Ahead of the game: 24 February 2025

US stock markets steady near record highs

United States (US) stock markets stayed near record highs during a holiday-shortened week. Walmart, a key indicator for US consumer behaviour and the nation’s largest private employer, issued cautious guidance during its earnings call, resulting in a 6.5% decline in its stock to $97.21.

Considering that US consumers account for 70% of the country's gross domestic product (GDP), and in light of last week’s weak retail sales numbers, traders will be especially focused on upcoming earnings reports from Home Depot and Target.

ASX 200 downturn

Locally, the ASX 200 fell below 8300 as the earnings season took a sharp downturn. Disappointing earnings reports from two of the big four banks, Westpac and National Australia Bank (NAB), along with Bendigo and Adelaide Bank, significantly contributed to the decline.

Additionally, substantial drops in the share prices of mining giants Mineral Resources and Fortescue added to the downward pressure following their earnings announcements.

The week that was: highlights

• In the United Kingdom (UK), headline inflation accelerated to 3% year-over-year (YoY) in January from 2.5% prior. The core rate of inflation rose to 3.6% YoY from 3.2%
• In Australia (AU), the Reserve Bank of Australia (RBA) cut its Official Cash interest rate by 25 basis points (bp) to 4.10% its first rate cut since November 2020
• The Australian economy added 44,000 new jobs in January, while the unemployment rate rose to 4.1% from 4% as the participation rate reached a record high of 67.3%
• In New Zealand (NZ), the Reserve Bank of New Zealand (RBNZ) reduced its Official Cash rate by 50 bp to 3.75%
• Crude oil snapped its four-week losing streak, rising 2.46% to $72.48
• Gold hit a fresh record high of $2954
• Bitcoin is on track to snap a three-week losing streak after gaining 2.16% this week to $98,230
• Wall Street's gauge of fear, the volatility index (VIX), rose to 15.65 from 14.78

Key dates for the week ahead

Australia & New Zealand

• AU: Monthly consumer price index (CPI) indicator (Wednesday, 26 February at 11.30am AEDT)
• NZ: Australia and New Zealand Banking Group (ANZ) business confidence (Thursday, 27 February at 11.00am AEDT)

China & Japan

• Japan (JP): Tokyo inflation (Friday, 28 February at 10.30am AEDT)
• JP: Industrial production (Friday, 28 February at 10.50am AEDT)
• JP: Retail sales (Friday, 28 February at 10.50am AEDT)
• China (CN): National Bureau of Statistics (NBS) manufacturing purchasing managers' index (PMI) (Saturday, 1 March at 12.30pm AEDT)
• CN: NBS non-manufacturing PMI (Saturday, 1 March at 12.30pm AEDT)

United States

• US: Durable goods orders (Friday, 28 February at 12.30am AEDT)
• US: GDP fourth quarter (Q4) second estimate (Friday, 28 February at 12.30am AEDT)
• US: Core personal consumption expenditures (PCE) price index (Saturday, 1 March at 12.30am AEDT)

Europe & United Kingdom

• European Union (EU): Economic sentiment (Thursday, 27 February at 9.00pm AEDT)

Key events for the week ahead

• AU

Monthly CPI indicator

Wednesday, 26 February at 11:30am AEDT

The Q4 2024 inflation numbers released at the end of January were cooler than expected by the market and the RBA.

• Headline inflation subdued: headline inflation rose by 0.2% quarter-on-quarter (QoQ), below the consensus of +0.5%, allowing the annual rate to ease to 2.4% from 2.8%
• RBA’s preferred measure: the trimmed mean, rose by 0.5% QoQ, under the anticipated +0.6%, with the annual rate falling to 3.2% from 3.6% prior
• Monthly CPI trends: monthly CPI indicator showed headline inflation rose by 2.5% in the 12 months to December, up from a rise of 2.3% in November. However, it also revealed that annual trimmed mean inflation eased to 2.7% in December, down from 3.2% in November

RBA’s response to inflation trends

The cooler inflation numbers amid sluggish growth allowed the RBA to cut rates by 25 bp at its Board meeting this week. However, the RBA sounded cautious, noting that future rate cuts depended largely on the continuation of the disinflationary trend.

