Cross-currents into year-end

Introduction

This November Market View looks back at October’s key developments and outlines what they mean for the months ahead. The U.S. Federal Reserve delivered another 25 bps cut, China’s activity data surprised positively, and Japan held steady under a new prime minister. Offsetting that, Australia’s inflation ran hot in Q3, and U.S. PMIs softened. The result is familiar: supportive policy and better China prints on one side; sticky inflation and slower U.S. momentum on the other. Scenario probabilities reflect our current assessment and are reviewed monthly as new data emerges.

Macro overview

• United States: The Fed lowered the target range to 3.75%–4.00%. Chair Powell hinted that another move the market has pencilled in may not arrive this year, tempering the easing narrative. On the labour side, JOLTS openings came in at 7.227 million (slightly above expectations), yet ISM Services slipped to 50.0 and ISM Manufacturing eased to 48.7. The takeaway: policy is easing, but activity indicators are mixed and growth is cooling at the margin, even as “prices paid” softened and new orders improved within manufacturing.
• China: October continued a run of better data. September exports rose 8.3% YoY and imports 7.4% YoY, both ahead of expectations. Industrial production grew 6.5% YoY, retail sales 3.0% YoY, and the NBS non-manufacturing PMI ticked up to 50.1. The impulse is modest but broadening, suggesting domestic demand is stabilising as external demand improves.
• Australia: Q3 CPI printed 3.2% YoY, above the RBA’s target band and market expectations. That likely rules out additional cuts in 2025 and may push meaningful easing into next year. The mix matters for positioning: a firmer inflation pulse complicates the otherwise supportive policy backdrop.
• United Kingdom & Europe: UK labour conditions softened at the margin with the unemployment rate rising to 4.8% and wages easing. Across Europe, PMIs remain patchy, and retail volumes have struggled to build momentum, reinforcing the theme of uneven household demand.
• Japan: The central bank held its benchmark rate at 0.5% in the first meeting under Prime Minister Sanae Takaichi, favouring stability while it gauges global and domestic conditions.

Overall, October’s data kept the soft-landing debate alive: policy support remains in place, China’s pulse is improving, but sticky inflation in Australia and stagnating U.S. services temper the enthusiasm.

Asset class outlooks

Equities: Easing financial conditions, improving China trade flows, and stabilising services activity outside the U.S. are supportive for earnings durability into year-end. Areas tied to structural demand—AI infrastructure, grid and energy transition, and digital enablement—continue to attract capital. In Australia, the inflation print raises the bar for valuations, but improving China imports/exports are a partial offset for resource-exposed names.

Selectivity still matters. We prefer balance-sheet strength, pricing power, and clear linkage to secular growth over purely cyclical beta. Within the U.S., watch for dispersion as margins adjust to slower top-line growth; in Europe, international earners with exposure to recovering trade lanes screen better; across Asia, quality tech and industrials remain in focus.

Fixed income: With the Fed trimming while signalling caution on further near-term moves, front-end yields remain attractive. Short-to-intermediate duration offers a better convexity trade-off if growth cools further. Investment-grade credit is still supported by solid fundamentals; lower-quality HY warrants discrimination if PMIs remain sub-trend. Divergent inflation (Australia vs U.S./Europe) argues for cross-market duration and spread positioning rather than a one-way bet.

Alternatives & commodities: Precious metals retain a role as inflation and geopolitical hedges. Infrastructure exposures—renewables, storage, transmission, and digital networks—continue to benefit from policy support and multi-year capex plans. Private markets offer improving entry points as valuations reset, but underwriting discipline is crucial given a slower growth impulse and uneven exit markets.

Foreign exchange: AUD faces crosscurrents: a hotter CPI argues against aggressive RBA easing, yet better China data is supportive for terms of trade. The USD remains sensitive to the Fed path and U.S. data surprises; policy nuance (one less cut than markets expected) can keep the dollar more resilient near-term.

Positioning considerations

• Stay pro-growth, selectively: Focus on structural demand (AI infrastructure, energy transition, healthcare innovation) where pricing power and margin durability are clearer.
• Keep optionality: Maintain modest cash or near-cash to buy episodic pullbacks created by data or policy headlines.
• Balance your duration: Emphasise short-to-intermediate duration; use cross-market relative value as inflation paths diverge.
• Retain real-asset hedges: Precious metals and listed infrastructure to buffer inflation/geopolitics.
• Let data guide tilts: Adjust regional/cyclical weights as U.S. services/China activity evolve and as the RBA-inflation mix clarifies.

Base case – 79%

Markets remain cautiously optimistic into year-end. Resilient earnings, fiscal support, and still-ample liquidity underpin a constructive backdrop, even as volatility stays elevated. The Fed’s October cut aligns with broader easing, though Powell’s guidance reins in the pace. China’s improving activity should continue to filter through trade and commodity channels, while AI and energy infrastructure sustain capital formation.

The implication for portfolios: maintain a growth tilt, add on weakness, and use high-quality credit and intermediate duration to balance risk. Inflation hedges remain relevant, particularly given Australia’s hotter CPI.

Bear case – 9%

A sharper slowdown takes hold. U.S. services stagnation broadens, PMIs remain sub-50, and tariff uncertainty keeps corporate risk-taking subdued. Persistent inflation (Australia) and renewed sovereign or banking tensions lift risk premia. If liquidity growth stalls, funding costs rise and earnings downgrades accelerate, exposing rich valuations.

Playbook: elevate cash, rotate toward resilient cash-flow sectors (healthcare, staples, utilities), shorten credit exposure, and reduce cyclical beta. For Australia, be mindful of valuation sensitivity if domestic inflation delays easing.

Bull case – 12%

Disinflation resumes, tariffs prove less disruptive, and productivity gains from rapid technology adoption (including agentic AI) lift margins. China’s recovery broadens beyond trade into domestic demand; coordinated fiscal outlays support infrastructure and consumption. Central banks keep real rates contained and extend liquidity support, driving a renewed risk-on phase with cyclicals participating alongside secular growth leaders.

Playbook: reduce cash buffers, increase cyclical/quality-beta exposure, and lean into regions and sectors most leveraged to rising nominal growth.

Closing perspective

October delivered another nudge toward a benign-but-bumpy landing: policy easing in the U.S., improving China activity, and a steadier Japan set against sticky Australian inflation and softer U.S. PMIs. Into year-end, the balance still favours growth assets—provided portfolios stay selective, liquid, and ready to lean into dislocations. The discipline is the edge: hold conviction in secular themes but let the data steer the near-term tilts.