All Ords Reclaims 9,000 as Weak GDP Data Eases Rate Hike Fears

The All Ords index is trading 0.8% higher at 9,037.90, recapturing the psychologically significant 9,000 level after trading near breakeven through the morning session.

The benchmark ASX 200 gained 0.94% to sit at 8,806.40, reversing earlier weakness as bond yields declined following the data release. Australian two-year government bond yields fell four basis points while ten-year yields dropped two basis points, reflecting shifting expectations for the monetary policy trajectory.

The catalyst for the afternoon turnaround was a weaker-than-anticipated GDP print that showed the economy expanding just 0.3 percent quarter-on-quarter and 2.5 percent year-on-year in the first quarter of 2026. Both figures fell short of market forecasts calling for 0.5 percent quarterly growth and 2.7 percent annual expansion. The subdued headline numbers masked divergent trends beneath the surface, with cyclone disruptions hammering mining output and transport activity while a historic surge in machinery and equipment investment provided partial offset.

Mining production contracted 1.5 percent during the quarter as tropical cyclones disrupted extraction and export operations across key resource regions. Transport and warehousing activity fell 1.3 percent, compounding the weather-related drag on headline growth. Government final consumption expenditure declined 0.2 percent, marking the weakest quarterly performance since September 2022, as Commonwealth defence spending decelerated and state and local government outlays retreated 0.8 percent following the expiry of electricity rebates.

The standout component was private business investment, which surged 6.0 percent on the back of a remarkable 16.3 percent quarterly jump in machinery and equipment spending. The increase represented the largest M&E investment rise in three decades, driven predominantly by data centre construction and fit-out activity concentrated in New South Wales and Victoria. While the capex boom signals confidence in Australia’s digital infrastructure buildout, much of the contribution was offset through higher imports of specialised equipment.

Household consumption advanced a modest 0.5 percent, but the composition revealed mounting financial stress among consumers. Spending on essentials rose 0.8 percent while discretionary outlays barely moved, increasing just 0.1 percent. Electricity, gas and fuel expenditure jumped 11.7 percent as government rebate programmes ceased, forcing households to absorb higher energy costs. The household saving ratio tumbled to 6.2 percent from 7.0 percent in the previous quarter, as nominal spending growth outpaced gains in disposable income amid higher income tax collections and elevated mortgage interest payments.

The GDP data arrived alongside a deteriorating labour market picture, with April unemployment climbing to 4.5 percent from 4.3 percent in March, exceeding consensus expectations of 4.3 percent. The reading marked the highest unemployment rate since late 2021, signalling a clear softening in hiring conditions.

Inflation data for April showed headline consumer price growth easing to 4.2 percent year-on-year from 4.6 percent, largely reflecting a reduction in the fuel excise from 52.6 cents to 20.6 cents per litre at the start of the month. However, the trimmed mean measure ticked up to 3.4 percent and services inflation held at 3.5 percent, both remaining above the Reserve Bank’s two-to-three percent target band.

Adding to the complex policy backdrop, the Fair Work Commission announced substantial wage increases, lifting the national minimum wage by 6.0 percent and modern award wages by 4.75 percent. The decision will boost incomes for lower-paid workers but risks entrenching services inflation and squeezing margins for labour-intensive businesses across hospitality, retail and aged care sectors.

Markets appear to be embracing a “bad news is good news” interpretation of the economic slowdown, viewing softer growth and rising unemployment as reducing the probability of additional Reserve Bank rate hikes rather than signalling imminent recession. The data centre investment boom provides a secular growth narrative that supports technology infrastructure, utilities and construction-related stocks, while lower bond yields enhance the appeal of duration-sensitive sectors including real estate investment trusts and high-quality growth names.

Yet beneath the surface rally, warning signs are accumulating. Household finances are deteriorating as the saving ratio falls, discretionary spending stalls, and unemployment rises, creating headwinds for consumer-facing cyclicals. Core inflation measures remain elevated despite headline moderation, and the substantial wage increases mandated by the Fair Work Commission threaten to keep services inflation sticky. Government spending is contracting as fiscal support programmes expire, removing a previous cushion to domestic demand.

The technical recapture of 9,000 on the All Ordinaries represents an important psychological milestone, but the sustainability of the advance will depend on whether the Reserve Bank validates market expectations for an extended pause or potential easing, and whether the capex-driven investment surge can offset weakening household and government demand dynamics through the remainder of the year.