'The forecasts published today suggest that, if monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range. In removing a little of the policy restrictiveness in its decision today, the Board acknowledges that progress has been made but is cautious about the outlook.'

The preliminary expectation for the January monthly CPI indicator is for headline inflation to rise to 2.6% YoY, which will be the highest since August. Nonetheless, should the March quarter inflation numbers, set to be released on 30 April, confirm the ongoing disinflationary trend, we expect the RBA to deliver a follow-up 25 bp rate cut at its meeting in May.

AU all groups monthly CPI indicator chart

• US

Core PCE price index

Saturday, 1 March at 12:30am AEDT

December's headline PCE prices in the US increased by 2.6% YoY in December 2024, rising further away from its three-year low of 2.1% in September. The core PCE price index, the Federal Reserve’s (Fed) preferred measure for underlying inflation, rose by 0.2%, in line with market expectations. This allowed the annual rate of core PCE to remain stable at 2.8% in December, still well above the Fed's 2% target.

Fed officials this week have expressed a keen interest in seeing more progress on inflation before considering further rate cuts while also recognising potential risks from changes in trade policy.

They will likely see that next week, with headline PCE for January expected to ease to 2.5% YoY. Core PCE inflation is expected to ease to 2.6% YoY in January from 2.8%, following the recent reassuring producer price index (PPI) data, which showed that the components that feed through into core PCE were cooler than expected.

The US rates market is currently pricing in a 25 bp Fed rate cut in September and 38 bp of cumulative Fed rate cuts for this year.

US headline & core PCE price index chart

• JP

Tokyo Inflation

Friday, 28 February at 10.30am AEDT

Japan’s Tokyo inflation has risen for three consecutive months, with headline inflation reaching 3.4% in January and core inflation climbing to 2.5% - its highest level since March 2024.

Coupled with mounting wage pressures, conditions for additional rate hikes by the Bank of Japan (BoJ) are falling in place. Following a 25 bp rate hike in January, market expectations are now divided on whether the BoJ will implement another 25 or 50 bp worth of hikes by year-end.

With Tokyo’s inflation data often seen as a leading indicator for nationwide trends, the upcoming release will be pivotal in shaping expectations for the timing of the next BoJ rate hike, currently priced for July 2025.

Tokyo core CPI is expected to ease to 2.3%, down from the 2.5% prior, signalling a slight cooling of inflationary pressures. This could reinforce expectations that the central bank can wait a bit longer before its next rate cut, likely until July 2025.

Tokyo headline and core CPI chart

• CN

NBS non-manufacturing PMI

Saturday, 1 March at 12.30pm AEDT

China’s January manufacturing PMI slipped back into contractionary territory, registering 49.1 and falling short of the 50.1 consensus. Non-manufacturing PMI also declined to 50.2, down from December's nine-month high of 52.2.

While some of this slowdown can be attributed to the Lunar New Year festive break, new orders saw their sharpest drop in five months, signalling still weak underlying demand as well. This may come as front-loading activities taper off and uncertainties around US tariffs continue to weigh on sentiments.

With the recent rally in Chinese equities fuelled by optimism over the closing of the US-China tech gap through DeepSeek, upcoming data will offer a reality check on China’s broader macroeconomic outlook. February’s official manufacturing PMI is expected to come in at 50.0, reflecting a fragile balance between growth and contraction.

CN NBS manufacturing & non-manufacturing PMI chart

• US

Q4 2024 earnings

The US Q4 2024 earnings season continues, with reports set to drop next week from companies including Home Depot, Salesforce, and the big one we have all been waiting for - Nvidia.

US earnings date chart