Economic update August 2026
Market developments during July 2026 included:
Market Summary
Global share markets softened in July as weakness in US technology shares weighed on investor sentiment, while Australian shares outperformed after lagging many overseas markets in recent months. Renewed geopolitical tensions and higher oil prices added to inflation concerns, pushing government bond yields higher and reducing the appeal of higher valued growth shares. Despite the more cautious backdrop, resilient economic conditions continued to support broader equity markets outside the US.
Australian Shares
Australian shares moved higher in July, with the S&P/ASX 200 Index up 2.3%, supported by a solid lift in financials, up 5.8%, as improving investor confidence lifted the banking sector. Smaller companies underperformed, with the S&P/ASX Small Ordinaries Index down 3.2%, reflecting its greater exposure to materials and information technology companies, which both weakened during the month.
Viva Energy Group (VEA) was the top performing share in July, rising 37.7% after the company reported improved unaudited results driven by increases in refinery margins and retail sales. The worst performing share was Liontown Limited (LTR) which fell 42.7% as lithium prices declined and the company faced rising longer term cost and capital expenditure expectations.
Energy was the standout performer, up 12.2%, buoyed by stronger oil prices, while healthcare also delivered solid gains, rising 2.3%. Communication services (+1.0%), consumer discretionary (+0.9%) and consumer staples (+0.2%) all delivered modest gains, while real estate investment trusts (REITs) were roughly flat, down 0.1%. In contrast, information technology was the weakest sector, down 2.8% and extending its recent run of underperformance and industrials (-1.4%) and materials (-0.9%) also lagged as softer commodity demand and a more cautious growth outlook weighed on sentiment. Utilities also fell, down 1.0%.
International Shares
International shares eased in July, with the MSCI All Country World Index down 0.3% on a hedged basis and -1.3% unhedged, as appreciation in the Australian dollar further reduced offshore returns. The US edged lower as technology shares became more volatile following their strong gains in recent months, with higher bond yields and a reassessment of the US interest rate outlook weighing on higher valued growth companies. Global small companies also declined, with the MSCI World ex Australia Small Cap Index down 3.8%, as gains remained concentrated in larger companies.
At the sector level, the pattern mirrored the domestic market, with energy surging +12.2% and financials also performing strongly +6.0%, while information technology (-4.2%) weighed heavily on developed market returns given its size.
Regional performance was mixed across major markets. The UK and Germany both had a strong month, with the FTSE 100 up 3.5% and the DAX up 2.5% in local currency terms, while the US market was little changed, with the Dow Jones Industrial Average edging up 0.3% and the S&P 500 PR down 0.1%. Japan was mixed, with the broader TOPIX Index edging up 0.2% on a total return basis, while the Nikkei 225 fell 8.1%, weighed down by weakness in a small number of large, high priced technology shares. Asian markets diverged elsewhere too, with Hong Kong’s Hang Seng Index surging over 13%, helping lift the MSCI China Index up 8.9%, while mainland China’s CSI 300 Index fell sharply, down
7.9%.
Emerging markets underperformed developed markets, with the MSCI Emerging Markets Index down -4.4%, although underlying performance varied considerably across regions.
Property and Infrastructure
Real assets produced mixed but generally positive returns in July. Global listed property rose, with the Financial Times Stock Exchange, European Public Real Estate Association and National Association of Real Estate Investment Trusts (FTSE EPRA NAREIT) Developed Index (hedged) up 2.3%, supported by resilient property fundamentals and continued demand for income producing assets despite higher bond yields. Infrastructure edged higher, with the FTSE Global Core Infrastructure 50/50 Index (hedged) gaining 0.2%, as its relatively defensive earnings profile helped offset the impact of rising bond yields.
Fixed Interest
Fixed interest markets declined in July as government bond yields rose across major markets amid persistent inflation concerns and a reassessment of the interest rate outlook. Australian fixed interest fell, with the Bloomberg AusBond Composite 0+ Yr Index down
0.4%, while global fixed interest also weakened, with the Bloomberg Global Aggregate Bond Index (hedged) down 0.9%. Credit markets were mixed, with Australian credit proving relatively resilient as corporate bond spreads remained broadly stable, while global investment grade and high yield credit weakened modestly as spreads widened. Wider credit spreads indicate investors required greater compensation to hold corporate bonds over government bonds.
Alternatives
Preliminary estimates for July indicate that the index increased by 0.6% (on a monthly average basis) in Sales Development Representative (SDR) terms, after decreasing by 2.2% in June. The non-rural and rural subindices increased in the month, while the base metals subindex decreased. In Australian dollar terms, the index increased by 1.2% in July. Over the past year, the index has increased by 15.4% in SDR terms. Increases have been broadly based across the prices of rural commodities, bulk commodities and base metals. The index has increased by 7.5% in Australian dollar terms.
Source: Lonsec August 2026 (July update)
