Fed rate cuts drive Wall Street gains as ASX 200 faces downturn

Wall Street soars on Fed cuts; ASX 200 declines with Santos news

The three major indices on Wall Street hit record highs again this week, bolstered by the Federal Reserve's (Fed) rate cut and expectations of further reductions, which boosted investor confidence. Technology stocks drove the rally, with Intel soaring over 22% on Thursday following NVIDIA's $5 billion investment to collaborate on chip development, while NVIDIA itself gained more than 3%.

Locally, the Australia 200 (ASX 200) is set to finish the week below 8800, marking a third week of declines. If the current trend continues, September will be its first losing month since March as it continues to consolidate after reaching a record high of 9054.5 in late August.

The ASX 200 energy sector was responsible for a significant portion of the decline after reports emerged on Thursday that Abu Dhabi had sensationally withdrawn from its $30 billion takeover bid for Santos, just 48 hours before a binding, all-cash offer was due to be received by the South Australian-based company. Declines in the materials and financial sectors also weighed on the local bourse.

The week that was: highlights

• In the United States (US), the Fed cut interest rates by 25 basis points (bp) to a range of 4.00–4.25%, as widely expected
• US retail sales rose by 0.6% month-on-month (MoM) in August
• Initial jobless claims declined 33,000 to 231,000, below the consensus of 240,000
• In Canada, the Bank of Canada cut rates by 25 bp to 2.75%
• In Japan (JP), the core inflation rate rose by 2.7% year-on-year (YoY) in August, easing from 3.1% prior
• In the United Kingdom (UK), the Bank of England (BoE) kept its official bank rate on hold at 4.00%, as widely expected
• Staying in the UK, the annual headline inflation rate held steady at 3.8% in August, while core inflation eased to 3.6% from 3.8%
• In China (CN), industrial production eased to 5.2% YoY in August from 5.7% prior, while retail sales eased to 3.4% YoY from 3.7%
• The Australian economy added 20,000 jobs in August, with the unemployment rate remaining steady at 4.2%
• Crude oil gained 0.99% this week to $63.31
• Gold is trading flat at $3639 after hitting a new record high at $3707
• Bitcoin gained 1.85% this week to $117,477
• Wall Street's gauge of fear, the volatility index (VIX), increased to 15.69 this week from 14.75 the previous week.

Key dates for the week ahead

Australia & New Zealand

• AU monthly consumer price index (CPI) indicator: Wednesday, 24 September at 11.30am AEST

China & Japan

• JP S&P flash purchasing managers' indexes (PMIs): Wednesday, 24 September at 10.30am AEST
• JP Bank of Japan (BoJ) meeting minutes: Thursday, 25 September at 9.50am AEST

United States

• US S&P PMIs: Tuesday, 23 September at 11.45pm AEST
• US durable goods orders: Thursday, 25 September at 10.30pm AEST
• US second quarter (Q2) gross domestic product (GDP) final: Thursday, 25 September at 10.30pm AEST
• US core personal consumption expenditures (PCE) inflation: Friday, 26 September at 10.30pm AEST
• US Michigan consumer sentiment final: Friday, 27 September at 12.00am AEST

Europe & United Kingdom

• Euro area Hamburg Commercial Bank (HCOB) flash PMIs: Tuesday, 23 September at 6.00pm AEST
• UK S&P flash PMIs: Tuesday, 23 September at 6.30pm AEST

Key events for the week ahead

AU: monthly CPI indicator

Date: Wednesday, 24 September at 11.30am AEST

For July, the monthly CPI indicator rose by 2.8% YoY, accelerating sharply from 1.9% in June. Annual trimmed mean inflation surged to 2.7% YoY from 2.1%, reaching its highest level since March 2025.

Some of the strength was due to timing issues, particularly regarding electricity, hotel travel, and accommodation prices. The latter was impacted by the July school holidays, which saw strong demand for domestic airfares and accommodation.

Electricity prices rose significantly after households in New South Wales (NSW) and Australian Capital Territory (ACT) did not receive payments from the extended Commonwealth Energy Bill Relief Fund (EBRF) in July. Payment of rebates for households in NSW and ACT will instead commence in August.

This month, the preliminary expectation is for headline inflation to rise to 2.9% YoY. The Australian interest rate market is pricing in 19 bp of rate cuts for the Reserve Bank of Australia’s (RBA) meeting in November, with a follow-up 25 bp rate cut almost fully priced for March 2026.

Monthly CPI indicator chart

US: core PCE price index 

Date: Friday, 26 September at 10.30pm AEST

For July, the headline PCE price index increased by 0.2% MoM, easing from 0.3% in June. This saw the annual rate of headline PCE inflation remain at 2.6% in July, in line with expectations.

The core PCE Index, the Fed's preferred measure of inflation, rose by 0.3% MoM, the same as in June. This increased the annual rate of core PCE inflation to 2.9% from 2.8%, marking the highest in five months and aligning with expectations.

Despite the rise in inflation, the Fed cut rates by 25 bp this week to a range of 4.00–4.25%, as widely expected, in response to rising recession risks from a cooling labour market, and signalled more rate cuts ahead.

For August, the expectation is for the core PCE price index to rise by 0.2% MoM, which would keep the annual rate at 2.9%, above the 2.6% low it reached in April, as the inflationary impact of President Trump's tariffs becomes more apparent.

The US interest rate market is pricing in a 90% chance of a 25 bp rate cut at the Federal Reserve’s meeting on 29 October and a cumulative 43 bp of Fed rate cuts between now and year-end.

US core PCE price index chart

UK: S&P flash PMIs

Date: Tuesday, 23 September at 6.30pm AEST

For August, the Composite PMI increased to 53.5, up from 51.5 in July. This marked the fourth consecutive month of growth and the quickest pace since August 2024. The expansion was largely driven by the services sector (54.2 vs 51.8 in July), offsetting a contraction in the manufacturing sector (47 vs 48).

While the UK economy continues to grapple with persistent inflation, growth in the UK economy has been generally better than expected this year, rising by 1.2% YoY in Q2 2025.

These factors were largely behind the BoE’s decision to keep rates on hold this week at 4.00% and its hawkish guidance which now has the UK rates market pricing in no further rate cuts in 2025 before another 25 bp rate cut in March 2026.

This month, the preliminary expectation is for the Composite PMI to ease marginally to 52.6.

UK Composite PMI chart