Economic update February 2026

Market developments during January 2026 included:

   Key Points

• The domestic equity market took the lead from European and US markets, finishing higher in January, while Real Estate Investment Trusts (REITs) moved lower.
• US equity markets rose in January in the face of rising geopolitical tension and the start of another US earnings season.
• Fixed interest performance was generally mixed over the first month of the year, with Japan normalising its monetary policy and European yields moving off December highs.

    Australian Equities

The S&P/ASX 200 Accumulation Index rose by 1.8% in January, with five of the 11 sectors closing higher for the month. The Energy and Materials sectors (+10.6% and +9.5%, respectively) led the gains, while the Health Care sector (+2.2%), the Consumer Staples sector (+2.0%) and the Utilities sector (+0.6%) also rose. The Information Technology sector (-9.4%) led the declines again, while the REIT sector (-2.7%) was also softer. The S&P/ASX Small Ordinaries Index rose 2.7% in January, taking the past twelve months’ gains to 22.8%, compared to the 7.4% rise in the S&P/ASX 200 Accumulation, as smaller companies continue to outperform large caps.

Deep Yellow Limited (DYL) was the month’s top gainer, rising 54.3%, thanks to a strong quarterly update and a significant increase in uranium spot prices. Paladin Energy (PDN) Limited also benefited from rising uranium prices in January, as they rebounded to April 2024 levels, closing the month 44.3% higher.

Zip Co Limited (ZIP) was the worst performer for the month, declining 19.5%, following rising concerns about the US consumer. However, the quarterly update indicated strong user growth, aligning with the potential 10% cap on credit card interest rates in the US. Silex Systems Limited (SLX) fell 19.1% after the company failed to secure US$900m in funding from the US Department of Energy.

December’s inflation rate of 3.8% exceeded market expectations of 3.6% and was significantly above the RBA’s 2% to 3% target range, paving the way for an early rate hike. Service inflation reached two year highs, while electricity costs increased as rebates expired.

The unemployment rate was 4.1% in December, lower than the previous month’s 4.3% and market expectations, while the number of employed increased by 65,200 – above the forecast of 30,000 and higher than the revised increase of 28,700 in the prior month.

   Global Developed Equities

Global equities were mixed in January, with developed market equities down 2.7% (MSCI World NR Index [AUD]). US equities were marginally higher after a flat December, with the S&P 500 Index rising 1.4%, lifting 12 month returns to 14.9%. The US earnings season kicked off in late January and geopolitical volatility took centre stage, with the US capture of the Venezuelan President, US’s bid to acquire Greenland and unrest in Iran.

Across developed markets, value (+4.1%) outperformed growth (-0.8%), whilst quality (+2.8%) and momentum (+2.7%) also outperformed. Global small caps outperformed in January, returning 3.6%.

European equity markets were broadly positive, with the UK’s FTSE 100 Index rising 2.9% and Germany’s DAX Index up 0.2%. In Japan, the Nikkei 225 surged by an impressive 5.9%, lifting rolling year returns to 34.8%, as Prime Minister Takaichi announced a snap election and plans for robust fiscal stimulus.

On the economic front, the Federal Reserve held interest rates steady in January after cutting them in December, signalling a more cautious approach as officials stressed the need for further progress on inflation before easing again. Fed communication remained a key focus, with policymakers continuing to indicate a mild and data dependent easing cycle and little change to expectations that rate cuts in 2026 and beyond will be limited unless economic conditions soften significantly.

Inflation data was mixed over the month, with headline inflation edging higher in December, reflecting firmer energy and services prices, while core inflation proved stickier than in prior readings and above market expectations. Growth momentum remained solid, with recent GDP data confirming a strong end to 2025 driven primarily by resilient consumer spending, although some leading indicators pointed to a gradual cooling in activity compared with the strength seen in the previous quarter.

Overall commodity prices rose in January, with the S&P Goldman Sachs Commodity Index (USD) up by 9.1%. Oil reversed consecutive months of declines, rising 13.6% in January, driven by geopolitical tensions and supply issues involving Iran, Venezuela, and Cuba, along with US winter conditions and outages in Kazakhstan. Gold surged 13.3%, reaching US$5,600 per ounce before the US President’s nomination of the Fed Chair. Copper continued to rise (+4.9%), while Iron ore remained mostly steady (+0.5%).

   Emerging Market Equities

Emerging market equities outperformed developed markets in January, rising 3.6% (MSCI Emerging Markets Index [AUD]). In China, the CSI 300 gained 1.7% in January, with a rotation towards the region’s technology stocks continuing. Economic data from China softened again in January, with the NBS Manufacturing PMI falling back below the expansion threshold to 49.3, reversing December’s brief return to growth and highlighting ongoing fragility in factory activity. Industrial production growth remained steady in December, increasing around the mid-single digits year on year and broadly in line with expectations, while retail sales showed only a modest improvement, underscoring continued weakness in household consumption despite policy support measures.

   Property and Infrastructure

The S&P/ASX 200 A-REIT Accumulation Index fell by 2.7% in January, bringing its rolling annual return to 1.6%. Global real estate equities outperformed, rising by 2.8% during the month, as shown by the FTSE EPRA/NAREIT Developed NR Index (AUD Hedged). Global infrastructure also outperformed, up 3.8% in January, as measured by the S&P Global Infrastructure TR Index (AUD Hedged).

   Fixed Income

Fixed income performance was mixed across global government bond markets in January, as longer dated yields climbed after a period of late 2025 volatility. The U.S. 10 year Treasury yield increased by 16 basis points to close the month at 4.26%, while the Federal Reserve kept policy steady in January after the last rate cut at the end of December and reiterated that inflation remains above target.

Japanese government bonds also saw notable moves, with the 10 year yield climbing nearly 17 basis points to 2.24%, driven in part by reduced bond purchases and monetary policy normalisation expectations ahead of snap elections. Elsewhere, most European 10 year benchmark yields retreated from December highs, though UK gilts continued to push modestly higher.

Domestically, Australian 10 year bond yields increased again, rising by 7 basis points in January, ending the month at 4.81%, as strong inflation data continues to extinguish any thoughts of interest rate cuts in 2026.

   Alternatives

Preliminary estimates for January indicate that the index increased by 4.6 per cent (on a monthly average basis) in SDR terms, after increasing by 1.7 per cent in December. The nonrural, rural and base metals subindices all increased in the month. In Australian dollar terms, the index increased by 2.6 per cent in January.

Over the past year, the index has increased by 2.6 per cent in SDR terms. Decreases in the prices of iron ore, oil and coking coal have been more than offset by increases in gold, lithium and rural commodity prices. The index has decreased by 0.9 per cent in Australian dollar terms.

Source: Lonsec, February 2026 (January update)