Watch: our latest market update from Aurora Capital's Chief Investment Officer, Sean Henaghan, as he unpacks September’s standout returns, the role of AI in global markets, and why smart diversification remains key.
The key highlight of the quarter was the US Federal Reserve (The Fed) shifting toward an easing stance – signalling it may lower interest rates further. This came as global economies showed mixed signals of growth.
The US economy showed strong resilience, with Q2 GDP growth revised to an impressive annualised 3.8%, bouncing back from a weak first quarter. However, the labour market showed signs of a slowdown with weaker job creation. This helped create the right conditions for the Fed to start lowering rates.
It cut interest rates by 0.25% in September – its first cut of the year – despite internal debate among Fed officials. This policy shift was made even though US inflation stayed close to 2.9% year-on-year, although tariff-related price increases were lower than expected.
Trade policy also made headlines this quarter. The US announced new tariffs on sectors like pharmaceuticals and heavy trucks. At the same time, it raised visa processing fees for skilled workers after trade talks with India collapsed over India's imports of Russian oil.
Around the world, many central banks followed a similar path. The Reserve Bank of New Zealand (RBNZ), Reserve Bank of Australia, and Bank of England all lowered rates by 0.25% in August. The European Central Bank (ECB) held rates steady, viewing current settings as supportive for growth.
In Japan, strong growth and persistent inflation pushed the Bank of Japan (BOJ) to hint strongly at a possible October rate hike, simultaneously announcing they would begin selling their ETF stockpile.
China’s economy grew by 5.2% in Q2. Trade tensions with the US eased slightly after both countries agreed to extend current tariffs until mid-November.
In New Zealand, the economy shrank more than expected in the second quarter, which had increased the chance of further interest rate cuts. Following the end of the September quarter, the RBNZ lowered the Official Cash Rate by 0.5%, reflecting growing concern about the weaker growth outlook at home.
Developed Market stocks rose by 12.3% (in NZD) while Emerging Market stocks delivered even stronger gains of 16.0% (in NZD). Growth stocks outperformed value peers, fueled by tech excitement. In particular, the Hang Seng Tech Index surged 22.1% (in local currency) on AI optimism and supportive policy for domestic chipmakers.
Japan’s TOPIX Index gained 11.0% (in local currency), aided by a weaker yen and a favorable US–Japan trade deal. The S&P 500 Index (US) added 8.1% (in local currency), buoyed by decent earnings and the signal of monetary easing by the Fed. The NZX 50 Index added 5.5%.
US government bonds rose 1.5% (in local currency), supported by the Federal Reserve’s shift toward a more growth-friendly stance. In contrast, Japanese Government Bonds fell 1.5%, as political uncertainty and expectations of tighter monetary policy weighed on investor sentiment.
In New Zealand, the yield on the 10-year government bond declined by 35 basis points to 4.2%, reflecting a softer economic outlook and growing expectations of further rate cuts.
In currency markets, the US dollar strengthened by 0.9% against a basket of global currencies. The New Zealand dollar fell 4.3% against the US dollar, reflecting local economic softness and expectations of more interest rate cuts.