Bank of England announced the latest policy decision on Thursday, raising interest rates for the 12th consecutive time from 4.25% to 4.5%, which was in line with expectations. Bank of England’s Monetary Policy Committee voted by a majority of 7-2 to raise interest rates to 4.5%. Two members voted to maintain the interest rate unchanged at 4.25%.
The current interest rate is at its highest level since October 2008. Inflation UK’s annual inflation rate decreased from 10.4% to 10.1% in April and remains high. The bank expects inflation to continue falling in Q2 and in the near term. ''CPI inflation is expected to fall sharply from April, in part as large rises in the price level one year ago drop out of the annual comparison.
In addition, the extension in the Spring Budget of the Energy Price Guarantee and declines in wholesale energy prices will both lower the contribution from household energy bills to CPI inflation. However, food price inflation is likely to fall back more slowly than previously expected. Alongside news in other goods prices, this explains why the Committee’s modal expectation for CPI inflation now falls back more slowly than in the February Report.'' Economic outlook As for the economy, the central bank expects it to remain flat but there are signs potential growth. ''UK GDP is expected to be flat over the first half of this year, although underlying output, excluding the estimated impact of strikes and an extra bank holiday, is projected to grow modestly.
Economic activity has been less weak than expected in February, and the Committee now judges that the path of demand is likely to be materially stronger than expected in the February Report, albeit still subdued by historical standards. The improved outlook reflects stronger global growth, lower energy prices, the fiscal support in the Spring Budget, and the possibility that a tight labour market leads to lower precautionary saving by households.'' The unemployment is expected to remain below 4% until the end of next year. Market reaction The Pound was weaker against the US dollar on Thursday, down by around -0.93% at 1.25089.
FTSE100 was down by -0.14% at 7733.41. The next Bank of England rate decision will be on 22 nd June. Source: Bank of England, Trading Economics, MetaTrader 5
By
Klavs Valters
Account Manager, GO Markets London.
Disclaimer: Articles are from GO Markets analysts and contributors and are based on their independent analysis or personal experiences. Views, opinions or trading styles expressed are their own, and should not be taken as either representative of or shared by GO Markets. Advice, if any, is of a ‘general’ nature and not based on your personal objectives, financial situation or needs. Consider how appropriate the advice, if any, is to your objectives, financial situation and needs, before acting on the advice.
For over 110 years, the Federal Reserve (the Fed) has operated at a deliberate distance from the White House and Congress.
It is the only federal agency that doesn’t report to any single branch of government in the way most agencies do, and can implement policy without waiting for political approval.
These policies include interest rate decisions, adjusting the money supply, emergency lending to banks, capital reserve requirements for banks, and determining which financial institutions require heightened oversight.
The Fed can act independently on all these critical economic decisions and more.
But why does the US government enable this? And why is it that nearly every major economy has adopted a similar model for their central bank?
The foundation of Fed independence: the panic of 1907
The Fed was established in 1913 following the Panic of 1907, a major financial crisis. It saw major banks collapse, the stock market drop nearly 50%, and credit markets freeze across the country.
At the time, the US had no central authority to inject liquidity into the banking system during emergencies or to prevent cascading bank failures from toppling the entire economy.
J.P. Morgan personally orchestrated a bailout using his own fortune, highlighting just how fragile the US financial system had become.
The debate that followed revealed that while the US clearly needed a central bank, politicians were objectively seen as poorly positioned to run it.
Previous attempts at central banking had failed partly due to political interference. Presidents and Congress had used monetary policy to serve short-term political goals rather than long-term economic stability.
So it was decided that a stand-alone body responsible for making all major economic decisions would be created. Essentially, the Fed was created because politicians, who face elections and public pressure, couldn’t be relied upon to make unpopular decisions when needed for the long-term economy.
Although the Fed is designed to be an autonomous body, separate from political influence, it still has accountability to the US government (and thereby US voters).
The President is responsible for appointing the Fed Chair and the seven Governors of the Federal Reserve Board, subject to confirmation by the Senate.
Each Governor serves a 14-year term, and the Chair serves a four-year term. The Governors' terms are staggered to prevent any single administration from being able to change the entire board overnight.
