-The global outlook on interest rates globally continued to diverge this week with the FOMC cutting the overnight rate by -25bps and announcing the start of Reserve Management Purchases, which CrossBorder Capital’s Michael Howell refers to as ‘Not QE, QE’. The Fed is starting purchases on Dec 12 at a monthly pace of US$40bn of mostly Treasury bills.
-While the market had been poised for a hawkish cut, the outcome was rather more dovish and boosted the gold price, US markets and general sentiment.
-In contrast, the RBA’s December decision to retain the cash rate on Tuesday turned into a more hawkish affair at the presser, with brokers and banks penning RBA rate hikes, possibly as early as February 3rd, which has quickly become a live meeting.
-The outlook was muddied again on Thursday when the Australian labour force report showed -21k jobs had been shed in November, missing the expected 20k gain.
-IG noted “declining participation and job losses are hardly signs of a healthy labour market, and this was reflected in the rates space with yields falling across the complex, leaving the rates market pricing in just 45bp of rate hikes between now and the end of 2026, down from 56bp on Wednesday afternoon.”
-A data dependent RBA will be laser focused, as will traders and the markets, on key upcoming data; labour market (22 Jan), inflation (Nov CPI on 7 Jan and Q4 on 28 Jan) as well as the various consumer and housing indicators in January. Key in its deliberations is how broad based and persistent the recent pick-up in inflation is.
-It has been a big week for brokers updating the outlook for resource stocks as the copper and silver prices hit record highs as short squeezes intensified for the shiny metal. The gold price is trending to US$4300oz and could retest the record high of US$4381oz, with rumbling from NATO preparing for war with Russia at some stage no doubt stoking for fear ‘gold’ trade’
-The ASX200 had a mildly positive experience this week with ongoing divergence between sectors. Materials continued to be the standout, rallying another 4.26%, bringing the year gain to over 22%. Info Tech continued to experience the brunt of selling with ongoing rotation out of the sector, down -4.26% for the week and almost -20% for the last 12 months.
-Notably, the domestic tech sector performance stands in contrast to the US Nasdaq and may reflect an ongoing de-rating of valuation on higher interest rate expectations, while the resources sector’s outlook remains more appealing.
-The only other sectors to lift were real estate and financials, with the balance all fading over the week under selling pressure.
-Next week, the Westpac Consumer Sentiment Index is due out on Tuesday, let’s see if the outlook for higher interest rates has started to impact yet.
-In central bank world, the Bank of Japan monetary policy decision on Friday may create further volatility across currency and global bond markets.
FNArena wishes everyone a lovely, safe, and happy weekend.
