MARKET SUMMARY

Equities rallied

• ASX 200 rose 1.3% in December, taking the total return for 2025 to +10.3%.
• Australian equities outperformed Global Equities (MSCI World ex Australia) which fell 0.9% (in $A terms).
• The US S&P500 finished slightly down (-0.05%) snapping a seven-month winning streak.
• Europe (ex UK) +2.7%, UK +2.3% and Emerging Markets +2.6% performed well in December.

Sector performance – Materials (Mining) performed strongly

• Within the ASX200 the best performers were Materials +6.6%, Financials ex‑Property +3.4% and Property +2.0%; while the worst performers were IT −8.7%, Health Care −7.1% and Communication Services −3.1%.
• The US market saw a continuation of the cyclical rotation supported by expectations for a 2026 fiscal impulse via OBBA taxes and accelerated depreciation, resilient consumer spending, and less onerous tariff pressures.
• In the US Big Tech was mostly lower though Nvidia +5.4% (signed a $20B licensing deal with Groq) and Tesla +4.5% outperformed. Netflix fell 13% after bidding for Warner-Bros Discovery.

Bonds sold off

• Australian bonds fell 0.6% (AusBond Composite index). Australian 10‑year bond yields rose 23bps to 4.74% as strong domestic data, higher inflation and a hawkish RBA continued to see bond investors reappraise their outlook for rates. US 10‑year Bond yields rose 15bps to 4.17%.
• Across Australian fixed income, Credit outperformed Duration (Credit −0.2% vs Treasuries −0.8%), as spreads tightened slightly.

Global economy focused on US Federal Reserve

• The US Federal Reserve cut rates 25bps to 3.50-3.75% and launched a surprise $40bn treasury bill purchase program which adds liquidity and supports risk assets.While the US cut rates, there were hawkish signals from global central banks. The Bank of Japan increased rates to 0.75%.
• US employment data remains mixed. November nonfarm payrolls rose modestly (+64K), but the unemployment rate increased to 4.6%. US November CPI was below consensus at 2.7% year-on-year partly driven by housing. Retail sales exceeded expectations, supporting the narrative of consumer resilience. Housing indicators remain soft. The US Dollar fell 1.2%.
• Chinese hard data moderated slightly. Property remains soft, consumer confidence is low and Fixed Asset Investment has contracted. Exports remain strong. China pledged to strengthen domestic demand in 2026.
• Geopolitically, US-China trade tensions eased with Nvidia chip approval news; however, tensions rose with US strikes and blockades on Venezuela. Otherwise, little-progress was made on the Ukraine peace deal.

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