Beyond this “main” board, there are twelve regional Federal Reserve Banks that operate across the country. Their presidents are appointed by private-sector boards and approved by the Fed's seven Governors. Five of these presidents vote on interest rates at any given time, alongside the seven Governors.
This creates a decentralised structure where no single person or political party can dictate monetary policy. Changing the Fed's direction requires consensus across multiple appointees from different administrations.
The case for Fed independence: Nixon, Burns, and the inflation hangover
The strongest argument for keeping the Fed independent comes from Nixon’s time as president in the 1970s.
Nixon pressured Fed Chair Arthur Burns to keep interest rates low in the lead-up to the 1972 election. Burns complied, and Nixon won in a landslide. Over the next decade, unemployment and inflation both rose simultaneously (commonly referred to now as “stagflation”).
By the late 1970s, inflation exceeded 13 per cent, Nixon was out of office, and it was time to appoint a new Fed chair.
That new Fed chair was Paul Volcker. And despite public and political pressure to bring down interest rates and reduce unemployment, he pushed the rate up to more than 19 per cent to try to break inflation.
The decision triggered a brutal recession, with unemployment hitting nearly 11 per cent.
But by the mid-1980s, inflation had dropped back into the low single digits.
Pre-Volcker era inflation vs Volcker era inflation | FRED
Volcker stood firm where non-independent politicians would have backflipped in the face of plummeting poll numbers.
The “Volcker era” is now taught as a masterclass in why central banks need independence. The painful medicine worked because the Fed could withstand political backlash that would have broken a less autonomous institution.
Are other central banks independent?
Nearly every major developed economy has an independent central bank. The European Central Bank, Bank of Japan, Bank of England, Bank of Canada, and Reserve Bank of Australia all operate with similar autonomy from their governments as the Fed.
However, there are examples of developed nations that have moved away from independent central banks.
In Turkey, the president forced its central bank to maintain low rates even as inflation soared past 85 per cent. The decision served short-term political goals while devastating the purchasing power of everyday people.
Argentina's recurring economic crises have been exacerbated by monetary policy subordinated to political needs. Venezuela's hyperinflation accelerated after the government asserted greater control over its central bank.
The pattern tends to show that the more control the government has over monetary policy, the more the economy leans toward instability and higher inflation.
Independent central banks may not be perfect, but they have historically outperformed the alternative.
Turkey’s interest rates dropped in 2022 despite inflation skyrocketing
Why do markets care about Fed independence?
Markets generally prefer predictability, and independent central banks make more predictable decisions.
Fed officials often outline how they plan to adjust policy and what their preferred data points are.
Currently, the Consumer Price Index (CPI), Personal Consumption Expenditures (PCE) index, Bureau of Labor Statistics (BLS) monthly jobs reports, and quarterly GDP releases form expectations about the future path of interest rates.
This transparency and predictability help businesses map out investments, banks to set lending rates, and everyday people to plan major financial decisions.
When political influence infiltrates these decisions, it introduces uncertainty. Instead of following predictable patterns based on publicly released data, interest rates can shift based on electoral considerations or political preference, which makes long-term planning more difficult.
The markets react to this uncertainty through stock price volatility, potential bond yield rises, and fluctuating currency values.
The enduring logic
The independence of the Federal Reserve is about recognising that stable money and sustainable growth require institutions capable of making unpopular decisions when economic fundamentals demand them.
Elections will always create pressure for easier monetary conditions. Inflation will always tempt policymakers to delay painful adjustments. And the political calendar will never align perfectly with economic cycles.
Fed independence exists to navigate these eternal tensions, not perfectly, but better than political control has managed throughout history.
That's why this principle, forged in financial panics and refined through successive crises, remains central to how modern economies function. And it's why debates about central bank independence, whenever they arise, touch something fundamental about how democracies can maintain long-term prosperity.
