From Wall Street to your wallet: Why global markets matter

• Australians have about $4.7 trillion invested in superannuation, with retirement savings exposed to movements in global share and bond markets.

• Rising overseas bond yields can push up borrowing costs in Australia, adding pressure to mortgage holders even without an RBA rate hike.

• A weaker Australian dollar and higher global oil prices can increase the cost of imported goods, petrol and overseas travel.

You don’t need to own a single US share to have money riding on global markets. For millions of Australians, exposure starts with superannuation. 

Retirement funds invest heavily offshore, meaning swings in US shares, global bond yields and currencies can eventually show up in retirement balances. But the link goes further than super.

Global markets can also affect how much Australians pay to borrow, what they spend on imported goods and fuel and even how much their next overseas holiday costs.

That matters now as we head into the December quarter with global markets under pressure from higher bond yields, elevated oil prices and uncertainty over the next interest rate move from major central banks, including the RBA.

Most people don’t spend their mornings checking the ASX 200, the S&P 500 or Nasdaq, yet Australians had about $4.7 trillion tied up in superannuation at the end of June, according to the latest ABS figures.

Super funds typically spread investments across Australian and international shares, property, infrastructure, fixed income and other assets. That diversification is designed to reduce reliance on any one market, but it also means an overseas sell-off can affect balances at home.

The US share market matters because it is by far the world’s largest, accounting for about 44 per cent of global equity market value, or almost US$69 trillion (AU$99 trillion).

“Investing internationally busts you out of the domestic bubble,” Ron Hodge, CEO of ASX-listed investment management firm InvestSMART Group, told The Money Edition.

“But there’s a risk at the other end of the spectrum too,” Hodge added. “US share prices are elevated, and much of the growth has been driven by a handful of technology giants riding the AI boom.”

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For an Australian worker, that means a sharp move in US markets can matter even if their only investment account is their super fund.

Bond markets can hit closer to home

While shares get most of the attention, bond markets can hit household finances more directly. Government bond yields measure what governments need to pay to borrow money.

When yields rise sharply in the US, Europe or Japan, borrowing costs elsewhere can be dragged higher as investors demand better returns.

A bond yield measures the return investors can expect from lending money to a government or company through a bond.

Higher global borrowing costs can influence Australian bond yields and funding costs across the financial system, feeding into the rates businesses and households ultimately pay.

That is one reason global bond markets matter to Australians with mortgages even when the Reserve Bank is making its own decisions at home.

The Australian dollar affects what you pay

The Australian dollar is another link between global markets and household budgets. A weaker dollar makes overseas goods more expensive in Aussie-dollar terms. 

That can flow through to electronics, cars, clothing and other imported products. It also makes overseas travel more expensive. 

At the same time, a weaker Australian dollar can boost the value of international investments held by Australians when they convert those assets back into local currency. 

Markets often treat our dollar as a gauge of global risk appetite, whereby it typically weakens when investors grow nervous about economic growth or geopolitical risks, while shifts in commodity prices and interest rates can also influence its value. 

But currency movements are only part of the picture. The cost of producing goods overseas can also influence what Australians ultimately pay. 

Westpac economist Illiana Jain warned in a report last week that rising labour costs across Asia and shifts in global manufacturing were weakening the forces that helped keep imported goods cheap for decades. 

That means imported goods may provide less relief from inflation than in the past, adding to a somewhat complicated mix the RBA must weigh when deciding to keep interest rates higher for longer.

Oil prices also hit home

Global commodity markets can also reach Australian households quickly and oil is the obvious and most recent example.

Brent crude remains stubbornly elevated above $US100 a barrel as the US-Israel war with Iran shows no signs of ending. That’s fueling (excuse the pun) concerns among market types that higher energy prices could keep inflation sticky well into next year.

That’s because higher global oil prices can eventually feed into petrol, freight and business costs at home.

So a move in an oil market thousands of kilometres away can eventually reach both the petrol bowser and the mortgage repayment. That’s worth sitting up and paying attention to.

“Retreating to the perceived safety of Australian shares or avoiding global markets altogether isn’t the solution,” InvestSMART’s Hodge said.

“Instead, protection comes from ensuring you’re genuinely diversified across countries, industries and asset classes, rather than relying too heavily on a handful of mega-cap companies.”