Monthly Market Commentary
As at 31 May 2026
Economic review
Australia
Federal budget makes major tax reforms
The 2026 Federal Budget position remains steady, despite global uncertainty. The FY2026–27 deficit is forecast to be $31.5b, with the budget expected to improve over the coming years.
The Budget proposed tax changes to help first home buyers. It would replace the 50% CGT discount with an inflation-linked discount and set a minimum 30% tax rate on capital gains. Negative gearing would be removed for existing properties but kept for new builds. These changes could make property investing less attractive for higher-income earners, but the Government says the aim is to help more Australians buy a home.
The RBA increased interest rates by 0.25% for a third time in 2026 to 4.35%. The market is pricing in a further rate increase in 2026.
The latest Australian unemployment rate rose from 4.3% to 4.5% with a decline in both full and part time jobs. This suggests the labour market is beginning to be impacted by prior interest rate hikes and higher fuel prices.
International
Fed kept interest rate unchanged
The US-Iran ceasefire continued into May, as the US and Iran attempted to move forward on negotiations for a long-term agreement.
US inflation increased 3.8% YoY in April, while core inflation was 2.7% YoY. If inflation remains above the Fed’s target through the rest of the year, a softening but stabilising labour market and solid wage growth may prompt the Fed to keep rates on hold for longer.
US economic growth came in at an annualised 2%, slightly below expectations. Underlying demand remained resilient; the end of the government shutdown likely added 1% to growth. Consumer goods spending was slightly negative, but services spending remained resilient. Business investment was strong, with equipment spending up 17.2% annualised (including AI investment).
The Fed voted to keep interest rates unchanged in May, as expected. The meeting marked Jerome Powell’s final meeting as Fed Chair. Powell’s term as Governor ends on 31 Jan 2028.
Market Review
Australian shares rose following the release of the Federal Budget
Australian shares rose, underperforming international shares, by 1.2% following the release of the 2026 Federal Budget.
The materials sector was the strongest performer, up 10.3%, on the back of stronger industrial metal prices. The consumer discretionary sector closely followed, up 4.4% in the month.
The healthcare sector continued its decline for a second month, down -8.9%, following the news in April that the US will introduce tariffs on imported pharmaceuticals.
International shares performed strongly
International shares (hedged) increased 4.9%, driven by the Middle East conflict ceasefire and news of a possible long-term agreement.
The best performing sector was information technology, which saw a second month of strong returns, up 16%. The materials sector was the second-best performer, up 3.7%. The largest detractor was energy, which fell -5.5%.
Emerging market shares (unhedged) rose 9.6%, due to better valuations and strong demand in the technology sector which saw strong gains in South Korea, up 35.2% and Taiwan, up 16.4%.
Fixed interest markets were positive
Australian government bonds saw solid returns following a period of weakness, up 1.6% as yields fell in the month.
Australia 10-year government bond yields fell 23bps, following weaker than expected economic data which helped contribute to the strong return.
International credit spreads narrowed over the month, in line with the risk on sentiment also seen in share markets.
Listed real assets performance was mixed
Australian listed property rose 2.9%. This was helped by lower government bond yields, which made listed property look more attractive after five months of weak returns up to March.
International listed property was lower, down -0.5%, and international listed infrastructure was down -2% as the US Federal Reserve (Fed) was seen turning more hawkish.
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