The ASX 200 closed out the 2025 financial year on a high, reaching a new intra-month peak of 8,592 in June and within touching distance of the all-time record. The index delivered a 1.4% total return for the month, rounding off a strong final quarter with a 9.5% return and locking in a full-year gain of 13.8% — its best performance since 2021.This strong finish all came down to the postponement of the Liberation Day tariffs. From the April 7 lows through to the end of the financial year, the ASX followed the rest of the world. Mid-cap stocks were the standout performers, beating both large and small caps as investors sought growth opportunities away from the extremes of the market. Among the sectors, Industrials outperformed Resources, benefiting from more stable earnings and supportive macroeconomic trends tied to infrastructure and logistics.But the clear winner was Financials, which contributed an incredible 921 basis points to the overall index return. CBA was clearly the leader here, dominating everything with 457 basis points on its own. Westpac, NAB, and others also played a role, but nothing even remotely close to CBA. The Industrials and Consumer Discretionary sectors made meaningful contributions, adding 176 and 153 basis points, respectively. While Materials, Healthcare, and Energy all lagged, each detracting around 45 to 49 basis points. Looking at the final quarter of the financial year, Financials were by far the biggest player again, adding 524 basis points — more than half the quarter’s total return of 9.5%. Apart from a slight drag from the Materials sector, all other parts of the market made positive contributions. Real Estate, Technology, and Consumer Discretionary followed behind as key drivers. Once again, CBA was the largest individual contributor, adding 243 basis points in the quarter, while NAB, WBC, and Macquarie Group added a combined 384 basis points. On the other side of the ledger, key underperformers included BHP, CSL, Rio Tinto, Treasury Wine Estates, and IDP Education, which all weighed on quarterly performance.One of the most defining features of the 2025 financial year was the dominance of price momentum as a market driver — something we as traders must be aware of. Momentum strategies far outpaced more traditional, fundamental-based approaches such as Growth, Value, and Quality. The most effective signal was a nine-month momentum measure (less the most recent month), which delivered a 31.2% long-short return. The more commonly used 12-month price momentum factor was also highly effective, returning 23.6%. By contrast, short-term reversals buying last month’s losers and selling last month’s winners was the worst-performing approach, with a negative 16.4% return. Compared to the rest of the world, the Australian market was one of the strongest trades for momentum globally, well ahead of both the US and Europe, despite its relatively slow overall performance.Note: these strategies are prone to reversal, and in the early days of the new financial year, there has been a notable shift away from momentum-based trading to other areas. Now is probably too early to say whether this marks a sustained change, but it cannot be ignored, and caution is always advised.The second big story of FY26 will be CBA. CBA’s growing influence was a key story of FY25. Its weight in the index rose by an average of 2.1 percentage points across the year, reaching an average of 11.5% by June. That helped push the spread between the Financials and Resources sectors to 15.8 percentage points — the widest gap since 2018. Despite the strong cash returns, market valuations are eye-watering; at one point during June, CBA became the world’s most expensive bank on price metrics. The forward price-to-earnings multiple now sits at 18.9 times. This is well above the long-term average of 14.7 and higher than the 10-year benchmark of 16.1. Meanwhile, the dividend yield has slipped to 3.4%, down from the historical average of 4.4%. Earnings momentum remains soft, with FY25 growth estimates still tracking at 1.4%, and FY26 forecast at a moderate 5.4%. This suggests that recent gains have come more from expanding valuation multiples than from actual earnings upgrades, making the August reporting date a catalyst day for it and, by its size, the market as a whole.On the macro front, attention now turns to the Reserve Bank of Australia. The central bank cut the cash rate by 25 basis points to 3.6% at its July meeting. Recent commentary from the RBA has taken on a more dovish tone, with benign inflation data and ongoing global uncertainty expected to outweigh the strength of the labour market. The RBA appears to be steering toward a neutral policy stance, and markets will be watching for further signals on how that shift will be managed. Recent economic data has been mixed. May retail sales were weaker than expected, while broader household spending indicators held up slightly better. Building approvals saw a smaller-than-hoped-for bounce, employment remains strong, but productivity is low. Inflation is now at a 3-year low and falling; all this points to underlying support from the RBA’s easing bias both now and into the first half of FY26.As we move into FY26, the key questions are:
Can fundamentals wrestle back control over momentum?
Will earnings growth catch up to price to justify valuations?
How will policy decisions from the RBA and other central banks shape investor sentiment in an ever-volatile world?
While the early signs suggest a possible rotation, the jury is still out on whether this marks a new phase for the Australian market or just a brief pause in the rally that defined FY25.
