Markets – March 2026

Bond markets provided little protection, with yields rising sharply as inflation fears dominated. The US 10-year Treasury yield jumped to around 4.3%, while Australia’s 10-year government bond yield briefly touched 5.0%, its highest level since 2011.

Gold remains near all-time highs, benefiting from geopolitical uncertainty, though gains have been capped by higher interest rates and a stronger US dollar.

This week’s RBA interest rate decision has refocused investors’ attention on the risks of stagflation – that is slower growth alongside stubborn inflation.

Energy price/supply shock at the centre of market volatility

The dominant driver of recent market volatility has been the sharp escalation in Middle East tensions and the effective closure of the Strait of Hormuz, through which roughly 20% of global oil supply normally flows.

This has caused major supply concerns and turmoil in energy markets.

• Oil prices have surged to around US$110 per barrel, with analysts pointing to materially higher prices if ongoing disruptions persist.
• The International Energy Agency announced a record 400-million-barrel strategic reserve release.
• Shipping charges have risen 15–20% as trade routes divert around Africa, with costs likely to flow through to higher consumer prices.

The flow of energy out of the region is a major concern for investors. Currently, crude availability is okay, but the clock is ticking, and governments are under extreme pressure to secure supply.

Attacks this week on Qatar’s LNG facilities will cause major disruptions to energy supply and are likely to take months to get back on track. This will benefit Australian suppliers as Asian buyers look to lock in alternative secure energy supplies.

The energy supply disruption represents a classic supply side inflation shock. While today’s global economy is less oil intensive than in the 1970s, the scale of the disruption is still likely to be comparable to historic oil shocks if supply restraints are prolonged.

Inflation versus growth: the stagflation risk

Rising energy prices are already feeding through to inflation.

• Australian petrol prices are up around 35% since February.
• If sustained, economists estimate this could add around 1.2% to headline inflation.
• Higher transport and production costs risk pushing underlying inflation higher over time.

At the same time, higher fuel costs act like a tax on households. For a typical mortgage-holding household with a petrol car, economists estimate that the combined impact of higher fuel prices and recent rate hikes is around $300 per month less in spending power.

Globally, the IMF estimates that a 10% rise in oil prices reduces global growth by 0.1 – 0.2%. With oil already sharply higher, this increases the risk of stagflation – a backdrop that markets are now grappling with.

RBA hikes again – but pause likely

In response to inflation pressures, the Reserve Bank of Australia lifted the cash rate to 4.1%, reversing most of last year’s rate cuts. All four major banks have raised mortgage rates.

Mortgage rates are now around levels that prevailed 14 years ago, while deposit rates have improved modestly, benefiting savers.

While another hike remains possible, several analysts’ base case is that the RBA will pause from May onwards, recognising that prolonged oil disruption could materially weaken economic growth.

Investors will be alert to whether the RBA is prepared to look through oil-market inflation risks, treating them as short-term rather than structural.

The Australian economy is being slowed down, but this carries risks

Over the last year, the Australian economy has shown some level of overheating. The reduction in interest rates over 2025 led to a strong pickup in credit growth in the housing sector, as demand for mortgages from investors increased.

The strong economic growth has also been supported by ongoing high levels of immigration and public spending by state and federal governments.

This pickup in private-sector activity over 2025 and the ongoing high levels of public expenditure have led to inflation rising to just under 5%. This has the RBA laser-focused on acting appropriately to prevent inflation expectations from becoming entrenched.

This week’s commentary from the RBA subtly suggested it would be prepared to put the economy into recession to achieve its aim of taming inflation. A very bold move should it do so!

But there are many moving parts to consider

• High inflation is feeding into ongoing cost-of-living concerns.
• Higher interest rates mean lower cash flows for households and businesses.
• Higher petrol prices are acting as a tax on the economy.
• Companies in the services sector are retrenching staff as AI is deployed.
• The Treasurer has confirmed a pullback in fiscal expenditure in the upcoming government budget.

Together, this means less money flowing through the economy and supports the RBA’s aim of slowing economic activity and lowering inflation.

What this means for portfolios

Periods like this tend to feel uncomfortable, but they also reinforce the value of disciplined, diversified portfolio construction. Key considerations include:

• Maintaining exposure across asset classes rather than reacting to short term volatility
• Ensuring portfolios are positioned for both inflation resilience and slower growth scenarios
• Focusing on quality assets with strong balance sheets and sustainable cash flows.