Market Wrap August 2025 

July: Growth over Defensive Assets

Australian large-cap equities delivered solid gains in July, with the S&P/ASX 200 Index advancing by 2.40%. Investor sentiment shifted notably, favoring Resources and Healthcare sectors over Banks. Smaller Australian companies also benefited from this rotation, with the S&P/ASX Small Ordinaries Index outperforming large caps by returning 2.80% during the month.

International equities extended their rally in July, as developed market stocks reached new all-time highs. The MSCI World ex Australia Index rose 3.10%, supported by easing US trade and tariff tensions, resilient macroeconomic indicators, and a positive earnings outlook, particularly from mega-cap technology firms. Emerging market equities delivered similarly strong returns, with the MSCI Emerging Markets Index gaining 3.80%, bolstered largely by continued strength in the Chinese market amid de-escalation of US-China trade tensions. Meanwhile, the MSCI World ex Australia Small Cap Index maintained robust performance, rising 3.00% in line with improving investor risk appetite.

Returns within listed real assets were mixed. Global listed property declined modestly, with the FTSE EPRA/NAREIT Developed Hedged Index returning -0.2% for the month. In contrast, infrastructure assets outperformed, with the FTSE Developed Core Infrastructure 50/50 Hedged Index delivering a strong return of 9.1% over the previous 12 months.

In fixed income markets, the Bloomberg AusBond Composite 0+ Year Index remained flat, while global bonds experienced a slight decline.

The Bloomberg Global Aggregate Index (AUD Hedged) returned 0.2%, a result primarily driven by rising bond yields globally, which exerted downward pressure on bond prices.

The Aussie dollar fell against the USD but recorded solid gains against most other major currencies. While Australian bond yields rose, the relative increase and stronger US yield environment made the USD more attractive for investors.  

Job Market: 

U.S.

• The annual unemployment rate increased modestly to 4.2% in July 2025, reflecting a slight softening in employment conditions. Despite this uptick, the headline unemployment rate remains low by historical standards.
• In July 2025, the US nonfarm payrolls rose by 73,000, which was well below expectations of around 110,000 to 117,500 jobs. This marked a significant slowdown compared to earlier months, with May and June's payroll numbers also revised downward by a combined 258,000 jobs. The miss and prior month revisions indicate the labour market may be cooling more rapidly than initially thought.

Locally

• The Consumer Price Index (CPI) in Australia rose 0.7% over the quarter and 2.1% in the 12 months to June 2025. The top contributors to the quarterly increase include Health Prices (+1.5%), Housing Costs (+1.2%) and Food and NonAlcoholic beverages (+1.0%). 
• Australia's seasonally adjusted unemployment rate increased by 0.2% to 4.3% in June 2025. This rise was driven by a 33,600 increase in the number of unemployed people. The participation rate also edged up slightly to 67.1%. Employment growth was very modest, increasing by only 2,000 people in June.