While recent data has shown core inflation moderating, core PCE is on track to average below target at just 1.6% annualised over the past three months.Federal Reserve Chair Jerome Powell made clear that concerns about future inflation, especially from tariffs, remain top of mind.“If you just look backwards at the data, that’s what you would say… but we have to be forward-looking,” Powell said. “We expect a meaningful amount of inflation to arrive in the coming months, and we have to take that into account.”While the economy remains strong enough to buy time, policymakers are closely monitoring how tariff-related costs evolve before shifting policy. Powell also stated that without these forward-looking risks, rates would likely already be closer to the neutral rate, which is a full 100 basis points from current levels.
2. The Unemployment Rate anchor
Powell repeatedly cited the 4.2% unemployment rate during the press conference, mentioning it six times as the primary reason for keeping rates in restrictive territory. At this level, employment is ahead of the neutral rate.“The U.S. economy is in solid shape… job creation is at a healthy level,” Powell added that real wages are rising and participation remains relatively strong. He did, however, acknowledge that uncertainty around tariffs remains a constraint on future employment intentions.If not for a decline in labour force participation in May, the unemployment rate would already be closer to 4.6%. Couple this with the continuing jobless claims ticking up and hiring rates subdued, risks are building around labour market softening.
3. Autumn Meetings are Live
While avoiding firm forward guidance, Powell hinted at a timeline:“It could come quickly. It could not come quickly… We feel like the right thing to do is to be where we are… and just learn more.”This suggests the Fed will remain on hold through the July meeting, using the summer to assess incoming data, particularly whether tariffs meaningfully push inflation higher. If those effects prove limited and unemployment begins to rise, the stage could be set for a rate cut in September.
Markets move into the week ahead with inflation data across Australia and Japan, alongside elevated geopolitical tensions that continue to influence energy prices and broader risk sentiment.
Australia Consumer Price Index (CPI): Inflation data may influence the Reserve Bank of Australia (RBA) policy path, with the Australian dollar (AUD) and local yields sensitive to any surprise.
Japan data cluster: Tokyo CPI (preliminary) plus industrial production and retail sales provide an inflation-and-activity pulse that could shape Bank of Japan (BoJ) normalisation expectations.
Eurozone & Germany CPI: Flash inflation readings will test the disinflation narrative and influence ECB rate-cut timing expectations.
Oil and geopolitics: Brent crude has posted its highest close since 8 August 2025 amid renewed Middle East tensions, reinforcing energy-driven inflation risk.
Australia CPI: RBA expectations to change?
Australia’s upcoming CPI release will be closely watched for signals on whether inflation is stabilising or proving more persistent than expected.
A stronger-than-expected print could be associated with higher yields and a firmer AUD as rate expectations adjust. A softer outcome could support expectations for a steadier policy stance.
Key dates
Inflation Rate (MoM): 11:30 am Wednesday, 25 February (AEDT)
Japan’s late-week releases combine Tokyo CPI (preliminary) with industrial production and retail sales, offering a broader read on price pressures and domestic demand.
Tokyo CPI is often watched as a timely signal for national inflation dynamics and BoJ debate. Industrial output and retail spending add context on activity.
Surprises across this cluster can drive sharp moves in the JPY, particularly if results shift perceptions around the pace and persistence of BoJ normalisation.
Key dates
Tokyo CPI: 10:30 am Friday, 27 February (AEDT)
Industrial Production: 10:50 am Friday, 27 February (AEDT)
Retail Sales: 10:50 am Friday, 27 February (AEDT)
Monitor
JPY sensitivity to inflation surprises
Bond yield moves in response to activity data
Equity reactions if growth momentum expectations shift
Energy and safe-haven flows
Oil prices have climbed to their highest close since 8 August 2025 amid renewed Middle East tensions.
Recent reporting on heightened regional military activity and shipping-risk headlines near the Strait of Hormuz has reinforced energy security as a market focus. The Strait of Hormuz remains a widely watched chokepoint for global energy flows.
Higher oil prices can feed into inflation expectations and influence bond yields. At the same time, geopolitical uncertainty can support the USD through safe-haven demand and relative rate positioning.
Flash inflation readings from Germany and the broader eurozone (HICP) will test whether the region’s disinflation trend remains intact.
Germany’s release can influence expectations ahead of the aggregated eurozone figure. If core inflation proves sticky, expectations around the timing and pace of potential European Central Bank easing could shift.
