Weekly recap
What happened in markets
The Australian sharemarket delivered a strong performance last week, as the ASX 200 rose 2.1% and finished at a record high for the third time in the week. Gains were broad-based across all sectors, led by Information Technology, which surged 5.2%, followed by Health Care (4.8%) and Energy (2.3%). Investor sentiment was buoyed by expectations of a more accommodative monetary policy, helping to drive equities higher. Economic data showed the labour market may be starting to cool, as the unemployment rate jumped to 4.3%, its highest level since 2021. This figure hit the Reserve Bank’s year-end forecast earlier than anticipated, reinforcing market expectations for a rate cut at the RBA’s next meeting.
US sharemarkets ended the week mostly higher, with both the S&P 500 and NASDAQ reaching new record highs during the week. Headlines were dominated by political turbulence, along with speculation President Trump might attempt to remove Fed Chair Powell, raising concerns about the Federal Reserve’s independence. Although Trump later played down the likelihood of such a move. The Information Technology sector (2.0%) led the sectors, as Tesla added 5.2%, while NVIDIA Corporation gained 4.5%. Elsewhere, Financials rose 0.7%, while the Consumer Discretionary sector lifted 0.5%.
European sharemarkets finished mostly flat over the week, as the STOXX Europe 600 was unchanged as tariff threats from US President Trump offset stronger-than-expected earnings. Economic data released during the week painted a mixed picture, as UK unemployment rose to a four-year high of 4.7% and inflation jumped to 3.6%, complicating rate cut expectations for the Bank of England. The Financials sector was the best performer, as it gained 0.7%, however the Retail (-3.1%) and Automobile & Parts (-2.2%) were amongst the hardest hit.
Stock & sector movements
What caught our eye
A booming job market usually spells good news. But what happens when the jobs being created don’t contribute much to economic output? That’s the productivity conundrum now facing the Albanese Government, and it’s catching the eye of economists and investors.
In the past two years, roughly 80% of new jobs in Australia have been created in what’s called the 'non-market sector'. Think healthcare, education, public administration, and particularly the National Disability Insurance Scheme (NDIS). While these jobs are essential to society, they’re not known for their efficiency in pumping out economic output per hour worked, the key measure of productivity.
The Department of Employment has warned that this growth, largely fuelled by government spending, is pulling down our overall productivity, and that matters. Productivity is the engine room of real wage growth, the only sustainable fix for cost-of-living pressures.
Since 2000, productivity in the private sector climbed 35%, however, in the non-market sector it’s barely budged, up just 2%. According to the Reserve Bank of Australia, the rising share of these lower-productivity roles has knocked 0.3% off Australia’s productivity growth over the past seven years.
This isn’t a simple tale of waste. As Productivity Commission Chair Danielle Wood noted, Australians are choosing to consume more health, aged care and education services as we become wealthier. These sectors deliver social value that isn’t always captured in traditional economic metrics. You can’t easily measure the 'output' of a politician, school teacher or a support worker the way you can with an engineer, farmer or miner.
That said, we desperately need to figure out a balance in Australia. While essential services must be funded, it has to be done smarter and more efficiently. Otherwise, we risk further curtailment of the more economically productive private sector.
Treasurer Jim Chalmers has been forced to take notice. He’s convening a productivity roundtable next month with businesses, unions and policymakers to grapple with the productivity issue. While somewhat ironic, it’s a step in the right direction. For the sake of all Australians, let’s hope it’s a productive event.
Luckily for Chalmers, we are in the midst of a technological revolution, triggered by the rapid emergence of artificial intelligence (AI). Countries like the UK, US and China have already embraced AI across their public sectors to boost economic output. The question is whether the Albanese Government is willing and importantly up to the task, of taking advantage of this new technology.
For investors, this story is a timely reminder that headline job figures don’t tell the full story. When thinking about future growth, wage pressures, or even interest rates, productivity trends play a silent but powerful role. If we want rising real incomes and economic resilience, boosting productivity, across all sectors, remains mission critical and something we will be watching closely. Luckily, the recent emergence of artificial intelligence presents an opportunity to get some easy runs on the board, if we’re willing and able to adapt.
The week ahead
A very quiet week for economic news on the domestic front, with the RBA Meeting Minutes to be released, followed by a speech later in the week by RBA Governor Bullock.
Overseas, Retail Sales will be released in the UK, along with the July Consumer Confidence reading.
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Wade is the head of the Investment Services division at Cutcher & Neale and has over 10 years of industry experience in accounting and investment advisory roles.
Ryan is our Portfolio Manager, bringing over 15 years of experience in managing multi-asset investment portfolios with a specialisation in fundamental equity analysis.
