The S&P Global Composite PMI for Australia dropped slightly to 51 in December, down from 51.1 in November. Although this decline is small, the index remains above 50, indicating that economic activity is still growing. PMI readings provide helpful insights into the economy by reflecting purchasing managers’ outlook on different business sectors. Analysts use these readings to identify trends in economic performance.

Slight Dip in Economic Momentum

The decline to 51 for December 2025 suggests that while the economy is still expanding, it may be losing some of its growth momentum. This is not a cause for alarm but rather a sign that the strong growth seen earlier in 2025 could be slowing down. It’s wise to adopt a more cautious and defensive approach now. This data makes it less likely that the Reserve Bank of Australia will raise interest rates further, as they kept the cash rate at 4.35% during the second half of 2025. However, with last year’s inflation rate stubbornly around 3.2%, hopes for quick rate cuts are fading too. This environment creates uncertainty, often leading to more market volatility. For traders of the ASX 200, this suggests that the strong rally, which peaked in mid-2025, might have stalled for now. Consider purchasing protective put options on index ETFs like IOZ to safeguard long portfolios against a potential pullback in the weeks ahead. Another strategy is to write covered call options on existing holdings to generate income in what may become a sideways market.

Market Volatility Amid Economic Indicators

The conflict between slowing growth and stubborn inflation leads to higher implied volatility. We can use strategies like long straddles on major banking or mining stocks sensitive to economic changes, allowing us to profit from significant price movements in either direction. This is a direct response to the current market indecision. Additionally, we should keep an eye on the Australian dollar. Economic softness, combined with recent signs of a manufacturing slowdown in China, is putting pressure on the currency. Buying put options on the AUD/USD pair might be a smart choice to speculate on further declines. The unemployment rate, which remains low at about 3.9%, will be an important figure to watch for signs of additional economic cooling. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now