mid-May 2026. In trade-weighted terms, the Australian dollar appreciated 1.1% over August.

The stronger Australian dollar reduced returns for unhedged international investors. As a result, global equities and fixed interest generated stronger returns in hedged Australian dollar terms than in unhedged terms.

Australian listed property was the weakest performer, falling 6.6% over the month and leaving it down 15.0% over the year. Global listed property also came under pressure, declining 4.8% in August and sitting just 0.2% higher over the year. Global listed infrastructure fell 3.6% during the month but remains up 2.8% over the past year. These sectors are particularly sensitive to interest rates because their valuations are supported by long-term income streams. As bond yields rose sharply, investors demanded higher returns, placing downward pressure on both property and infrastructure valuations.

In Australia, underlying inflation surprised on the upside in July, GDP growth in the June quarter was stronger than the RBA had anticipated and the unemployment rate remains low by historical standards. Together, these developments suggest price pressures are likely to ease more slowly than previously expected and we expect the RBA will need to increase interest rates later this month. It will be a close call.

The sharp rise in global bond yields has also become an increasingly important theme for investors with some news reports drawing comparisons with past periods of financial stress, notable the global financial crisis (GFC). However, we are not automatically headed for another GFC. The circumstances today are different. The GFC was triggered by the collapse of the US sub-prime mortgage market and the complex mortgage-backed securities built around it, which spread losses throughout the global financial system. Banks are also much better capitalised and more heavily regulated today than they were before 2008.

Today’s risks are centred more on public debt and fiscal sustainability than on the solvency of the banking system. Persistent fiscal deficits, rising government debt levels and growing spending demands across a range of areas have contributed to concerns about the long-term sustainability of public finances. Persistent inflation pressures, including those arising from conflict in the Middle East, have added to these concerns. As a result, investors are demanding greater compensation to hold long-dated government bonds, lifting the term premium and pushing bond yields higher.

Ultimately, governments may need to rein in spending, raise taxes, or both. However, there appears to be limited appetite for fiscal consolidation in many countries. As a result, central banks may have little choice but to do more of the heavy lifting by raising interest rates further or keeping monetary policy restrictive for longer to ensure inflation returns sustainably to target. This does not necessarily point to another financial crisis, but it could mean markets and economies adjusting to a world of structurally higher borrowing costs.

The latest spike in bond yields was also fuelled by unexpectedly hawkish comments from US Federal Reserve Chair Kevin Warsh, which increased the possibility of a further Federal Reserve rate hike later this month. Higher long-term bond yields matter because they tighten financial conditions across the economy, lifting borrowing costs for households, businesses and governments. In the United States, they also directly influence mortgage rates and other lending rates, increasing the risk of slower economic growth. Higher yields also increase the discount rate applied to future earnings, which can weigh on equity valuations, particularly in growth sectors where a significant proportion of expected returns lies further into the future.

Against this backdrop, the AI investment cycle remains a powerful force supporting both markets and the broader economy. Investment in data centres, electricity networks, digital infrastructure and related industries continues to expand and there is little evidence that the broader AI investment cycle is nearing an end. If AI delivers the productivity gains many expect, it could support economic growth, improve corporate profitability and help ease some of the fiscal pressures associated with ageing populations and rising debt burdens.

However, history suggests there is often a lag between a major technological breakthrough and meaningful economy-wide productivity gains. While AI is already driving a surge in investment and optimism around future earnings, it may take years before those productivity benefits are widely realised across businesses and fully reflected in economic growth. The risk is that markets are pricing in a significant productivity dividend today, while economies may need to contend with tighter financial conditions and slower growth in the meantime.

Whether the years ahead are ultimately defined by higher borrowing costs or stronger productivity growth remains uncertain. From a portfolio construction perspective, this reinforces the importance of maintaining diversification across asset classes, sectors and regions. Diversified portfolios can participate in the opportunities created by AI while remaining more resilient to the risks associated with higher interest rates, elevated bond yields, slower economic growth and periods of increased market volatility.