Australian equity markets closed the trading week on a subdued note, with the benchmark index slipping as concerns over potential interest rate hikes next year dragged down major banking stocks. The losses were partially offset by a powerful rally in the technology sector, spearheaded by data centre operator NEXTDC following a significant AI partnership announcement.
Benchmark Index Dips Amid Financial Sector Pressure
The S&P/ASX 200 index declined by 0.2% to settle at 8,598.90 points as of 2325 GMT on Friday, December 5, 2025. This movement sets the index for a weekly loss of 0.1%, marking a reversal from Thursday's 0.3% gain. The primary drag on the market came from the financial sector, which fell 0.5% and is poised to end the week 0.1% lower.
Investor sentiment towards banks has turned cautious following a series of strong economic data points, including robust GDP growth. This data has reinforced market expectations that the Reserve Bank of Australia (RBA) may need to raise interest rates in the coming year to manage inflation. While higher rates can traditionally benefit bank margins, they also tend to dampen demand for new loans, particularly mortgages.
Commonwealth Bank of Australia (CBA), the nation's largest lender, saw its shares drop 0.7%. CBA is heading for its fourth straight week of declines, as investors remain wary of its premium valuation and prospects for modest earnings growth in a tighter monetary environment.
Tech Sector Defies Trend with NEXTDC Leading the Charge
In a stark contrast to the broader market weakness, the technology sector emerged as the standout performer, surging by 1.3%. This rally was almost single-handedly powered by NEXTDC, whose stock skyrocketed as much as 10.9% to hit its highest level since early November.
The catalyst for this dramatic rise was a major strategic announcement. The data centre operator revealed it has entered into a collaboration with OpenAI, the creator of ChatGPT. The two companies will jointly develop a hyperscale AI campus and a GPU cluster at NEXTDC's S7 site in Sydney. This deal positions NEXTDC at the forefront of Australia's burgeoning artificial intelligence infrastructure landscape, attracting significant investor interest.
Broader Market Sentiment and Regional Impact
The fear of rising borrowing costs also impacted other rate-sensitive sectors. Consumer discretionary stocks fell 0.7%, with leading index components Wesfarmers and JB Hi-Fi dropping 0.9% and 1.1%, respectively. The real estate and industrials sub-indices also slipped 0.4% and 0.5%.
Market participants are now widely anticipating that the RBA will hold its cash rate steady at its upcoming monetary policy meeting on Tuesday. According to a Reuters poll, swaps indicate the central bank will likely keep rates on hold early next year, with a possibility of a hike emerging by May 2026.
The negative sentiment extended across the Tasman Sea, where New Zealand's benchmark S&P/NZX 50 index declined 0.5% to 13,449.57, also setting it up for a weekly loss.
The day's trading highlights the market's delicate balancing act, weighing strong economic fundamentals against the looming threat of monetary policy tightening, while seizing on high-growth opportunities in transformative sectors like artificial intelligence.
