Ahead of the game: 18 November 2024
Explore how the ASX 200 and US equity markets are influenced by inflation data and Federal Reserve Chair Powell's cautious stance on interest rates.
US market dips on inflation data and Fed comments
United States (US) equity markets declined this week as investors digested the latest inflation data, and Federal Reserve (Fed) Chair Powell tempered expectations for a interest rate cut next month.
Speaking at a Dallas Fed event, Powell indicated there’s no urgency to ease monetary policy, citing the robust job market and inflation still above target. The odds of a 25 basis point (bp) rate cut in December fell to 60% from 85%.
Australian stocks under pressure
In Australia (AU), the ASX 200 also fell this week, weighed down by declines in the materials and energy sectors. Two prominent themes currently shaping the markets include the 'Trump Trade' – characterised by tariffs and a stronger US dollar – and lingering effects of last week’s underwhelming stimulus announcement from China.
These trends are expected to continue creating headwinds for commodities, which may place ongoing pressure on the resource-heavy ASX 200.
The week that was: highlights
- In the US, headline inflation rose 0.2% in October, which saw the annual inflation rate accelerate to 2.6% from 2.4% in September
- The core measure increased by 0.3% in October, which saw the annual rate remain stable at 3.3% year-over-year (YoY)
- US core producer price index (PPI) inflation increased by 0.3% month-over-month (MoM) in October. This saw the annual core rate rise to 3.1%, above forecasts of 3%
- Initial jobless claims in the US declined by 4000 to 217,000 for the week ending 9 November, coming in lower than the 225,000 forecast
- In the United Kingdom (UK), the unemployment rate rose to 4.3% from 4.1% prior
- The AU economy added 15,900 jobs in October, marginally weaker than the 25,000 gain the market had expected
- The unemployment rate in Australia remained at 4.1% for the third month after the participation rate eased to 67.1% from a record high of 67.2%
- The Westpac-Melbourne Institute consumer sentiment index rose 5.3% to 94.6 in November from 89.8 in October
- The National Australia Bank (NAB) business confidence index rose to 5 points in October from -2 prior
- Crude oil fell 2.51% this week to $68.61
- Gold tumbled 4.41% this week to $2566
- Wall Street's gauge of fear, the volatility index (VIX), fell to 14.30 from 14.93.
Key dates for the week ahead
Australia & New Zealand
- AU: Reserve Bank of Australia (RBA) meeting minutes (Tuesday, 19 November at 11.30am AEDT)
- AU: Judo flash purchasing managers' index (PMI) (Friday, 22 November at 11.30am AEDT)
China & Japan
- CN: Loan prime rate 1 year and 5 year (Wednesday, 20 November at 12.15pm AEDT)
- JP: Consumer price index (CPI) (Friday, 22 November at 10.30am AEDT)
- JP: Jibun flash PMIs (Friday, 22 November at 11.30am AEDT)
United States
- US: Building permits and housing starts (Wednesday, 20 November at 12.30am AEDT)
- US: Initial jobless claims (Friday, 22 November at 12.30am AEDT)
- US: Existing home sales (Friday, 22 November at 2.00am AEDT)
- US: S&P flash PMIs (Saturday, 23 November at 1.45am AEDT)
Europe & United Kingdom
- UK: CPI (Wednesday, 20 November at 6.00pm AEDT)
- UK: Retail sales (Friday, 22 November at 6.00pm AEDT)
- EA: Hamburg Commercial Bank (HCOB) flash PMIs (Friday, 22 November at 8.00pm AEDT)
- UK: S&P flash PMIs (Friday, 22 November at 8.30pm AEDT)
Key events for the week ahead
-
AU
RBA meeting minutes
Tuesday, 19 November at 11.30am AEDT
The Reserve Bank of Australia (RBA) has held rates steady at 4.35% for the eighth consecutive meeting. In its statement, the RBA highlighted that higher interest rates are helping to balance demand and supply. However, underlying inflation, measured by the trimmed mean at 3.5%, remains above the RBA’s target midpoint of 2.5%.
The RBA reiterated its stance: 'The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.'
While the statement leaned hawkish, the subsequent press conference struck a more balanced tone, similar to the previous meeting. The RBA Governor noted that current market pricing aligns reasonably well with the central bank’s outlook.
The upcoming minutes will be scrutinised for clues on whether monetary policy may need to remain restrictive for longer or if conditions could justify a more accommodative stance, such as a sharper decline in inflation or unexpected weakness in the labour market.
As 2024 draws to a close, the Australian rates market suggests only a 10% chance of an RBA rate cut before year-end, with the first 25 bp reduction expected in August 2025.
RBA cash rate chart
-
UK
CPI
Wednesday, 20 November at 6:00pm AEDT
In September, the UK’s annual inflation rate dropped to 1.7% YoY, its lowest level since April 2021, down from 2.2% in previous months and below the forecasted 1.9%.
Core inflation also declined to 3.2% in September from 3.6% in August, the lowest since September 2021. Similarly, the annual CPI services rate dropped to 4.9%, down from 5.6% in August.
Preliminary expectations for October suggest headline inflation could rise slightly to 2%. The UK rates market predicts the Bank of England (BoE) will maintain its 4.75% rate through the end of the year, with a 25 bp cut anticipated in March.
UK CPI chart
-
JP
CPI
Friday, 22 November at 10:30am AEDT
The core Tokyo Consumer Price Index (CPI) for October, typically a leading indicator of nationwide price trends, has eased to 1.8% year-on-year (YoY) from 2.0% in September. The headline Tokyo CPI has similarly decreased to 1.8% from 2.2%.
In contrast, Japan's wholesale inflation accelerated to 3.4% in October, marking the fastest annual pace in over a year, driven by rising import costs due to a weaker yen. This development increases the risk of costs being passed from firms to consumers, potentially strengthening the case for further policy normalisation by the Bank of Japan (BoJ). Consumer spending in Japan largely remained resilient in the third quarter, and wage growth is also on track.
Currently, market expectations for a December rate hike from the BoJ stand at approximately 55%, nearly a coin flip. Persistent inflationary trends in upcoming data may support more hawkish rate expectations.
Japan's inflation rate
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US
Flash PMI
Saturday, 23 November at 1:45am AEDT
The recent trend in US economic data shows sustained robustness, with services activities displaying strong growth. The Purchasing Managers' Index (PMI) climbed to 56.0, up from 54.9 previously. Additionally, the job market remains resilient, and consumer sentiment is well-supported. Currently, the US economic surprise index is at its highest level in seven months.
The persistent above-target inflation has prompted a less dovish tone from Federal Reserve Chair Jerome Powell this week, introducing some uncertainty regarding a potential rate cut in December. Market expectations for a December rate cut have been adjusted downward to a 60% probability, from 80% a week ago. Any improvement in the upcoming flash PMIs will reinforce Chair Powell's stance that policymakers are not rushing to lower rates soon.
S&P global composite PMI
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