August was a mixed but mostly positive month for investment markets. Global shares rose modestly as enthusiasm for artificial intelligence helped offset worries about higher oil prices, rising bond yields and government debt. For New Zealand investors, the local share market also gained, but higher fuel costs and the possibility of higher interest rates remained important headwinds.

Note: This update follows a volatile July, when a sharp sell-off in AI and semiconductor stocks unsettled markets before they steadied. If you missed it, you can catch up on What happened in July 2026 at https://simplicity.kiwi/learn/updates/market-commentary-jul-2026.

The month's main themes

Three forces shaped markets in August. First, the conflict involving Iran kept pressure on energy markets, with Brent crude trading mostly between US$85 and US$91 a barrel. New Zealand imports all its fuel, so higher oil prices tend to flow through to transport costs, inflation and company profits.

Second, investors continued to debate whether the huge sums being spent on artificial intelligence (AI) will pay off. Share prices from chipmakers, that make the computer chips powering AI, fell sharply mid-month as bond yields rose, then recovered after Nvidia said it expected revenue growth of about 70% in the 2028 fiscal year. Third, bond yields climbed, with the US 30-year Treasury yield hitting 5.34%, its highest since 2007. The main drivers of this trend were around inflation and rising government borrowing.

Central banks

The Reserve Bank of New Zealand (RBNZ) was front of mind for local investors, with markets expecting the Official Cash Rate - OCR - to rise as inflation pressures have remained uncomfortable. Business inflation expectations lifted to 3.26% in August, and higher expected inflation can keep borrowing costs up for households, businesses and the government.

The US Federal Reserve, AKA the Fed, held rates steady at its July meeting but sounded more cautious about inflation through August. By month-end markets had priced a rate rise by December and saw a better-than-even chance of a September move upwards. The European Central Bank (ECB) did not meet, while the Bank of Japan held rates but left investors expecting a possible increase after both national and Tokyo inflation reached 1.8%.

Australia's Reserve Bank held its cash rate at 4.35%, with inflation still above its preferred range (trimmed-mean inflation, which strips out the most volatile price moves, was 3.6% in July). Across countries, the message was simple: central banks were not ready to declare victory over inflation.

United States

The US economy sent mixed signals out to market. GDP (gross domestic product, the total value of everything a country produces) grew at an annualised 1.5% in the June quarter, down from 2.7% in the March quarter. Household spending was stronger than first reported, but prices in the GDP report were revised higher, keeping inflation concerns rolling.

US shares had a healthy month, helped by the Mag 7 and other tech giants. The S&P 500 returned about 1.2% for the month and the Nasdaq 100 about 4.2% on a price basis. Nvidia was the standout, adding about US$362 billion in market value in a single session after its results, a reminder that a few very large companies can have an outsized effect on returns.

Europe and the United Kingdom

European share markets were broadly flat. The Euro Stoxx 600 returned about 0.1%, as stronger earnings were offset by rising oil prices and the prospect of higher interest rates through the region. The UK's FTSE 100 rose about 0.3%, helped by its energy exposure, though higher government bond yields limited the share market gains.

For New Zealand investors, remember that overseas returns also depend on currency movements: a market can rise in its own currency, but the final return in New Zealand dollars depends on what the Kiwi does over the month.

Asia and emerging markets

Asia had some of the strongest markets in August. Japan's Nikkei 225 rose 4.1%, helped by technology and semiconductor shares, though expectations of higher interest rates pushed 10-year Japanese bond yields close to 3%. Japan's June-quarter GDP growth slowed to an annualised 1.1%, complicating their central bank's next steps. The broader MSCI Emerging Markets index rose 4.3%, with Korea and Taiwan doing most of the heavy lifting.

Australia and New Zealand

New Zealand's NZX 50 Index returned 1.6% in August, achieving a record 14,000 high for the first time on 26 August. Much of the gain happened on 31 August (up 1.1% in the day). It was the local market's fourth consecutive positive month. What we refer to as our trade deficit widened to NZ$1.95 billion in July, the largest since September 2024, as higher oil prices pushed imports to a record high, and utilities such as Meridian Energy came under pressure.

Australia's ASX 200 returned 1.1%, with company results driving the growth: Commonwealth Bank posted a record cash profit, and CSL jumped 17% in a day after forecasting a return to earnings growth. Like New Zealand, Australia did not get the same direct lift from AI chipmakers as Korea and Taiwan, because its market leans more towards banks, resources and healthcare.

Interest rates and bonds

August was difficult for government bonds, with yields rising across many major markets (US, Germany, France and Japan) on concerns about government spending and debt. The US 10-year Treasury yield ended August around 4.75%, up from about 4.68%, while the 30-year yield reached 5.34% during the month. Bond prices move in the opposite direction to yields, so when yields rise, existing bond prices usually fall.

New Zealand and Australian bonds followed the global trend. Australian 10-year yields reached 5.18% by 1 September, their highest since 2011, while New Zealand bonds were pressured by higher producer prices and expectations of a higher OCR. Corporate bonds held up a little better, but higher underlying yields still weighed on returns.

What investors are watching next

Investors will be watching whether central banks keep pushing higher rates, especially in the US, New Zealand, Europe and Japan, and whether oil prices climb further and add to fuel costs and inflation. The AI story still matters, but the focus is shifting from excitement about growth to whether the spending can produce lasting profits. At home, the path for inflation, interest rates and household confidence will shape both shares and bonds.

TL;DR - August 2026 summary

• Global shares rose modestly, helped by AI-related companies, while higher oil prices and bond yields kept investors cautious.
• The S&P 500 returned about 1.2%, while the Nasdaq 100 rose about 4.2% on a price basis.
• The NZX 50 Gross Index returned 1.6% and the ASX 200 returned 1.1% in August.
• Taiwan and South Korea were standouts, with the TAIEX up 6.5% and the KOSPI up 9.1%.
• Bond markets struggled as the US 30-year Treasury yield touched 5.34% and Australian 10-year yields reached 5.18%.
• Oil prices stayed high, with Brent crude mostly between US$85 and US$91 a barrel.

Months like August are a reminder that markets rarely move for just one reason. Shares, bonds, currencies and commodities can respond differently to the same news, which is why diversification across regions, sectors and asset classes matters over time. Short-term ups and downs are a normal part of investing, and long-term outcomes are usually shaped by staying focused on your time horizon rather than reacting to every monthly move.

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