Key dates
Germany Inflation Rate: 12:00 am Saturday, 28 February (AEDT)
From tech disruptors to defence contractors, some of the market's most talked-about companies start their public journey through an initial public offering (IPO). For traders, these initial public listings can represent a unique trading environment, but also a period of heightened uncertainty.
Quick facts
An IPO is when a private company lists its shares on a public stock exchange for the first time.
IPOs can offer traders early access to high-growth companies, but come with elevated volatility and limited price history.
Once listed, traders can gain exposure to IPO stocks through direct share purchases or derivatives such as contracts for difference (CFDs).
What is an initial public offering (IPO)?
An IPO is when a company offers its shares to the public for the first time.
Before performing an IPO, shares in the company are typically only held by founders, early employees, and private investors. Going public makes the shares available to be purchased by anyone.
Depending on the size of the company, it will usually list its public shares on the local stock exchange (for example, the ASX in Australia). However, some large-valuation companies choose to only list on a global stock exchange, like the Nasdaq, no matter where their main headquarters is located.
For traders, IPOs are generally the first opportunity to gain exposure to a company’s stock. They can create a unique environment with increased volatility and liquidity, but also carry heightened risk, given the limited price history and sensitivity to sentiment swings.
Why do companies go public?
The biggest driver to perform an IPO is to access more capital. Listing on a public exchange means the company can raise significant funds by selling shares.
It also provides liquidity for existing shareholders. Founders, early employees, and private investors often sell a portion of their existing holdings on the open market, realising the returns on their years of support.
Beyond the monetary benefits, going public means companies can use their stock as currency for acquisitions and offer equity-based compensation to attract talent. And a public valuation provides a transparent benchmark, which is useful for strategic positioning and future fundraising.
However, it does come with trade-offs. Public companies must comply with ongoing disclosure and reporting obligations, and pressure from public shareholders can become a barrier to long-term progress if many are focused on short-term performance.
While the specifics vary by jurisdiction, going from a private company to a public listing generally involves the following stages:
1. Preparation
The company first selects the underwriter (typically an investment bank) to manage the offering. Together, they assess the company's financials, corporate structure, and market positioning to determine the best approach for going public. It is the heavy planning stage to make sure the company is actually ready to go public.
2. Registration
Once everything is prepared, the underwriters conduct a thorough due diligence check and then lodge the required disclosure documents with the relevant regulator. These documents give a detailed disclosure to the regulator about the company, its management, and its proposed offering. In Australia, this is typically a prospectus lodged with ASIC; in the US, a registration statement filed with the SEC.
3. Roadshow
Executives at the company and underwriters will then present the investment case to institutional investors and market analysts in a “roadshow”. This showcase is designed to gauge demand for the stock and help generate interest. Institutional investors can register their interest and valuation of the IPO, which helps inform the initial pricing.
4. Pricing
Based on feedback from the roadshow and current market conditions, the underwriters set the final share price and determine the number of shares to be issued. Shares are allocated on the ‘primary market’ to investors participating in the offer (before the stock is listed publicly on the secondary market). This process sets the pre-market price, which effectively determines the company’s initial public valuation.
5. Listing
On listing day, the company’s shares begin trading on the chosen stock exchange, officially opening the secondary market. For most traders, this is the first point at which they can trade the stock, either directly or through derivatives such as Share CFDs.
6. Post-IPO
Once listed, the company becomes subject to strict reporting and disclosure requirements. It must communicate regularly with shareholders, publish its financial results, and comply with the governance standards of the exchange on which it is listed.
IPO risks and benefits for traders
How do traders participate in IPOs?
For most traders, participating in an IPO comes once shares have listed and begun trading on the secondary market.
Once shares are live on the exchange, investors can buy the physical shares directly through a broker or online exchange, or they can use derivatives such as Share CFDs to take a position on the price without owning the underlying asset.
The first few days of IPO trading tend to be highly volatile. Traders should ensure they have taken appropriate risk management measures to help safeguard against potential sharp price swings.
The bottom line
IPOs mark when a company becomes investable to the public. They can offer early access to high-growth companies and create a unique trading environment driven by elevated volatility and market interest.
For traders, understanding how the process works, what drives pricing and post-IPO performance, and how to weigh potential rewards against the risks of trading newly listed shares is essential before taking a position.
2026 is not giving investors much breathing room. It seems markets may have largely moved past the idea that rate cuts are just around the corner and into a year where inflation may prove harder to control than many expected.
