Weekly recap
What happened in markets
The Australian sharemarket rose 1.5% last week, with gains supported by optimism around the RBA’s 0.25% rate cut and steady economic data. Materials (+3.8%) and Consumer Staples (+2.5%) led sector performance, while Information Technology lagged (-1.4%). Standout performers included Ampol, which gained 6.5% after the announcement of its acquisition of EG Australia for $1.1 billion. Westpac also advanced 9.4% following a strong Q3 earnings result. Commodities were mixed, with gold (-1.8%), crude oil (-1.5%) and copper (-0.1%) edging lower, while iron ore posted a modest weekly gain (+0.6%). On the macro front, July employment rose, keeping the unemployment rate steady at 4.2%. Commentary regarding further rate cuts remained balanced, with markets continuing to price in two further cuts by March 2026.
US sharemarkets advanced last week, with the S&P 500 and Nasdaq finishing just below record highs. Trade policy remained in focus as the White House extended China’s tariff deadline by 90 days and Fed commentary reinforced expectations for a 0.25% rate cut in September. Gains were led by Healthcare (+4.7%), boosted by UnitedHealth’s strong rally following news of investment from Warren Buffet’s Berkshire Hathaway. Consumer Discretionary (+2.5%) and Communication Services (+2.1%) also outperformed, while Utilities (-0.7%) and Consumer Staples (-0.8%) lagged. Investor focus remained on Fed policy, with markets continuing to expect a 0.25% cut in September. The Q2 earnings have generally outperformed expectations, though many companies have tempered guidance amid macro headwinds, tariff uncertainty, and lingering inflation concerns.
European sharemarkets extended gains last week, with the STOXX 600 up 1.3%, reaching its highest level since May. Sentiment was supported by Fed rate cut expectations and optimism around US-EU trade relations, though earnings guidance remained cautious on tariff risks. Health Care (+3.5%) and Autos & Parts (+3.2%) led sector performance, while Technology (-1.1%) lagged due to weakness in global semiconductors. Markets continue to expect a rate September Fed rate cut, however the investors are increasingly adopting the view that the ECB and BoE may have reached the end of their rate cut cycles.
Stock & sector movements
What caught our eye
In the lead-up to this week’s Economic Reform Roundtable, the Reserve Bank of Australia (RBA) delivered a reality check: Australia’s long-term productivity growth has been downgraded to just 0.7% per year, a level not seen since before the mining boom.
This sobering shift underscores why the upcoming productivity talks in Canberra need to be more than just bureaucratic wrangling. They’re pivotal.
Productivity is often misunderstood, but it’s the engine room of long-term prosperity. When productivity rises, wages grow, businesses thrive, and living standards improve. Conversely, when it stalls, the entire economy stalls. According to the RBA, lower productivity is already dragging on real wages, business investment and government revenue.
Australia versus the US: A Tale of Two Models
Given the above, we decided to take a closer look at the makeup of Australia’s real GDP growth and how it compares to the US. Unsurprisingly, the US has been much more productive than Australia in recent history.
A small caveat first, while it’s true that our average real GDP growth rate has been higher than the US since 2005 (+2.6% p.a. versus +2.1% p.a.), that can be explained by a few things:
– Our economy is less mature.
– Our economy is more cyclical, which has been positive in recent history (think the mining boom).
– We have relied more heavily on cheap growth via net migration.
– We didn’t suffer as badly during key periods like the Global Financial Crisis (GFC) and Dotcom internet bubble.
So then looking deeper into the components of growth, we can see that Australia has relied heavily on buildings, infrastructure and machinery (non-ICT capital), along with more workers via net migration (labour quantity). The productivity x-factor actually detracts from growth! That lines up with what the RBA has been saying recently.
Meanwhile, in the US it’s a different story. Over the same period, productivity accounted for a meaningful slice of growth, with innovation supported by strong investment in categories like software, automation and artificial intelligence (ICT capital).
The US is doing more with less. Australia is simply doing more… with more. That distinction matters in the long-run. Australia’s reliance on expanding the workforce and building physical capital is a finite strategy. Just ask China. Without investment in innovation and digital capabilities, the returns are diminishing over time as the economy matures and the population grows.
What's Behind Australia’s Productivity Slowdown?
It’s a complex mix. One part is structural, being that Australia has increasingly shifted toward public services and care industries, where productivity is harder to measure and slower to grow (particularly compared to our mining industry for example where productivity is strong). Another part is underinvestment in the digital economy. Australia still lags in ICT adoption compared to peers like the US.
Where to from here?
With the RBA effectively handing the baton to the Labor Government, this week’s roundtable could shape the next decade of economic policy. From tax reform to skills training and digital transformation, the outcomes could influence sectoral winners, particularly in tech, infrastructure, and education.
We’ll be watching the event closely, as it presents a rare opportunity for bipartisan momentum around reforms that matter, like labour force skilling, technology adoption, and smarter capital allocation. With the recent explosion of AI, technology adoption will be critical in our eyes. Particularly given its newfound potential and our failure to embrace information technology in the past.
Until then, we remain cautious on Australia's long-term growth story. But if the summit delivers substance, not just slogans, it could mark a turning point.
The week ahead
In Australia, corporate reporting season continues, with approximately 140 companies scheduled to release reports. It will be quiet week for economic data, with the monthly consumer sentiment index on Tuesday and purchasing managers' indexes (PMI) on Thursday being the most notabale report releases for the week.
Overseas, investor attention will be on UK inflation data, with July CPI expected to guide interest rate expectations for the remainder of the year. In the US, the Fed’s July meeting minutes may give further signals on the path to a potential September rate cut. Global PMI releases will provide a snapshot of manufacturing and services activity across major economies.
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