Ahead of the game: 25 November 2024

US equity markets surge as investors pivot to cyclical stocks

United States (US) equity markets gained this week, with the Dow Jones surging by 461 points on Thursday. Investors pivoted towards cyclical stocks poised to benefit from a resilient economy, while stepping back from tech stocks following Nvidia’s mixed earnings report.

ASX 200 hits record high

Closer to home, the ASX 200 reached a fresh record high this week at 8446, decisively breaking above the previous peak of 8,384.5 set in mid-October. The increase was driven by robust performances in energy, banking, and resource stocks.

The week that was: highlights

• In the US, housing starts fell by 3.1% in October as hurricanes in the South impacted housing activity
• Initial jobless claims dropped by 6000 to 213,000 last week, marking the lowest level since April
• In the United Kingdom (UK), the headline inflation rate increased to 2.3% year-on-year (YoY) in October, up from 1.7% previously. Core inflation rose to 3.3% YoY from 3.2%
• In Japan (JP), headline inflation in October eased to 2.3% YoY from 2.5%. The core reading also eased to 2.3% YoY from 2.4% previously
• In Australia (AU), the Reserve Bank of Australia (RBA) meeting minutes from the November Board meeting were balanced
• Crude oil gained 4.66% this week, reaching $70.14
• Gold gained 4.16% this week, rising to $2669 and reclaiming most of the previous week's losses
• Wall Street's gauge of fear, the volatility index (VIX), increased to 16.86 from 16.13.

Key dates for the week ahead

Australia & New Zealand

• New Zealand (NZ): Balance of trade (Monday, 25 November at 8.45am AEDT)
• AU: Monthly consumer price index (CPI) indicator (Wednesday, 27 November at 11.30am AEDT)
• NZ: Reserve Bank of New Zealand (RBNZ) interest rate decision (Wednesday, 27 November at 12.00pm AEDT)
• NZ: Australia and New Zealand Banking Group (ANZ) business confidence (Thursday, 28 November at 11.00am AEDT)
• AU: RBA Bullock speech (Thursday, 28 November at 7.55pm AEDT)
• AU: Housing finance (Friday, 29 November at 11.30am AEDT)

China & Japan

• JP: Consumer confidence (Friday, 29 November at 4.00pm AEDT)

United States

• US: Federal Open Market Committee (FOMC) meeting minutes (Wednesday, 27 November at 6.00am AEDT)
• US: Core personal consumption expenditures (PCE) inflation (Thursday, 28 November at 12.30am AEDT)

Europe & United Kingdom

• Europe (EA): Inflation rate (Friday, 29 November at 9.00pm AEDT)

Key events for the week ahead

• US

FOMC meeting minutes

Wednesday, 27 November at 6.00am AEDT

At its November meeting, the Federal Reserve (Fed) reduced the Fed funds rate by 25 basis points (bp) to a range of 4.50% – 4.75%, continuing its monetary easing cycle. While this move was widely anticipated, Fed Chair Jerome Powell reiterated the importance of data dependency, stating that the central bank is not 'on any preset course.'

The upcoming minutes are expected to show a focus on the Fed’s 'soft landing' narrative, supported by a series of positive economic surprises since August.

Key areas of interest include:

• The reasoning behind the 25 bp rate cut, given signs of economic resilience
• How the Fed intends to balance economic growth with addressing persistent inflation.

Progress in the fight against inflation has slowed in recent months. The minutes may clarify how policymakers plan to tackle this issue while maintaining economic stability.

US Fed funds rate chart

• AU

Monthly CPI indicator

Wednesday, 27 November at 11.30am AEDT

Key Australian inflation measures released in late October were softer than expected:

• Headline inflation: rose by 0.2% in the third quarter (Q3) of 2024 (consensus was 0.3%), lowering the annual rate to 2.8% YoY from 3.8% YoY, below forecasts of 2.9% YoY
• The trimmed mean: increased by 0.8% in the Q3, in line with consensus, lowering the annual rate to 3.5% YoY from 4.0% YoY, marking the seventh consecutive quarter of easing annual inflation
• The monthly CPI indicator: for September rose 2.1% YoY, down from 2.7% YoY in August. The core reading also declined to 3.2% YoY in September from 3.4% YoY in August.

The RBA’s November board meeting minutes reiterated that the bank’s current policy settings aim to bring inflation back to target within a reasonable timeframe while preserving labour market gains.

For October, as the first month of the new quarter, the monthly CPI indicator will provide updates on approximately 60% of the basket, skewed towards goods rather than services such as dining out, medical services, and transportation. Preliminary expectations suggest the indicator may rise to 2.5% YoY, though forecasts will be refined as new data emerges.

The Australian interest rate market anticipates the first 25 bp RBA rate cut in July 2025.

AU monthly CPI indicator chart

• US

Core PCE inflation

Thursday, 28 November at 12.30am AEDT

The September reading for headline PCE matched expectations, rising 2.1% YoY after a 2.3% YoY increase in August. However, core PCE exceeded forecasts, increasing 2.7% YoY, compared to the 2.6% YoY consensus.

This was the first uptick in core PCE since August 2023, and a further increase in October could raise concerns about sticky inflation, potentially prompting a less dovish Fed outlook.

Currently, markets are pricing in a 60% probability of a 25 bp rate cut by the Fed in December. Projections for October suggest core PCE will increase 0.3% month-on-month (MoM), with headline PCE forecast to rise 0.2% MoM. Persistently high inflation may reduce dovish rate expectations and signal more caution in easing monetary policy.

US headline and core PCE price index chart

• EA

Inflation rate

Friday, 29 November at 9.00pm AEDT

Last month, the annual inflation rate in the European Union rose to 2% YoY in October from 1.7% YoY in September, the lowest level since April 2021. Core inflation remained steady at 2.7% YoY for the second month.

The October inflation update followed the European Central Bank’s (ECB) 25 bp interest rate cut to 3.25%, where it signalled that further decisions would depend on data. The ECB noted that the 'disinflationary process is on track' and that economic activity indicators had surprised to the downside.

For November, headline inflation is expected to rise to 2.3% YoY, with core inflation projected at 3.0% YoY. Markets are fully priced for another 25 bp cut from the ECB at its 12 December meeting, with a 20% probability of a 50 bp cut.

EA core annual inflation rate chart