Economic and Market Update
The first few months of 2026 have been anything but quiet, with sticky inflation, a return to rate hikes, and a fresh conflict in the Middle East all shaping markets.
Australia: RBA delivers third hike
The Reserve Bank of Australia has now raised the cash rate three times in 2026, taking it from 3.60% at the end of 2025 to 4.35% following its 5 May meeting. The latest 25 basis point hike, decided by an 8–1 majority, fully unwinds the three cuts delivered through 2025. The Board pointed to capacity pressures in the domestic economy and to the conflict in the Middle East, which has pushed fuel and related commodity prices sharply higher and is feeding into broader prices.
The March quarter CPI release in April underlined the problem. Headline CPI jumped to 4.6% in the year to March, up from 3.7% in February and the highest annual reading since September 2023, driven Transport and Housing.
The labour market remains firm, giving the RBA little reason to ease. Employment rose by 17,900 in March and the seasonally adjusted unemployment rate held at 4.3%. April labour force data is due on 21 May.
Australian shares: a rollercoaster quarter
The ASX 200 has had a volatile run. After touching a record high above 9,200 in late February, the index fell more than 10% to a low near 8,262 on 23 March as escalating Middle East tensions and a sharp rise in oil prices rattled investors. It has since rebounded strongly, trading around 8,700 in early May. Energy stocks have benefited from higher oil prices, while the big banks have come under valuation pressure after a strong 2025.
The Australian dollar has been a notable beneficiary, strengthening to around US$0.72, close to a four-year high, supported by expectations of further RBA tightening and resilient commodity demand.
Global markets: near record highs, but risks linger
US shares have continued to push higher, with the S&P 500 reaching fresh record highs above 7,350 and the Nasdaq on a strong run thanks to solid tech earnings. The Dow sits around 49,600. Sentiment has been supported by an extended ceasefire in the US–Iran conflict, though ongoing disruption around the Strait of Hormuz remains a clear risk and is keeping oil prices elevated.
In China, first-quarter GDP growth came in at 5.0%, better than expected, offering support to commodity exporters including Australia.
Looking ahead
As always, we encourage clients to stay focused on long-term goals rather than short-term noise. If your circumstances have changed, please reach out to your adviser.