The Roundup – October 2025
Market Noise
Noise can be viewed as any information or activity that obscures or distracts from underlying fundamental or economic trends. It can be driven by a number of different channels, including investor sentiment, speculation or social/traditional media.
While noise is normal (and constant) for markets, it’s the current level that is worthy of note. Over the last few months, the volume of noise in both the financial markets and the economy has increased noticeably.
Sources of amplification include events such as the US Government shutdown and geopolitical developments, as well as hype around advancements in, and integration of Artificial Intelligence. Valuations for AI companies are now at record highs.
Sharemarkets have reacted to the elevated levels, with equities rallying and tumbling in sync with the increased chatter over the month. Gold, an attractive asset during times of market nervousness, rose materially over October, before experiencing a strong sell-off.
In currency markets, big swings have been seen in the USD relative to a basket of currencies. The worlds reserve currency has sold off on positive sentiment and appreciated following market surprise and negative news. Overall, October saw the US dollar lift.
Commentators have noted that the US has benefitted from the market hype, as the economy, which has generally defied the low-growth, rising-unemployment trend seen in other developed markets, would bein recession without the significant investment in AI.
Typically, companies that overinvest, have been punished by the market for deploying “lazy-capital” that does not deliver a good ROI (return on investment). However, lately those firms investing heavily in AI have seen their share prices move against this trend, rocketing higher.
The real economy has also benefitted from the investment in data centres, as the current environment offers big opportunities for companies to provide the required electricity (grid opportunities) as well as other services necessary for further development.
Economic Support
October saw the Reserve Bank of New Zealand deliver a super-sized 0.5% cut to the Official Cash Rate (OCR) as data illustrated the economy was more vulnerable to downside risks. The move surprised market participants who generally expected -0.25%.
The Bank Officials highlighted that prolonged spare capacity (unemployment has risen 2% since its 2022 low) and cautious behaviour by households and businesses could put pressure on New Zealand’s economic recovery. The 0.5% cut was a clear signal of economic support.
The positive trend of moderating domestic inflationary pressures (underlying components of headline inflation that are not influenced by foreign markets) reinforced confidence that inflation levels will return to the 2% target by mid-2026.
Near term guidance from the RBNZ spoke to additional interest rate cuts as necessary to bring inflation back to target. Markets are anticipating another reduction in November (-0.25%), the final OCR decision before the handover of Governorship on 1st December.
In contrast the Reserve Bank of Australia was navigating a more positive environment, with inflation within the target band for 12 of the last 13 months and private demand recovering quicker than projected. Data also showed signs that previous interest rate cuts are flowing through to the economy. The positive backdrop saw the RBA hold interest rates steady.