Investor optimism surrounding potential interest rate cuts in the United States is set to drive the Australian sharemarket towards a record high. Following the release of disappointing jobs figures in the U.S., where only 22,000 jobs were added outside of farming in August—far below the expected 75,000—market sentiment has shifted positively.
Despite futures indicating a 0.2 percent decline for the S&P/ASX 200 Index at the start of trading, this outlook was established before a notable surge in U.S. markets late on Friday. The Dow Jones, S&P 500, and Nasdaq all climbed nearly 1 percent, with the Nasdaq experiencing the most significant gains as investors adjusted their expectations ahead of the Federal Reserve’s upcoming decisions.
Market Reactions and Economic Implications
Hugh Dive, chief investment officer at Atlas Fund, expressed confidence that the ASX could indeed reach record levels this week, highlighting the seasonal influx of dividends into investor accounts. Diana Mousina, deputy chief economist at AMP, echoed this sentiment, attributing the positive outlook to U.S. President Donald Trump’s shift towards more market-friendly policies and the anticipated return of rate cuts by the Federal Reserve.
The market’s reaction to Friday’s jobs report led traders to increase expectations for a more aggressive easing path from the Fed. Currently, they estimate a 10 percent chance of a double rate cut at the Fed’s next meeting, while fully anticipating a standard quarter-point reduction. This speculation has led to a decline in Treasury yields, with the policy-sensitive U.S. 2-year note yield dropping 8 basis points to 3.51 percent and the 10-year benchmark yield falling 9 basis points to 4.09 percent.
In parallel, gold prices surged, nearing a record high of just under $3,600 per ounce, driven by rising investor demand. The precious metal recorded a 4 percent increase on Friday alone, marking its third-largest weekly gain of the year. Year-to-date, gold has risen by 37 percent, benefiting from geopolitical uncertainty and central bank purchasing.
Local Developments and Future Outlook
Lower interest rates generally bolster stock markets by reducing borrowing costs for businesses. The ASX has already seen gains due to a stronger-than-expected earnings season and positive economic indicators domestically. George Boubouras, head of research at K2 Asset Management, noted that further rate cuts anticipated from the Reserve Bank of Australia (RBA) could significantly support consumer spending.
Currently, financial markets are suggesting a 75 percent likelihood that the RBA will reduce the cash rate in November to 3.35 percent. The central bank has already cut rates three times this year, successfully bringing inflation back within its target range of 2 percent to 3 percent.
As the week progresses, investors will focus on consumer and business confidence surveys for indications of further easing from the RBA. Numerous investor meetings are scheduled, featuring companies such as Novonix, Brickworks, Soul Patts, Metcash, and Strike Energy. Additionally, approximately $723 million in dividends are expected to be distributed to investors in the coming week.
On the international front, attention will shift to the consumer price index (CPI) report set for release on Thursday, ahead of the Federal Reserve Open Market Committee’s policy meeting scheduled for September 16-17. Forecasts predict the CPI will rise to 2.9 percent year-on-year, up from 2.7 percent in July. Carrie Freestone, an economist at the Royal Bank of Canada, commented on the impending pressures from tariffs on services, which may soon affect core goods.
In Europe, investors will be closely monitoring the European Central Bank’s policy decision on Thursday, with expectations that the key deposit rate will remain unchanged at 2 percent. Carol Kong, an economist at Commonwealth Bank, anticipates one more 25 basis point cut from the ECB in December, contingent on economic performance and inflation trends.
As these developments unfold, the Australian sharemarket stands poised for a significant week, backed by both local and international economic factors.
