The Australian share market tread water this week as investors balanced conflicting signals from local and global monetary policy, with commodities outperforming while equities broadly lagged. The S&P/ASX 200 closed marginally lower around 8,579 points, reflecting cautious positioning just ahead of the US Federal Reserve’s latest rate decision and further hawkish cues from the RBA.
Domestically: RBA Holds Fire but Signals Caution
At its December meeting, the RBA left the cash rate unchanged again at 4.60 per cent, asserting that further cuts are unlikely in the short term given persistent inflation pressures and above-target core inflation.
This stance has tilted markets back toward the possibility of future rate increases rather than cuts, a notable shift given the extended cycle of easing earlier in the year. Commentary from economists and market strategists increasingly flags the risk of additional tightening should inflation remain sticky.
In tandem, the Australian labour market showed signs of softening: November employment figures revealed the largest drop in nine months, although unemployment remained relatively low at 4.3 per cent. Such data underlines the tightrope the RBA continues to walk between inflation control and economic growth.
Globally: Fed Cuts but With a Divided Chorus
Overnight, the US Federal Reserve delivered its third rate cut of 2025, trimming the federal funds rate by 25 basis points to 3.50-3.75 per cent. This move was widely expected and welcomed by markets, yet the policy committee’s dissent, with three members opposing the cut, underlining lingering uncertainty over the US economic outlook.
US equity markets responded positively, with the Dow Jones Industrial Average climbing sharply and the S&P 500 and Nasdaq posting gains, adding hopes of a year-end rally.
For Australian markets, a lower US rate environment typically supports risk assets and commodities, though the prevailing domestic narrative, inflation resilience and potential RBA tightening, continues to temper enthusiasm.
Sector Rotation: Commodities Out, Tech and Banks Tread Water
A clear theme this week has been the outperformance of materials and commodities versus other sectors. Gold and silver prices have broken multi-year highs, lifting mining stocks across the board. Major gold producers, including Newmont and Northern Star, rallied as precious metals held investor appeal as yield-hedged assets. Silver’s surge past US$60 an ounce has been a particularly strong price signal.
By contrast:
- Technology shares remained weak, reflecting wider global risk-off sentiment and sensitivity to interest rate expectations.
- Major banks were mixed, with most large lenders slightly lower and only a handful, such as ANZ, showing modest gains.
Broader Market Dynamics and Analyst Views
Analyst observations show the ASX 200 up roughly 5-6 per cent year-to-date, but still lagging major US indices which have seen double-digit gains in 2025. Resource-heavy sectors, mining and materials, are boosting the benchmark’s returns, while tech and healthcare remain under performance pressure.
Diverging rate expectations have influenced the Australian dollar, pushing it slightly lower after mixed data and softer employment figures, though it remains sensitive to carry trades and global capital flows.
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What It Means for Investors
- Macro divergence is driving rotation: With the Fed easing and the RBA poised more hawkishly, the currency, bond yields and equities are pricing a policy divergence. That supports commodity prices but complicates growth stock valuations domestically.
- Commodities still carry the market: Gold and silver have become defensive plays in a volatility-prone environment, while iron ore and base metals remain linked to China’s industrial activity and global demand growth.
- Tech and banks remain sensitive: Tech stocks will likely stay under pressure until rate expectations are clarified, while banks will track net interest margin expectations and credit growth dynamics as monetary policy changes.
- Active positioning matters more than index exposure: With sector dispersion high, commodities up while tech and financials struggle, active stock selection and sector rotation strategies are outperforming broad ASX 200 exposure.
- Watch cross market signals: Global equity strength, particularly in the US, suggests investor risk appetite is intact. If the Fed holds further cuts or tightens later, that balance will shift quickly.