Wall Street records highlight ASX 200 market decline

Wall Street hits record highs as ASX 200 faces decline

The three major indices on Wall Street hit record highs earlier this week before pulling back as the weekend approached. The reversal was driven by strong economic data that cast doubt on the need for further Federal Reserve (Fed) rate cuts. Rising geopolitical concerns, high valuations, and month- and quarter-end selling pressures also weighed on the market.

Locally, the Australia 200 (ASX 200) is set to post its fourth consecutive week of declines, breaking a five-month winning streak. This week's decline was exacerbated by a hotter-than-expected monthly inflation report, prompting traders to reassess expectations of multiple Reserve Bank of Australia (RBA) rate cuts. This shift negatively impacted interest rate-sensitive real estate, consumer-facing, and financial stocks.

The week that was: highlights

• In the United States (US), the SS&P flash composite purchasing managers' index (PMI) for September eased to 53.6 from 54.6 prior
• Durable goods orders rose 2.9% month-on-month (MoM) in August, rebounding from a 2.7% decline previously
• Initial jobless claims fell by 13,000 to 218,000 versus the expected 233,000
• Second-quarter (Q2) real gross domestic product (GDP) was revised up by 0.5% to 3.8%, with real consumption revised higher from 1.7% to 2.5%
• In the European Union (EU), the HCOB flash composite PMI for September increased slightly to 51.2 from 51
• In the United Kingdom (UK), the S&P flash composite PMI for September eased to 51 from 53.5
• In Japan (JP), the Tokyo consumer price index (CPI) rose 2.5% year-on-year (YoY) in September, below expectations for a rise to 2.8%
• In Australia, the monthly CPI indicator showed headline inflation rose to 3.0% YoY in August, up from 2.8% in July
• Meanwhile, the annual trimmed mean inflation, which better reflects the underlying trend, eased to 2.6% YoY in August from 2.7% in July, in line with expectations
• Crude oil gained 4.57% this week, reaching $65.25
• Gold gained 1.6%, reaching $3743
• Bitcoin fell 5.2% this week, down to $109,280
• Wall Street’s volatility index (VIX) increased to 16.73 from 15.46 the previous week.

Key dates for the week ahead

Australia & New Zealand

• RBA interest rate meeting: Tuesday, 30 September at 11.30am AEST
• RBA financial stability review: Thursday, 2 October at 11.30am AEST

China & Japan

• China NBS PMIs: Tuesday, 30 September at 11.30am AEST
• RatingDog PMIs: Tuesday, 30 September at 11.45am AEST
• JP Tankan Survey third quarter (Q3): Wednesday, 1 October at 11.45am AEST
• JP consumer confidence: Thursday, 2 October at 3.00pm AEST

United States

• Job Openings and Labor Turnover Survey (JOLTs) job openings: Wednesday, 1 October at 12.00am AEST
• Conference Board (CB) consumer confidence: Wednesday, 1 October at 12.00am AEST
• Automatic Data Processing (ADP) employment report: Wednesday, 1 October at 10.15pm AEST
• Institute for Supply Management (ISM) manufacturing PMI: Thursday, 2 October at 12.00am AEST
• Non-farm payrolls: Friday, 3 October at 10.30pm AEST
• ISM services PMI: Friday, 4 October at 12.00am AEST

Europe & United Kingdom

• Euro Area (EA) inflation: Wednesday, 1 October at 7.00pm AEST

Key events for the week ahead

AU: Reserve Bank of Australia (RBA) interest rate meeting

Date: Tuesday, 30 September at 11.30am AEST

At its last meeting in August, the RBA lowered the official cash rate by 25 basis points (bp) to 3.60%. The outcome was widely expected by the market, and the decision to cut rates was unanimous.

The RBA noted the progress made on inflation, with updated staff forecasts suggesting that 'underlying inflation will continue to moderate to around the midpoint of the 2–3% range, with the cash rate assumed to follow a gradual easing path.'

The RBA revised its GDP projection for December 2025 lower to 1.7% from 2.1% and noted that conditions in the labour market have eased further. However, its expectations for a gradual economic recovery, with unemployment remaining low, remained broadly intact, supported by further easing measures.

Since then, the market has received two hotter-than-expected monthly CPI reports for July and August; the latter reinforces expectations that the RBA will keep its cash rate on hold at its September meeting. This is consistent with its easing pathway this year, where a rate cut has been followed by a pause at the next meeting.

Whether the RBA decides to cut rates by 25 bp in November will depend on the September labour force report due in mid-October and the crucial Q3 inflation report scheduled for release on 29 October.

Reflecting the impact of this week’s warmer-than-expected inflation update, pricing for the RBA’s November meeting has now fallen to a 40% probability of a 25 bp rate cut, after starting this week with a 70% probability.

RBA cash rate chart

Euro Area: inflation

Date: Wednesday, 1 October at 7.00pm AEST

For August, headline inflation in the euro area remained at 2% for a third straight month. Core inflation, which strips out food and energy, also held steady at 2.3% for a fourth consecutive month.

Earlier this month, the European Central Bank (ECB) kept its three key interest rates on hold as widely expected. This came after the ECB delivered eight cuts totalling 175 bp between June 2024 and June 2025. With inflation at the ECB’s 2% medium-term target and the eurozone economy showing resilience.

This month the preliminary expectation is for the headline inflation to rise to 2.2% YoY in September and for the core measure to remain at 2.3%. This outcome would likely reinforce expectation for the ECB to remain on hold until after the first quarter (Q1) of 2026.

EA inflation rate chart

US: non-farm payrolls

Date: Friday, 3 October at 10.30pm AEST

For August, non-farm payrolls increased by just 22,000, well below the upwardly revised 79,000 in July and market forecasts of 75,000. The unemployment rate increased to 4.3% from 4.2%, in line with expectations, marking the highest rate since October 2021.

This was followed a few days later by the Bureau of Labor Statistics (BLS) annual benchmark revisions, which showed that the US economy added 911,000 fewer jobs in the 12 months through March 2025 than initially reported. The combination of soft labour market data ensured that the Federal Reserve delivered a 25 bp rate cut at its meeting in mid-September.

While Fed Chair Jerome Powell’s prepared remarks at the Federal Open Market Committee (FOMC) meeting were notably more dovish than at the previous meeting, highlighting downside risks to employment and pointing to more cuts ahead, he adopted a more hawkish tone during the question and answer (Q&A). He described the rate cut as a 'risk management' measure, noting, 'If you look at the SEP, the projections for growth have actually ticked up.'

Economic data this week, including a 0.5% upward revision to Q2 GDP to 3.8%, have supported the Fed Chair's cautious tone in the Q&A. This, along with a number of other strong data points this week, has led the US interest rate market to taper its expectations of aggressive Fed rate cuts ahead. The US interest rate market is now pricing in 38 bp of Fed rate cuts into the year-end, down from 44 bp last week.

For September, the preliminary expectation is that the US economy will add 40,000 jobs, and the unemployment rate will remain at 4.3%.

US unemployment rate chart