ETO Markets Buzz | Australia Growth Risks Deepen as Inflation Keeps RBA Restrictive

Global Market Overview | September 2026

According to ETO Markets analysis, global markets remain fragile as investors balance stabilising US equities, mixed inflation data, softer consumer confidence and ongoing energy-market uncertainty. US equities ended four sessions of declines, while oil and Treasury markets consolidated after recent volatility.

US fiscal data surprised positively, with the budget deficit narrowing to USD 167 billion, well below expectations for USD 404 billion. However, consumer sentiment weakened again, with the University of Michigan index falling to 47.8 in September, its lowest level since Mays record low.

US Inflation Sends Mixed Signals

US inflation data remain difficult for markets to price. Headline CPI held steady at 3.4% year on year in August, while core inflation eased to a five-year low. This suggests some progress in underlying price pressure.

However, monthly CPI rose 0.4%, the strongest increase in three months. That has kept policy expectations hawkish, with markets pricing a high probability of another Federal Reserve rate increase. The combination of weaker sentiment and firm monthly inflation keeps the macro backdrop complicated.

Australia Sentiment Weakens

This week‘s ETO Markets Buzz focuses on Australia’s domestic economy and whether recession risk is becoming more material. Australia has a long record of resilience, avoiding recession for nearly three decades before the COVID downturn and weathering the Asian Financial Crisis, the dot-com slowdown and the Global Financial Crisis.

That resilience is now being tested. NAB Business Confidence fell to -8 from -6, while Westpac Consumer Confidence dropped sharply to -5.2% from +6%. Households remain under pressure from elevated living costs, mortgage repayments and restrictive interest rates.

RBA Faces Policy Tension

The Reserve Bank of Australia remains caught between persistent inflation and weakening domestic demand. Governor Michele Bullock has maintained a hawkish tone, stressing that inflation remains too high and that further tightening cannot be ruled out if price pressures fail to moderate.

Markets are pricing close to two additional 25-basis-point hikes by mid-2027. However, weaker consumer confidence, softer business sentiment and slowing household demand may begin to carry more weight in the policy debate. The key question is whether inflation or growth risk becomes the dominant concern.

Housing Policy Adds Pressure

Australias property market faces additional pressure from policy changes announced by the Labor Government. From 1 July 2027, negative gearing will generally be restricted for investors buying established residential properties, reducing the tax effectiveness of property investment.

Capital gains tax treatment is also being adjusted, while tighter rules on SMSF borrowing for residential property may remove another source of investor demand. These changes are intended to redirect investment toward new housing supply, but the transition could weigh on established property prices.

Property Correction Risk Builds

Australian house prices have already corrected by around 7% from recent peaks, with forecasts now pointing to a possible peak-to-trough national decline of around 10%. Estimates for Sydney and Melbourne sit closer to 12% to 13%.

If higher rates, weaker confidence and reduced investor demand reinforce one another, a negative feedback loop could develop. Falling house prices may weaken household wealth, reduce consumption, pressure employment and increase mortgage stress. This makes housing one of the key channels through which Australias slowdown could deepen.

Oil and China Remain Watchpoints

Oils recent rally has paused as Tehran prepares to meet Gulf states over tanker flows through the Strait of Hormuz. Any improvement in shipping conditions could ease immediate supply concerns, but energy markets remain important for inflation and borrowing-cost expectations.

China will also release a major batch of data, including industrial production, retail sales, unemployment, housing prices and credit aggregates. These releases will provide another signal on demand momentum in the worlds second-largest economy.

Outlook

Looking ahead, ETO Markets expects Australian confidence data, RBA communication, housing-market conditions, US inflation, China activity data and energy-market developments to remain key market drivers.

In this environment, ETO Markets continues to emphasise close monitoring of household spending, mortgage stress, property prices and inflation expectations. Australia is not yet in recession, but weak confidence, restrictive rates and housing-market pressure suggest the economy is entering one of its more vulnerable periods in decades.