Goods inflation has picked up, while services inflation remains relatively sticky due to ongoing labour cost pressures. Housing costs, particularly rents, also remain a key source of inflation pressure.
The RBA is trying to stay credible on inflation without pushing the economy too far the other way.
Key data
CPI is still around 3.8 per cent (above target), wages are still rising at about 0.8 per cent over the quarter, and unemployment is around 4.1 per cent.
Based on market-implied pricing, rate hikes are not expected soon, so the way the RBA explains its decision can matter almost as much as the decision itself. If the tone shifts expectations, those expectations can move markets.
What this playbook covers
This is a playbook for RBA-heavy weeks in 2026. It covers what to watch across sectors, lists the key triggers, and explains which indicators may shift sentiment.
1. Banks and financials: how RBA decisions flow through to lending and borrowers
Banks are where the RBA shows up fastest in the Australian economy. Rates can hit borrowers quickly and feed into funding costs and sentiment.
In tighter phases, margins can improve at first, but that can flip if funding costs rise faster, or if credit quality starts to weaken. The balance between those forces is what matters most.
If banks rally into an RBA decision week, it may mean the market thinks higher for longer supports earnings. If they sell off, it may mean the market thinks higher for longer hurts borrowers. You can get two different readings from the same headline.
What to watch
The yield curve shape: A steeper curve can help margins, while an inverted curve can signal growth stress.
Deposit competition: It can quietly squeeze margins even when headline rates look supportive.
RBA wording on financial stability, household buffers, and resilience. Small phrases can shift the risk story.
Potential trigger
If the RBA sounds more hawkish than expected, banks may react early as markets reassess growth and credit risk expectations. The first move can sometimes set the tone for the session.
Key risks
Funding costs rising faster than loan yields: May point to margin pressure.
Clear tightening in credit conditions: Rising arrears or refinancing stress can change the narrative quickly.
Financials are the biggest sector in the S&P/ASX 200 index | S&P Global
2. Consumer discretionary and retail: where higher rates hit household spending
When policy is tight, consumer discretionary becomes a live test of household resilience. This is where higher everyday costs often show up fastest.
Big calls about the consumer can look obvious until the data stops backing them up. When that happens, the narrative can shift quickly.
What to watch
Wages versus inflation: The real income push or drag.
Early labour signals: Hours worked can soften before unemployment rises.
Reporting season clues: Discounting, cost pass-through, and margin pressure can indicate how stretched demand really is.
Potential trigger
If the tone from the RBA is more hawkish than expected, the sector may be sensitive to rate expectations. Any initial move may not persist, and subsequent price action can depend on incoming data and positioning
Key risks
A fast turn in the labour market.
New cost-of-living shocks, especially energy or housing, that hit spending quickly.
3. Resources: what to watch when tariffs, geopolitics, and policy shift
Resources can act as a read on global growth, but currency moves and central bank tone can change how that story lands in Australia.
In 2026, tariffs and geopolitics could also create sharper headline moves than usual, so gap risk can sit on top of the normal cycle.
The RBA still matters through two channels: the Australian dollar and overall risk appetite. Both can reprice the sector quickly, even when commodity prices have not moved much.
What to watch
The global growth pulse: Industrial demand expectations and China-linked signals.
The Australian dollar: The post-decision move can become a second driver for the sector.
Sector leadership: How resources trade versus the broader market can signal the current regime.
Potential trigger
If the RBA tone turns more restrictive while global growth stays stable, resources may hold up better than other parts of the market. Strong cash flows can matter more, and the real asset angle can attract buyers.
Key risks
In a real stress event, correlations can jump, and defensive positioning can fail.
If policy tightens into a growth scare, the cycle can take over, and the sector can fade quickly.
Materials (resources) have outperformed other ASX sectors YoY | Market Index
4. Defensives, staples, and quality healthcare
Defensives are meant to be the calmer corner of the market when everything else feels messy. In 2026, they still have one big weakness: discount rates.
Quality defensives can draw inflows when growth looks shaky, but some defensive growth stocks still trade like long-duration assets. They can be hit when yields rise, even if the business looks solid. That means earnings may be steady while valuations still move around.
What to watch
Relative strength: How defensives perform during RBA weeks versus the broader market.
