September 2025 quarter economic and market commentary
Two notable developments in global financial markets during the September quarter were the surge in gold prices and the ongoing strong performance of equity markets led by AI themed stocks, particularly in the US.
The rise in the gold price was thought to reflect some nascent diminution in the ongoing utility of US Treasury bonds as the primary “safe harbour” asset in portfolios. The more sceptical view of bonds reflected, inter alia, ongoing large budget deficits (particularly in the US but also elsewhere), “stickiness” in US inflation, and some concern around the implications of a more politically pliant US Federal Reserve.
The strong performance in equity markets appeared to reflect increasingly more positive assessments of the financial ramifications of the AI revolution.
Equity markets may also have benefitted from some reassessment of the likely fallout on US (and global) economic activity as a consequence of the Trump tariff agenda. The US economy has proved more resilient (at least in the near-term) than a number of analysts had projected back in April in the wake of President Trump’s “Liberation Day” announcements. Having said that, the US labour market exhibited clear cooling through the quarter and uncertainties over the near-term course of growth in economic activity in the US (and globally) remain.
Reflecting those labour market developments the US, the Federal Reserve chose to lower the policy rate target to 4.00-4.25 per cent at its September meeting, the first such move since December 2024. Moreover, the median “dot plot” issued by the Fed after that September meeting implies two more 25 basis point policy rate reductions this year and a further reduction next year.
The weakness in the USD that had been a feature of the first half of the calendar year abated through the quarter and the USD was relatively stable against the EUR and AUD during the quarter.
Bitcoin continued to exhibit strong price appreciation through the quarter albeit with ongoing volatile price movements. Bitcoin’s appreciation possibly reflected some of the same elements driving the price of gold. However, gold outperformed bitcoin by a considerable margin through the quarter (circa 17 per cent price growth in USD terms versus 6.5 per cent for Bitcoin) and the gold price appreciation appeared steadier.
Locally, inflation data revealed a hint of “last mile” complications in getting inflation back to the middle of the target 2-3 per cent range. The RBA cut the policy rate by 25 basis points to 3.60 per cent in August but demurred in September. Those inflation concerns along with a well-performed labour market have cast some doubt on the prospect of any further cut in the policy rate this year. As that sentiment took hold Australian bonds underperformed their US counterparts.
The Australian equity market appreciated through the quarter largely reflecting US developments but underperformed the broader US indices.
Going forward, the key issues for 2025 revolve around how the Trump agenda might both evolve and manifest itself in the data. Certainly, there remain some residual fears that “sticky” inflation and the Trump tariff agenda could still yet result in a “stagflation-lite” scenario. That might yet arrest the current positive tone in markets. Having said that, there is only scant evidence of such a scenario in the hard economic data.
October 2025
