Ahead of the game: 9 September 2024

ASX 200 derailed by Wall Street and RBA rate stance

US equity markets fell this week, with September living up to its reputation for volatility. Economic data offered a mixed view of the economy ahead of a key non-farm payrolls report.

On the home front, the ASX 200 snapped its three-week winning streak, impacted by Wall Street's instability and the Reserve Bank of Australia's (RBA) firm stance against near-term interest rate cuts. This happened despite national accounts showing that Australia’s economy grew at its slowest rate since the early 1990s recession.

The week that was: highlights

• Institute for Supply Management (ISM) Manufacturing Purchasing Managers' Index (PMI) rose slightly to 47.2 in August 2024 from 46.8 in July, yet it fell short of market expectations of 47.5
• ISM Services PMI increased to 51.5 in August from 51.4 prior, above market expectations, looking for a fall to 51.1
• Job Openings and Labor Turnover Survey (JOLTS) Job Openings fell to 7.673 million from a downwardly revised 7.910 million in June—falling short of expectations of 8.1 million
• The Automatic Data Processing (ADP) employment report for August showed only 99,000 new jobs created—the weakest since January 2021
• US weekly initial jobless claims fell to 227,000, beating the consensus of 230,000
• China Caixin Manufacturing PMI rose to 50.4 in August from 49.8 prior
• In Australia, Q2 Gross Domestic Product (GDP) increased by 0.2% for an annual rate of 1.0%, the slowest pace of annual growth since the early 1990s recession
• Crude oil fell 5.82% this week to $69.27 on demand concerns
• Gold gained 0.50% this week to $2516, consolidating below its $2531 record high
• Wall Street's gauge of fear, the Volatility index (VIX), increased to 19.89 from 14.78 the prior week.

Key dates for the week ahead

Australia & New Zealand

• AU: Westpac Consumer Confidence (Tuesday, 10 September at 10.30am AEST)
• AU: National Australia Bank (NAB) Business Confidence (Thursday, 12 September at 11.30am AEST)
• NZ: NZ Business NZ PMI (Friday, 13 September at 8.30am AEST)

China & Japan

• CN: Consumer Price Index (CPI) and Producer Price Index (PPI) (Monday, 9 September at 11.30am AEST)
• CN: Retail Sales, Fixed Asset Investment (FAI) and House Price Index (Saturday, 14 September at 12pm AEST)

United States

• US: CPI (Wednesday, 11 September at 10.30pm AEST)
• US: PPI (Thursday, 12 September at 10.30pm AEST)
• US: Michigan Consumer Sentiment (Friday, 14 September at 12.00am AEST)

Europe & United Kingdom

• UK: Unemployment Rate (Tuesday, 10 September at 4.00pm AEST)
• UK: GDP (Wednesday, 11 September at 4.00pm AEST)
• EA: European Central Bank (ECB) interest rate decision (Thursday, 12 September at 10.45pm AEST)

Key events for the week ahead

• CN

CPI and PPI

Monday, 9 September at 11.30am AEST

In July, China’s CPI rose by a more-than-expected 0.5% year-on-year (YoY), driven by a surge in pork prices. However, core CPI, which strips out food and energy prices, increased by only 0.4%, below expectations.

This indicates that pricing pressures are not broad-based, continuing to highlight weak domestic demand in the world’s second-largest economy. The ongoing real estate slump was also reflected in a steeper-than-expected drop in rental prices.

For August, China’s consumer prices are expected to register a 0.7% YoY, up from the previous 0.5%. However, producer prices are forecast to contract more sharply at -1.4% YoY, compared to the previous contraction of 0.8%. Apart from the headline numbers, markets will watch for any broad-based price increases that could validate a potential economic recovery.

China's CPI and PPI chart

• AU

Westpac consumer confidence

Tuesday, 10 September at 10.30am AEST

In August, the Westpac-Melbourne Institute consumer sentiment index jumped by 2.8%, reaching a six-month high of 85.0. This was a significant rebound from July’s 1.1% decline, far surpassing market expectations of a modest 0.5% rise.

The recovery to the highest sentiment reading since February was driven by the visible effects of tax cuts and fiscal measures, along with easing concerns over RBA interest rate hikes. The ‘family finances vs a year ago’ sub-index surged by 11.7% to a two-year high of 70.9, while the outlook for family finances over the next 12 months rose 5.1% to 96.8.

The preliminary expectation for September is for a fallback to 83. The interest rate market shows an 85% chance of a 25 basis points (bp) rate cut in December, with a cumulative 57 bp of RBA rate cuts priced by April 2025.

Westpac-Melbourne Institute consumer sentiment index chart

• US

CPI

Wednesday, 11 September at 10.30pm AEST

In July, the annual headline inflation rate in the US cooled for the fourth straight month, dipping to 2.9%. This marked the lowest level since March 2021, down from 3.0% in June and below the 3.0% expected. . The annual core inflation rate, which excludes volatile food and energy sectors, continued its decline, hitting a more than three-year low of 3.2% in July 2024. This matched market expectations and was down from 3.3% in the previous month.

For August, the preliminary expectation is for annual headline inflation to ease to 2.6% and for core inflation to stay steady at 3.2% YoY. The rates market is pricing in 35 bps of Federal Reserve (Fed) rate cuts for September, with a cumulative 109 bps of Fed rate cuts anticipated by year-end.

US core inflation annual rate chart

• EA

ECB interest rate decision

Thursday, 12 September at 10.45pm AEST

In June, the ECB cut interest rates by 25 bps, lowering its deposit rate to 3.75% after expressing greater confidence in easing inflation. The ECB then kept rates on hold at the last meeting, indicating that the September meeting would be ‘live’.

Looking ahead, market expectations are fully priced in for the ECB to ease rates further by another 25 bps this month. Slowing wage growth last quarter has calmed policymakers' concerns around rising labour costs, reinforced by a sharp drop in Eurozone inflation to a three-year low of 2.2% in August.

Market participants will be on the lookout for any signals regarding the policy outlook, with expectations still divided on whether further back-to-back rate cuts will be necessary through the rest of the year. Fresh economic projections from the ECB will be key; any downward revisions to growth or inflation data could strengthen the case for faster rate cuts.

ECB interest rate chart