Josh Gilbert, market analyst at eToro, shares his three things to watch in Australia in the coming days.
It's a massive week for investors to navigate and is arguably one of the most important weeks of the year. It’s crucial to note that we’re likely to see volatility pick up this week.
Although we’re mentioning three things, there are plenty of other big events including more earnings results from US and AU companies.
Volatility and pullbacks are simply the price of entry into investing, and if you have a long-term investing plan, stick with it. Whatever is thrown investors’ way over the next week, the key is not to panic.
US election
The US election has dominated headlines in recent months, particularly among investors, given it causes plenty of uncertainty and markets crave certainty above all else.
It’s important to remember that despite this, markets primarily trade on fundamentals, not politics. Early signs in the prediction market have Trump ahead, which is just one of the reasons we saw bitcoin close in on an all-time high last week. However, the expectation of a Trump win has fallen significantly since last week and it seems a much closer run-in.
The biggest risk for markets, in my view, would be an uncertain outcome. This could put investors into ‘risk-off’ mode until there’s more clarity. That could be good for safe-haven assets like bonds and gold and a short-term negative for stocks and crypto.
As long as the big picture remains intact with strong earnings growth and a solid economic backdrop, short-term pullbacks are likely a buying opportunity for investors. Any pullbacks this year have been bought quickly by investors, continuing to send the S&P500 back to record highs.
Regardless of the result, having the election in the rearview might be what’s needed to provide another boost to equities.
RBA rate decision
Following last week’s release of third-quarter CPI data and the seventh consecutive hold on rates in September, this week’s meeting will be crucial, with trimmed mean inflation rising by 3.5% for the quarter.
Michelle Bullock remains focused on the trimmed figure, with the RBA’s estimates suggesting it won’t fall within the central bank’s target range of 2-3% until December 2025.
This recent inflation data indicates that we still have a way to go to reach the RBA’s target range. However, Australia’s annual inflation has dropped to its lowest rate in over three years, a small win for the RBA.
The labour market remains persistently strong, which, alongside last week’s inflation data, has only pushed out expectations further.
Current market pricing suggests that a rate cut won't happen until May next year. While this may seem dramatic, it reflects the complexities the RBA will face in the coming year.
We would look to February for the RBA’s first cut but we would need to see labour continuing to ease for that to be the case.
US Fed rate decision
The Federal Reserve’s preferred measure of inflation, PCE, posted its biggest monthly gain since April last week, while the US jobs report on Friday showed minor gains, coming in well below economist estimates. However, markets are still convinced that we’ll get a 25bps cut this week, pricing in a 95% chance of that being the Fed's preferred move.
The US appears to be on solid footing with the jobs market, the economy, and earnings — all three of which are instrumental to the stock market. Until that changes, the long-term drivers of the bull market remain intact.
Commentary from Jerome Powell this week will also be in focus, given that we’ve seen a pretty significant shift in data points, particularly over the last week. He’s likely to reiterate that the Fed isn’t on a pre-set course, but markets still anticipate another cut in December after November’s meeting.