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ASX 200 eases ahead of US election amid RBA's hawkish rate hold

The ASX 200 fluctuates as bank stocks decline due to broker downgrades, while China's fiscal stimulus hopes uplift mining. RBA's rate decision and future announcements will shape Australia's market.

ASX Source: Adobe images

The ASX 200 trades 24 points lower (-0.55%) at 8140 as of 3.15pm AEDT.

RBA holds rates steady as inflation remains above target

The ASX 200 has declined today on light trading volumes as markets await tomorrow’s US election and the Reserve Bank of Australia’s (RBA) decision to keep interest rates unchanged at 4.35% for the eighth consecutive meeting.

In its accompanying statement, the RBA noted that while higher interest rates are working to balance demand with supply, underlying inflation - as measured by the trimmed mean - remains at 3.5% and is 'still some way from the 2.5 per cent midpoint of the inflation target.' According to today’s Statement on Monetary Policy, inflation is not expected to sustainably reach this target midpoint until 2026.

The RBA anticipated last week’s third quarter (Q3) decrease in headline inflation, which it attributed to 'declines in fuel and electricity prices during the September quarter.' However, the bank added that 'underlying inflation is more indicative of inflation momentum, and it remains too high.'

Labour market and productivity remain areas of concern

The RBA highlighted the strength of the labour market, noting that 'labour market conditions remain tight.' Additionally, concerns around low productivity were acknowledged, stating that 'labour productivity is still only at 2016 levels,' despite some improvement over the past year.

The RBA reiterated that the Board is 'not ruling anything in or out.' The statement concluded, 'the Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.'

In the Statement on Monetary Policy, the RBA lowered its forecast for end-2024 gross domestic product (GDP) growth from 1.7% to 1.5% and adjusted its forecasts for headline and trimmed-mean inflation to 2.6% year-over-year (YoY) (down from 3%) and 3.4% YoY (from 3.5%), respectively.

Today’s RBA message is clear that inflation remains too high, deferring any rate cuts until inflation aligns with targets. The rates market is currently pricing in a 4 basis point (bp) (17% chance) cut for December, with the first 25 bp cut anticipated at the May meeting.

Key data ahead of the RBA’s 10 December meeting

Upcoming economic data that may influence the RBA’s December decision include:

  • October labour force report: Thursday, 14 November
  • Monthly consumer price index (CPI) indicator: Wednesday, 27 November
  • Q3 GDP: Wednesday, 4 December
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ASX 200 stocks

Banking sector

Major banks have declined after a broker downgrade to Westpac following its earnings report yesterday.

  • Macquariefell 1.55% to $218.90
  • Westpac lost 1.5% to $31.92
  • CBA slipped 0.71% to $143.32
  • ANZ edged 0.58% lower to $31.08

Mining sector

Hopes that China's NPC meeting will announce fiscal stimulus details later this week have lifted the mining sector.

ASX 200 technical analysis

The ASX 200 spent last week below multi-month trend channel resistance, currently around 8350 - 8360, and above key support at 8110 - 8100. A break through either level will signal the index’s next significant move.

ASX 200 daily chart

ASX 200 daily chart Source: TradingView
ASX 200 daily chart Source: TradingView
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  • Source: TradingView. The figures stated are as of 5 November 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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