NEWS + VIEWS – 03/07/2026
MARKETS
Global share markets were mixed over the past week as investors reassessed the outlook for AI spending, leading to a sharp sell-off in semiconductor and technology stocks. Investors also focused on US employment data for clues about future interest rate decisions by the US Federal Reserve. Falling oil prices and easing inflation in parts of Europe provided some support to sentiment, but profit-taking after a strong quarter and uncertainty around monetary policy kept markets volatile.
The ASX 200 traded flat for much of the week with gains in banks, healthcare and gold miners. Financial stocks benefited from broker upgrades and higher gold prices supported mining companies. Investors also monitored economic data and the outlook for interest rates, with expectations that moderating inflation could eventually support more rate-sensitive sectors of the market.
CHANGES TO SUPER FROM JULY 1
The amount that you can contribute to super at a 15% concessional tax rate is increasing from $30,000 to $32,500 this financial year. In line with this increase, the non-concessional contribution limit has gone up from $120,000 to $130,000. Subsequently, the cap on contributions for those using the three-year ‘bring forward rule’ rises to $390,000.
The amount of super that you can transfer tax-free into pension phase increases from $2 million to $2.1 million. The new figure applies only to someone who starts their pension for the first time from 1 July 2026. If you started a pension before this date, your transfer balance cap will be between $1.6 million and $2 million, depending on when you started it and how much has already been converted.
Also from July 1, realised earnings on super balances above $3 million will be taxed an extra 15% under Division 296 with the rate increasing to 25% for earnings on balances over $10 million.
BIS ANNUAL ECONOMIC REPORT
The Bank for International Settlements (BIS), known as the central bank of central banks, released its Annual Economic Report on Sunday. The BIS argues that the global economy has been more resilient than many expected, despite facing significant challenges including trade tensions, geopolitical conflicts, elevated interest rates, and financial market volatility. Economic growth has remained relatively steady, inflation has generally moved closer to central bank targets, and investment - particularly in AI - has supported activity. However, the report emphasises that this resilience should not lead to complacency, as underlying vulnerabilities are becoming more pronounced.
A central theme of the report is that the global economy is entering a period where several structural risks are converging. The BIS identifies persistent inflation pressures, historically high levels of public debt, elevated asset prices, and growing financial risks outside the traditional banking system as key concerns. While inflation has moderated in many economies, new supply shocks and geopolitical tensions could cause price pressures to re-emerge. At the same time, governments have less fiscal capacity to respond to future crises because public debt remains exceptionally high after years of expansionary fiscal policies.
The report devotes considerable attention to the rapid expansion of investment in AI. The BIS recognises AI as a technology with the potential to significantly improve productivity and support long-term economic growth. However, it also cautions that financial markets may be pricing in overly optimistic expectations about AI's commercial returns. Large investments in AI infrastructure are increasingly financed through debt and concentrated among a relatively small number of firms. If expected productivity gains or profits fail to materialize, the resulting correction could have broader consequences for financial markets and economic activity.
In the near term, the ongoing AI investment boom raises questions about the sustainability of the current economic expansion. The five largest hyperscalers are set to spend over a trillion US dollars on AI-related capital expenditure from 2025 through 2026. These commitments are outpacing earnings and the free cash flow of these firms, leading some to issue debt to raise additional financing (see chart A below). This investment race may be partly driven by the perception that only a small number of players with superior technology will ultimately dominate market share. The intense competition raises the risk of firms over-committing resources to investment projects with still uncertain returns, leaving all firms vulnerable to disappointments in AI payoffs. Model analysis based on such contest motives highlights the downside risk of current AI exuberance. As competitive pressure drives capex higher, the net economic surplus - the total payoff less investment costs - declines for the sector as a whole and could turn negative in adverse scenarios (chart B).
Historical episodes of investment booms offer instructive parallels (chart C). The canal mania of the 1830s, the British railway mania in the 1840s, the electrification exuberance of the late 1920s and the dotcom boom of the late 90s all shared one common trait: a genuine technological breakthrough that attracted capital in excess of what commercial returns could ultimately justify. While the scale and pace of the current AI investment boom accompanied by expectations of large productivity payoffs bear resemblance to these precedents, highlighting potential downside risks in the near term, BIS emphasises that it is too early to conclude whether AI will follow the same path.
Source: Bank for International Settlements
Another major concern is the increasingly close relationship between government finances and financial stability. The report argues that large sovereign debt burdens, combined with the growing role of leveraged non-bank financial institutions in government bond markets, create new channels through which fiscal problems can trigger financial instability. This "fiscal–financial nexus" means that government borrowing costs, bond market volatility, and financial system resilience are becoming more interconnected, making the task of central banks and regulators more complex.
To address these challenges, the BIS recommends that policymakers maintain a strong commitment to price stability while gradually rebuilding fiscal space through sustainable public finances. It also calls for stronger oversight of non-bank financial institutions, continued structural reforms to raise productivity, and better coordination between monetary, fiscal, and prudential policies. Rather than relying solely on short-term policy interventions during crises, governments are encouraged to strengthen the underlying resilience of their economies before future shocks occur.
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