Australian and Asian financial markets came under renewed pressure as rising bond yields, elevated oil prices and expectations of further monetary tightening offset optimism surrounding artificial intelligence and the latest US-China summit.
The S&P/ASX 200 was one of the weaker major developed-market benchmarks, falling 0.76% over the five trading days to 8,665 points. The index also closed Friday at a new 50-day low and was around 6.5% below its record high reached in August. For September as a whole, Australian equities were down about 4.6% by the end of the week.
The principal concern for Australian investors was the growing prospect of another Reserve Bank of Australia interest-rate increase. The RBA left the cash rate at 4.35% during its August meeting, but Governor Michele Bullock’s comments during the week reinforced expectations that rates could rise at the 28–29 September policy meeting. The RBA’s latest published inflation figure was 3.5% for July, above its target range, while policymakers have expressed concern about continuing domestic inflation pressures.
Markets were also responding to a sharp increase in global bond yields. On Friday, Australia’s 10-year government bond yield moved higher alongside US Treasury yields, with the US 10-year yield around 5.16%. The US 30-year yield reached its highest level since 2004 and the 10-year yield its highest level since 2007, increasing pressure on equity valuations internationally.
Energy prices added another layer of uncertainty. Brent crude remained above US$100 a barrel, trading around US$105.56 on Friday. Higher oil prices have potentially significant consequences for Australia because they increase transport and household costs while complicating the inflation outlook. One Australian economist warned during the week that petrol could eventually rise above A$2.70 a litre.
The Australian dollar remained comparatively resilient, finishing Friday around US70.2 cents. The Reserve Bank’s published exchange-rate data put the Australian dollar at US$0.7019 at 4pm on 25 September.
Mixed performance in Asia
Across Asia, the picture was mixed. Japan was a notable outperformer, although the country’s markets were open for only two sessions during the holiday-shortened week. The Nikkei 225 rose to 66,466 on Friday, representing a weekly gain of about 2.23%. Technology and semiconductor-related stocks were supported by renewed enthusiasm about artificial-intelligence investment and demand for computer components.
Japan’s performance came despite a substantial increase in domestic bond yields. The rise in Japanese government bond yields remains important for global investors because Japanese institutional investors are major participants in international bond markets. Higher domestic yields can alter the relative attractiveness of overseas assets and contribute to broader movements in global fixed-income markets.
Chinese equities, by contrast, lost momentum during the week. The Shanghai Composite fell from 3,949.91 on Monday to 3,888.37 on Thursday, with the market closed on Friday. The 1.22% fall on Thursday was the mainland index’s largest one-day decline in about a month. The CSI 300 dropped 1.7% that day, while the Shenzhen Component fell 2.34%.
Investors had entered the week with hopes that the meeting between Chinese President Xi Jinping and US President Donald Trump would produce progress on trade and technology. Instead, markets received confirmation that the existing US-China trade truce would be extended by two months. While the extension reduces the immediate risk of another escalation, investors were left without a major breakthrough on trade, artificial intelligence or semiconductor restrictions.
The Chinese currency was nevertheless firm. The yuan reached its strongest level against the US dollar in more than three-and-a-half years early in the week, trading around 6.6950. The People’s Bank of China also set its daily midpoint at its strongest level since February 2023, signalling greater tolerance for yuan appreciation.
Hong Kong equities followed the mainland market lower. The Hang Seng Index fell from 25,042.71 on Monday to around 24,510 by Friday, a decline of roughly 2.1% over the trading week. Technology shares were particularly vulnerable as investors reassessed high-growth valuations in the face of rising global yields.
Overall, the week demonstrated how quickly higher energy costs and bond yields can dominate equity-market sentiment. Australia faced the additional complication of renewed expectations for domestic rate rises, while China and Hong Kong remained sensitive to US-China trade and technology negotiations. Japan benefited from renewed technology optimism, while India’s equities continued to struggle with oil-related inflation concerns.
The coming week is likely to be particularly significant for Australian markets, with the RBA’s September monetary-policy decision due on 29 September and Australia’s August inflation data scheduled for release on 30 September. Markets will also receive new Chinese manufacturing data and further economic indicators from Japan and the United States.