Guidance language: Comments on cost pressure, pricing power, and whether volumes are holding up.
Yield behaviour: Rising yields can overpower the quality bid and push multiples down.
Potential trigger
If the RBA sounds hawkish and cyclicals start to wobble, defensives can attract relative inflows, but that can depend on yields staying contained. If yields rise sharply, long-duration defensives can still de-rate.
Key risks
Cost inflation that squeezes margins and weakens the defensive story.
Healthcare has underperformed vs S&P/ASX 200 since the end of the pandemic | Market Index
5. Hard assets, gold, and gold equities
In 2026, hard assets may be less about the simple inflation-hedge story and more about tail risk and policy uncertainty.
When confidence weakens, hard assets often receive more attention. They are not driven by one factor, and gold can still fall if the main drivers run against it.
What to watch
Real yield direction: Shapes the opportunity cost of holding gold.
US dollar direction: A major pricing channel for gold.
Gold equities versus spot gold: Miners add operating leverage, and they also add cost risk.
Potential trigger
If the market starts to question inflation control or policy credibility, the hard-asset narrative can strengthen. If the RBA stays restrictive while disinflation continues, gold can lose urgency, and money can rotate into other trades.
Key risks
Real yields rising significantly, which can pressure gold.
Crowding and positioning unwinds that can cause sharp pullbacks.
S&P/ASX All Ordinaries Gold vs Spot Gold (XAUUSD) 5Y-chart | TradingView
6. Market plumbing, FX, rates volatility, and dispersion
In some RBA weeks, the first move shows up in rates and the Australian dollar, and equities follow later through sector rotation rather than a clean index move.
When guidance shifts, the RBA can change how markets move together. You can end up with a flat index while sectors swing hard in opposite directions.
What to watch
Front-end rates: Repricing speed right after the decision can reveal the real surprise.
AUD reaction: Direction and follow-through often shape the next move in equities and resources.
Implied versus realised volatility: Can show whether the market paid too much or too little for the event.
Options skew: Can reflect demand for downside protection versus upside chasing.
Early tape behaviour: The first 5 to 15 minutes can be messy and can mean-revert.
Potential trigger
If the decision is expected but the statement leans hawkish, the front end may reprice first, and the AUD can move with it. Realised volatility can still jump even if the index barely moves, as the market rewrites the path and rotates positions under the surface.
Key risks
A true surprise that overwhelms what options implied and creates gap moves.
Competing macro headlines that dominate the tape and drown out the RBA signal.
Thin liquidity that creates false signals, whipsaw, and worse execution than models assume.
Australian interest rate and exchange rate volatility 1970-2020 | RBA
7. Theme baskets
Theme baskets may let traders express a macro regime while reducing single-name risk. They also introduce their own risks, especially around events.
What to watch
What the basket holds: Methodology, rebalance rules, hidden concentration.
Liquidity and spreads: Especially around event windows.
Tracking versus the narrative: Whether the “theme” behaves like the macro driver.
Potential trigger
If RBA language reinforces a “restrictive and uncertain” regime, theme baskets tied to value, quality, or hard assets may attract attention, particularly if broad indices get choppy.
Key risks
Theme reversal when macro expectations shift.
Liquidity risk around event windows, where spreads can widen materially.
The point of this playbook is not to predict the exact headline; it is to know where the second-order effects usually land, and to have a short checklist ready before the decision hits.
Keeping these triggers and risks in view may help some traders structure their monitoring around RBA decisions throughout 2026.
FAQs
Why does “tone” matter so much in 2026?
Because markets often pre-price the decision. The incremental information is guidance on whether the RBA sounds comfortable, concerned, or open to moving again.
What are the fastest tells right after a decision?
Some traders look to front-end rates, the AUD, and sector leadership as early indicators, but these signals can be noisy and influenced by positioning and liquidity.
Why are REITs called duration trades?
Because a large part of their valuation can be sensitive to discount rates and funding costs. When yields move, valuations can reprice quickly.
Are defensives always safer around the RBA?
Not always. If yields jump, long-duration defensives can still be repriced lower even with stable earnings.
Why do hard assets keep showing up in 2026 narratives?
Because they can act as a hedge when trust in policy credibility wobbles, but they also carry crowding and real-yield risks.
