Monthly Market Commentary
As at 31 March 2026
Economic review
Australia
RBA going tough on inflation
The RBA increased the cash rate by 0.25% to 4.10% at its last meeting. The Board voted 5-4 in favour of the increase. It cited risks from the Middle East conflict, a slightly tighter labour market, increased upside inflation risks, and softer consumer spending.
Australian GDP rose 0.8% QoQ in Q4 2025, in line with expectations. Annual growth was 2.6%, above the 2.3% expected and slightly higher than the RBA's forecast. Household spending and inventories both increased, while net exports weighed on growth.
Australian CPI softened in February, rising just 0.2% MoM, bringing the annual CPI to 3.7% YoY. Trimmed-mean CPI was also 0.2% MoM and 3.3% YoY. Housing made the largest contribution to inflation, while transport was the largest detractor. This weakness is unlikely to continue, as higher energy prices from the ongoing conflict are expected to lift inflation.
Australia’s unemployment rate rose from 4.1% to 4.3%, due to a small increase in the participation rate. An additional 48,900 jobs were created, mainly from part time roles.
International
The Middle East conflict continues
The US-Israel conflict with Iran is ongoing, with both sides having tabled proposals to end the fighting. The US has paused attacks on Iranian energy facilities pending Iran’s acceptance of the 15-point plan but is also preparing options for a limited ground operation in Iran, targeting strategic locations and nuclear material. Meanwhile, the Houthis in Yemen have joined the conflict by firing missiles towards Israel.
Major central banks kept interest rates on hold, but with a hawkish tone. The Fed left the federal funds rate at 3.50-3.75%. The BoE also held at 3.75%; but shifted more hawkish, as the energy shock led policymakers to drop calls for cuts. The ECB kept its deposit rate at 2.00% and the BoJ also remained on hold.
US unemployment rose from 4.3% to 4.4%, even as the participation rate increased. Labour market data came in weaker than expected, with nonfarm payrolls falling.
Market Review
Australian shares fell in March, despite a strong rally in the energy sector
Australian shares fell by -7.3% in March, underperforming international shares. The information technology sector was the weakest performer, down -12.8% in March.
The energy sector was the strongest performer, up 20%, as energy prices rose amid ongoing conflict in the Middle East. The utilities and consumer staples sectors also climbed due to their defensive nature.
International share markets down in March
International shares (hedged) fell -5.8% in March; driven by geopolitical tensions, higher oil prices and expectations of interest rate rises to deal with higher inflation. The best performing and only positive sector was energy, up 12.5%, as oil prices rose 63.3%, finishing the month at US$118/bbl. The largest detractor was the industrials sector, which fell -6.8% in March.
Emerging market shares (unhedged) fell -9.5% in March, as many emerging markets are net energy importers and were hit by higher oil prices. South Korean shares dropped -22.4% over the month, including a record -12.1% one-day fall after the conflict began.
Real assets saw disappointing returns in March
Australian listed property saw big falls in March, down -11.2%. Higher bond yields and higher cash rate expectations made some investors question listed property valuations. All except one of the stocks in the sector fell in the month, with over half of the stocks seeing double digit falls.
International listed property was lower, down -8.2%, and International listed infrastructure was also down -3.1%.
Fixed interest markets performed poorly
Australian government bonds had a weak month, falling -1.4%, as yields rose 32 bps. Yields moved higher on increased expectations of interest rate hikes, driven by concerns that surging oil prices could add to future inflation.
International credit spreads widened, with global investment-grade spreads increasing by 8bps in March, due to the risk-off sentiment.
Energy prices surge on Middle East conflict
Commodity prices surged in March following the start of the Middle East conflict, with the S&P GSCI commodity index climbing 22%.
Energy contributed most of the gains, with Brent oil rising 63.3%. Aluminium also gained, up 12.2%, as Iran attacked several large aluminium smelters in the Arab Gulf states.
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