ASX 200 eases ahead of US election amid RBA's hawkish rate hold

The ASX 200 trades 24 points lower (-0.55%) at 8140 as of 3.15pm AEDT.

RBA holds rates steady as inflation remains above target

The ASX 200 has declined today on light trading volumes as markets await tomorrow’s US election and the Reserve Bank of Australia’s (RBA) decision to keep interest rates unchanged at 4.35% for the eighth consecutive meeting.

In its accompanying statement, the RBA noted that while higher interest rates are working to balance demand with supply, underlying inflation - as measured by the trimmed mean - remains at 3.5% and is 'still some way from the 2.5 per cent midpoint of the inflation target.' According to today’s Statement on Monetary Policy, inflation is not expected to sustainably reach this target midpoint until 2026.

The RBA anticipated last week’s third quarter (Q3) decrease in headline inflation, which it attributed to 'declines in fuel and electricity prices during the September quarter.' However, the bank added that 'underlying inflation is more indicative of inflation momentum, and it remains too high.'

Labour market and productivity remain areas of concern

The RBA highlighted the strength of the labour market, noting that 'labour market conditions remain tight.' Additionally, concerns around low productivity were acknowledged, stating that 'labour productivity is still only at 2016 levels,' despite some improvement over the past year.

The RBA reiterated that the Board is 'not ruling anything in or out.' The statement concluded, 'the Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.'

In the Statement on Monetary Policy, the RBA lowered its forecast for end-2024 gross domestic product (GDP) growth from 1.7% to 1.5% and adjusted its forecasts for headline and trimmed-mean inflation to 2.6% year-over-year (YoY) (down from 3%) and 3.4% YoY (from 3.5%), respectively.

Today’s RBA message is clear that inflation remains too high, deferring any rate cuts until inflation aligns with targets. The rates market is currently pricing in a 4 basis point (bp) (17% chance) cut for December, with the first 25 bp cut anticipated at the May meeting.

Key data ahead of the RBA’s 10 December meeting

Upcoming economic data that may influence the RBA’s December decision include:

• October labour force report: Thursday, 14 November
• Monthly consumer price index (CPI) indicator: Wednesday, 27 November
• Q3 GDP: Wednesday, 4 December

ASX 200 stocks

Banking sector

Major banks have declined after a broker downgrade to Westpac following its earnings report yesterday.

• Macquariefell 1.55% to $218.90
• Westpac lost 1.5% to $31.92
• CBA slipped 0.71% to $143.32
• ANZ edged 0.58% lower to $31.08

Mining sector

Hopes that China's NPC meeting will announce fiscal stimulus details later this week have lifted the mining sector.

• Mineral Resources surged 4.44% to $38.33
• BHP rose 0.50% to $42.81
• Fortescue gained 0.36% to $19.29
• Rio Tinto climbed 0.23% to $120.02

ASX 200 technical analysis

The ASX 200 spent last week below multi-month trend channel resistance, currently around 8350 - 8360, and above key support at 8110 - 8100. A break through either level will signal the index’s next significant move.

ASX 200 daily chart

• _{Source: TradingView. The figures stated are as of 5 November 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}