A tentative Australian share market is expected to open lower today as investors await news from the RBA on rates, which are widely expected to be kept on hold at the central bank’s two-day meeting today. The question for many, including a hopeful Federal Government, is – when will they start cutting?
The mood also follows a downturn on Wall Street overnight, reflecting broader apprehension on global markets after US Federal Reserve chair Jerome Powell poured water on the idea of rate cuts in a 60 Minutes interview.
Powell cools sentiment
In the interview, which aired on Sunday in the US, Powell said the bank would proceed with caution over the course of 2024. He said: "We just want some more confidence before we take that very important step of beginning to cut interest rates."
The Fed's stance has already had an impact on market dynamics, with bond yields rising and the US dollar strengthening against the Aussie dollar, which hit its lowest since November at 64.83 US cents.
Wall Street's decline, attributed partly to lower-than-expected quarterly sales from McDonald’s, had a ripple effect, with ASX 200 futures pointing to a 0.3% drop.
This follows a 1% decrease at the close of Monday's trading session, which sets the scene for some significant monetary policy announcements.
The RBA is holding its first two-day board meeting under the leadership of Governor Michele Bullock, part of a suite of changes following the comprehensive review last year.
Analysts are already pushing back expectations of a rate cut, with markets now pricing in the possibility of a reduction in August, a shift from the earlier anticipated June, against a backdrop of softer inflation figures and the global economic landscape.
A former RBA official, Paul Bloxham, pointed to the need for policy measures that enhance Australia's productivity in a non -inflationary way ahead of any potential rate cuts.
Currencies and commodities
Global currencies were weak against the US dollar during overnight trade. The Euro declined, moving from US$1.0784 to US$1.0722 and stabilising around US$1.0740 by the close in the US.
The Australian dollar contracted, dipping from 65.18 US cents to 64.68 US cents, with a slight recovery to 64.80 US cents at the end of the day.
There was an uptick in oil prices, nearly 1%, amid growing concerns over Middle Eastern tensions and the ongoing conflict between Russia and Ukraine, which pose risks to global supply chains.
Brent crude oil prices rose by 66 US cents or 0.9% to $77.99 a barrel, while US Nymex crude saw a gain of 50 US cents or 0.7%, closing at $72.78 a barrel. Conversely, base metal prices experienced a downturn, attributed to the strengthening US dollar, with copper futures falling by 1.3% and aluminium futures declining by 0.9%.
Precious metals and iron ore futures were mixed. Gold futures fell by US$10.80 or 0.5% to US$2,042.90 an ounce, with spot gold trading near US$2,024 an ounce at the close of the US market.
Iron ore futures edged higher by US31 cents or 0.2% to US$128.94 a tonne, buoyed by Beijing's stimulus measures and the anticipated increase in demand following the Lunar New Year holiday period.
What’s happening in small caps?
The S&P/ASX Small Ordinaries closed at 2,932.00 yesterday, sliding -1.36% on the previous day.
Making news this morning, which you can read more about throughout the day with Proactive: