The morning catch up: Crisis averted in the US; holidays slow down the local market ahead of RBA meeting

© Reuters. The morning catch up: Crisis averted in the US; holidays slow down the local market ahead of RBA meeting

A day ahead of new Reserve Bank of Australia (RBA) governor Michelle Bullock’s first central bank meeting, the ASX is set to fall. Another public holiday in Australia, this one a day after Penrith’s NRL win in New South Wales, is likely to make it a slow day on the market.

ASX 200 futures are trading 38 points lower, down -0.54% as of 8:20 am AEST.

The RBA is expected to hold the cash rate at 4.1%.

We are not out of the woods yet though, with inflation rising from 4.9 to 5.2% in the year to July.

However, Westpac chief economist Bill Evans said: “A more reliable indicator – the monthly trimmed mean, which excludes volatile items – actually slowed from 5.8 to 5.5%.

“The more comprehensive September quarterly inflation report will be watched closely by the board – with information from that quarterly update to feed into the RBA’s considerations at the November board meeting.”

Evans believes rates will be kept on hold until August 2024, at which point we could see some relief.

In some good news, US Congress avoided a government shutdown by passing legislation with bipartisan backing to extend funding through mid-November.

That’s not that much time bought, but it does give Congres a few more weeks to negotiate spending priorities.

The lose out of this could be House Speaker Kevin McCarthy, who may lose his position for joining forces with the opposition.

“I do intend to file a motion to vacate against Speaker McCarthy this week,” McCarthy critic Matt Gaetz said. “I think we need to rip off the Band-Aid. I think we need to move on with new leadership that can be trustworthy.”

McCarthy said ‘bring it on”.

“If he’s upset because he tried to push us in a shutdown and I made sure government didn’t shut down, then let’s have that fight.”

What happened last week?

Here’s what we saw (source Commsec):

US markets

Were mixed on Friday as investors digested the latest US inflation report and fretted about the potential for a US government shutdown. New York Fed President John Williams said that the US central bank should leave interest rates high for some time. Nike (NYSE:NKE) shares jumped 6.7% after its first-quarter profit beat Wall Street expectations.

• The Dow Jones index fell by 159 points or 0.5%.
• The S&P 500 index lost 0.3%.
• The Nasdaq index added 18 points or 0.1%.

In September, the Dow fell 3.5%. The S&P 500 shed 4.9% and the Nasdaq slid 5.8%, posting their worst months this year. For the third quarter, the S&P 500 fell 3.7%, the Dow lost 2.6%, the Nasdaq shed 4.1%.

European markets

Rose on Friday after a drop in inflation cemented hopes the European Central Bank will pause its interest rate hikes. Annual eurozone consumer prices rose by 4.3% in September, the slowest pace since October 2021, from 5.2% in August (survey: 4.5%).

• The continent-wide FTSEurofirst 300 index rose by 0.3% on Friday. But the index slid 1.5% in September and 2.6% for the third quarter, the first quarterly drop in a year.
• The UK FTSE 100 index gained 0.1% on Friday, lifted 2.3% in September and was up 1% in the third quarter.

Currencies

Were weaker against the US dollar in European and US trade.

• The Euro fell from US$1.0615 to US$1.0563 and was near US$1.0570 at the US close.
• The Aussie dollar dipped from US64.99 cents to US64.22 cents and was near US64.35 cents at the US close.
• The Japanese yen eased from 148.53 yen per US dollar to JPY149.48 and was near JPY149.35 at the US close.

Commodities

Global oil prices fell on Friday due to global growth concerns and profit-taking but rose 27% in the third quarter after OPEC+ production cuts squeezed supply.

• The Brent crude price fell by US7 cents or 0.1% to US$95.31 a barrel.
• The US Nymex crude price dipped US92 cents or 1% to US$90.79 a barrel.
• Brent rose 2.2% over the week with the US Nymex up 0.8%.

Base metal prices climbed on Friday.

• The copper futures price rose by 0.9%.
• The aluminium futures price lifted 2.5% as stocks at LME-registered warehouses declined. For the week, copper gained 1.7% and aluminium jumped 5.1%.
• On Friday the gold futures prices fell by $12.50 an ounce or 0.7% to more than six-month lows of US$1,866.10 an ounce.
• Spot gold was trading near US$1,848 an ounce at the US close. Gold slid 4.1% for the week, its biggest weekly decline in more than a year.
• Iron ore futures rose by US60 cents or 0.5% to US$119.74 a tonne on Friday. Over the week, the steel-making ingredient lost 1.3% ahead of China's Golden Week holiday.

What's next for Australian market?

Wealth Within chief analyst looks ahead to what to expect from the ASX in the coming weeks.

“In stark contrast to recent weeks, the All Ordinaries Index experienced a second week down. While this may be an early sign that the roller coaster ride of late may be easing, it is too early to tell.

“While I still believe we should expect further falls, I believe the worst may be over and that the Australian market won’t fall much further. The good news last week was that the All Ordinaries Index did fall below the low set the previous week.

“As we move into October, many people believe it is the worst month in the market but this is simply not true. Historically, the month of October tends to finish in positive territory, which is why I remain positive about our market overall.

“That said, now is not the time to be complacent, especially as we move into the last part of the year, which historically presents the best months for growth in the stock market. As always, right now anything is possible in these current conditions; therefore, until we know when the current down move is over, I recommend everyone exercise caution.”

What about small caps?

The S&P/ASX Small Ordinaries (XSO) finished the week 0.64% higher last week to 2,713.10.

As expected it has been a quiet day on the news front. Here’s a few early announcements to look out for.

Read more on Proactive Investors AU

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