Ahead of the game: 9 December 2024

US indices and ASX 200 reach new heights amid economic shifts

All three major United States (US) stock indices reached fresh record highs this week, highlighted by the Dow Jones closing above 45,000 for the first time. The rally was supported by positive commentary from Federal Reserve (Fed) Chair Powell, who highlighted the resilience of the US economy and progress on inflation.

In Australia (AU), the ASX 200 hit another new record this week. However, the rally lost momentum following the soft Australian third quarter (Q3) gross domestic product (GDP) print. Although the Australian economy grew for a 12th consecutive quarter, its 0.8% annual growth rate was the weakest since the 1990s recession outside the Covid-19 period.

The week that was: highlights

• In the US, the Institute for Supply Management (ISM) services purchasing managers' index (PMI) for November 2024 surprised to the downside, falling to 52.1 from 56 in October
• Job Openings and Labor Turnover Survey (JOLTS) job openings increased by 372,000 in October to 7.74 million, above the 7.48 million expected
• Initial jobless claims last week rose to 224,000, above market expectations of 215,000
• Factory orders increased by 0.2% in October, rebounding from a -0.2% fall in September
• In China (CN), the Caixin manufacturing PMI increased to 51.5 in November from 50.3 prior
• In AU, GDP increased by 0.3% in the September quarter for an annual rate of 0.8%
• Crude oil rose 0.44% to $68.30 as the Organization of the Petroleum Exporting Countries Plus (OPEC+) confirmed its existing production cuts will be extended for three months until April
• Gold fell 0.70% to $2631
• Bitcoin hit a fresh record high of $103,647 before easing back below $100,000
• Wall Street's gauge of fear, the volatility index (VIX), remained near 13.50.

Key dates for the week ahead

Australia & New Zealand

• AU: National Australia Bank (NAB) business confidence (Tuesday, 10 December at 11.30am AEDT)
• AU: Reserve Bank of Australia (RBA) interest rate decision (Tuesday, 10 December at 2.30pm AEDT)
• AU: Labour force report (Thursday, 12 December at 11.30am AEDT)

China & Japan

• CN: Consumer price index (CPI) and producer price index (PPI) (Monday, 9 December at 12.30pm AEDT)
• CN: New yuan loans (Friday, 13 December at no set time AEDT)

United States

• US: CPI (Thursday, 12 December at 12.30am AEDT)
• US: PPI (Friday, 13 December at 12.30am AEDT)

Europe & United Kingdom

• UK: GDP (Thursday, 12 December at 6.00pm AEDT)
• EA: European Central Bank (ECB) interest rate decision (Friday, 13 December at 12.15am AEDT)

Key events for the week ahead

• CN

CPI

Monday, 9 December at 12.30pm AEDT

China’s inflation for October revealed weak domestic demand, with consumer prices growing at 0.3% year-on-year (YoY), a slight downtick from September's 0.4%. This marks the lowest inflation level in four months, indicating ongoing deflationary pressures despite government efforts to stimulate the economy.

Producer prices also contracted more than expected, registering a 2.9% YoY decline versus the -2.5% consensus. This is the deepest contraction since December 2023. With recent PMI data indicating uneven economic recovery, the effectiveness of policy measures remains uncertain.

Looking ahead, expectations are for China’s November CPI to remain subdued but slightly positive. Potential distortions from the Golden Week holiday in October may reveal a clearer picture of China’s economic momentum.

CN CPI and PPI chart

• AU

RBA interest rate decision

Tuesday, 10 December at 2.30pm AEDT

As expected, the RBA kept its official cash rate on hold in November at 4.35% for an eighth consecutive meeting.

The RBA noted that while higher rates are helping balance demand and supply, underlying inflation (as represented by the trimmed mean) at 3.5% is ‘still some way from the 2.5% midpoint of the inflation target’. The forecasts in the latest Statement on Monetary Policy do not see inflation sustainably returning to target until 2026.

Despite the Q3 headline inflation decline due to lower fuel and electricity prices, underlying inflation remains high, suggesting persistent momentum.

The Board remains resolved to return inflation to the target and will take necessary actions to achieve that outcome. For 2024, the GDP growth forecast is lowered to 1.5% from 1.7% and inflation to 2.6% YoY (from 3%). After a weak Q3 GDP report, the RBA is likely to keep rates on hold but may signal a dovish shift next week to support the economy, potentially preparing for a rate cut in February.

RBA cash rate chart

• US

CPI

Thursday, 12 December at 12.30am AEDT

The US October CPI aligned with market expectations, with headline inflation rising to 2.6% from 2.4%, while core rates held steady at 3.3% YoY. Without an upside inflation surprise, expectations persist for a 25 basis point (bp) rate cut from the US Fed.

Market participants hope to see more signs of inflation control, particularly in core metrics, supporting the Fed’s easing into next year. Forecasts for headline CPI show a 0.2% month-on-month (MoM) increase, with core inflation rising 0.3% MoM, unchanged from October.

US core and headline CPI chart

• AU

Labour force report

Thursday, 12 December at 11.30am AEDT

In October, the Australian economy added 15,900 jobs, slightly below the expected 25,000 gain. The unemployment rate remained at 4.1% for the third month as the participation rate eased to 67.1% from 67.2%.

Australian Bureau of Statistics (ABS) head of labour statistics, Bjorn Jarvis, noted: "This is the third consecutive month with the unemployment rate at 4.1%. This is 0.6 percentage points above its recent low of 3.5% in June 2023, but 1.1 percentage points below March 2020, when it was 5.2%."

October's softer jobs numbers hint at cooling within the resilient labour market. The strength of the market and high core inflation have postponed expectations for an RBA rate cut until 2025.

For November, the expectation is for 20,000 new jobs, with unemployment holding at 4.1%. There is a 40% chance of an RBA rate cut in February, with a 25 bp reduction fully priced for April.

AU unemployment rate chart

• EA

ECB interest rate decision

Friday, 13 December at 12.15am AEDT

At its last meeting, the ECB continued easing with a 25 bp cut to its deposit rate, now at 3.25%. Given weak survey data and declining core inflation, another 25 bp cut is expected, bringing the rate to 3%.

The ECB aims to ‘gradually remove restrictions’, paving the way for more cuts next year. The ECB will release forecasts to 2027, with downward revisions likely for growth and inflation.

The Euro Area rates market is fully priced for a 25 bp cut at next week's meeting, with 157 bp priced by December 2025.

ECB deposit rate chart