ABE Weekly: Australian Consumer Confidence Plunges as Rates and Fuel Costs Bites

Market Insights

• Australian consumer confidence plunges as rates and fuel costs bite
• France’s Bond market under pressure
• US labour market loses momentum
• US mortgage rates hit highest level since 2023

France’s Bond market under pressure

Key Points

• Australia: The RBA increased cash rates by 0.25% to 4.60% p.a. at its September meeting – its 4th increase in 2026! August CPI increased to 4.0% p.a., while Trimmed Mean was unchanged at 3.60% p.a.
• United States: The Federal Reserve raised the federal funds target range by 25bp to 3.75%–4.00% p.a. at its September 2026 meeting, its first rate hike since July 2023. The latest U.S. CPI inflation rate remained at 3.4% p.a. in August 2026, while core CPI eased to 2.4% p.a.
• United Kingdom: The Bank of England held Bank Rate unchanged at 3.75% p.a. at its September 2026 meeting. Headline CPI rose to 3.1% p.a. in August, while core CPI remained unchanged at 2.6% p.a.
• Eurozone: The European Central Bank increased its key deposit facility rate by 25bp to 2.50% p.a. at its September 2026 meeting. Euro area headline CPI rose to 3.8% p.a. in September, while core inflation rose to 2.5% p.a.

Here are the latest monetary-policy and inflation figures for key economies:

Australian consumer confidence plunges as rates and fuel costs bite

Australian consumer confidence has fallen back towards the lows seen during the early 1990s recession, with households increasingly concerned about the combined impact of higher interest rates and rising fuel prices. The Westpac–Melbourne Institute Consumer Sentiment Index fell 4.7% in October to 80.4, from 84.4 in September. The result leaves sentiment among the weakest readings recorded since the monthly survey began in the 1970s. The deterioration was particularly striking following the Reserve Bank’s latest rate decision. Sentiment among the 60% of respondents surveyed before the RBA’s September 29 rate hike was 86.9, but fell to just 67.2 among those surveyed after the decision. The nearly 20% decline was the largest gap recorded since Westpac began tracking daily responses in 2019.

The timing is significant. The RBA raised the cash rate by 25 basis points to 4.60%, its highest level since 2011, as it responds to renewed inflation pressures. The Bank has highlighted stronger-than-expected domestic demand as well as higher global energy prices as reasons for the tightening. At the same time, higher petrol prices are adding another layer of pressure to household budgets. Average fuel prices have risen sharply since the start of the year, with the ACCC reporting petrol prices of more than $2.40 a litre across regional areas at the end of September.

The survey suggests that households are being squeezed by a combination of higher mortgage repayments and elevated everyday costs, rather than by the kind of widespread job losses and financial distress typically associated with a recession. That distinction matters: the labour market remains relatively resilient, but consumers are becoming increasingly cautious as the cost of servicing debt rises.

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France’s Bond market under pressure

French government bonds have continued to underperform as investors demand a greater premium for holding French duration. The recent rise in yields reflects a combination of elevated borrowing requirements, a persistently large fiscal deficit and uncertainty over the government’s ability to deliver the proposed consolidation measures. The pressure has been particularly evident against Germany, with the Bund spread widening materially. France’s public debt has now risen to 119% of GDP, well above the euro-area average and highlighting the scale of the fiscal challenge facing policymakers.

With France facing around €340bn of medium- and long-term issuance in 2027, supply is likely to remain an important consideration for investors, particularly if fiscal credibility remains under scrutiny.

It is striking how far France’s fiscal position has moved from the Maastricht framework that underpinned the euro. The original convergence criteria established a 60% of GDP reference value for government debt and 3% for the budget deficit; French public debt now stands at 119% of GDP, almost twice the original debt benchmark. While the 60% threshold was never intended as an absolute ceiling, the scale and persistence of the deviation underline the fiscal challenge now confronting the French bond market.

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US labour market loses momentum

The US labour market showed further signs of losing momentum in September, with employers adding just 29,000 nonfarm jobs, well below expectations. The unemployment rate rose to 4.2% from 4.1%, while wage growth slowed to around 3% year-on-year.

The weakness was broader than the headline number suggests. Payroll gains for July and August were revised down by a combined 60,000, reinforcing the picture of a labour market that is cooling rather than simply experiencing a weak monthly print.

The rise in unemployment was partly driven by an increase in the labour force, meaning more people were looking for work. That makes the move in the unemployment rate somewhat less concerning than a comparable increase driven by falling employment, although the broader trend still points to a gradual easing in labour-market conditions.

For the Federal Reserve, the report provides some evidence that employment pressures are moderating. Slower hiring and wage growth reduce the risk of an overheating labour market, although inflation remains sufficiently elevated that policymakers are unlikely to view a softer jobs report in isolation.

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US mortgage rates hit highest level since 2023

US mortgage rates have surged to their highest level since November 2023, adding further pressure to an already sluggish housing market. The average 30-year fixed mortgage rate rose 25 basis points to 7.28% in the week to October 1, according to Freddie Mac. It was the sixth consecutive weekly increase and the largest one-week jump since October 2022. A year ago, the rate was 6.34%.

The sharp rise in borrowing costs is being driven primarily by higher Treasury yields, rather than a direct move in the Federal Reserve’s policy rate. The 10-year Treasury yield has risen sharply as investors reassess the outlook for inflation, growth and government borrowing, pushing up the cost of longer-term financing across the economy.

For the housing market, the timing is particularly difficult. Home prices remain elevated, while higher mortgage rates reduce the amount buyers can afford to borrow and increase monthly repayments. Mortgage applications have already weakened, suggesting that higher financing costs are weighing on demand.

The combination of elevated home prices and mortgage rates above 7% therefore continues to limit housing affordability. It also highlights an important transmission channel from the bond market to the real economy: a rise in long-term Treasury yields can quickly feed through into household borrowing costs, even without a change in the Fed’s policy rate.

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