Financial markets continued to rally during the week, supported by further dovish comments by US Fed Chair Jerome Powell who indicated that US cash rate policy was ‘well into restrictive territory’. We now take the view that US cash rates have peaked, and the next move will be lower. However, while the market is pricing in the first rate cut in the US through the 1q24 and 125bps (1.25%) in rate cuts over 2024, we believe this is premature given that inflation still remains slightly above the Fed’s target along with the continued strength of the US economy, which grew at an annualised rate of 5.2% over the 3q23, with personal consumption contributing +2.4% to the figure. With the jobless rate set to remain at 3.9% (no change pcp) when released later this week (despite the JOLTs report f’csting a -220k decline pcp), we continue to expect that the Fed will take its time and require further convincing that it should look to cut rates. While both factory order data (f’cst -3.8%, -5.8% pcp) and durable goods orders (f’cst -5.4%) for Oct are set for release this week and are likely to show some slowly from prior periods, overall trend growth remains sound. Should there be any cuts in US rates we continue to expect that it will occur through the 2h24 with only a material slowdown in the outlook for the US economy warranting an earlier move lower. In Aust, the focus will be on the RBA meeting (Tues 5th Dec) and the release of the 3q23 GDP figures. We see no change to the current policy of the RBA (official cash rate at 4.35%) but believe its still a 50/50 probability of one further rate hike through the 1q24. Despite a better than f’cst (m/m) inflation print for Oct (4.9% v’s est 5.2%), the challenge to get inflation back within the RBA target band remains, and while retail sales were weaker for Oct (-0.2%, f’cst +0.1%), stronger building approvals along with solid private credit data show domestic consumption remains sound. In China, the release of PMI data (f’cst 50.0) for Nov along with both CPI (f’cst-0.2% y/y) and PPI data ( f’cst -2.9% y/y) will continue to add to the pressure facing the government and PBOC as it deals with further evidence of a slower growth outlook. This will continue to add to further downside pricing pressure across some commodity markets into the back end of the year.
This post has been prepared by Infinity Capital Solutions Pty Ltd (ABN 41 621 447 345) (AFSL Number 515762) (ICS). By reading or otherwise attending this presentation, you (the reader, recipient, or attendee) agree to be bound to the below terms and conditions.
This post and any supporting materials may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of any general advice we may have given you, having regard to your own objectives, financial situation and needs before acting on it. Where the information relates to a particular financial product, you should obtain and consider the relevant product disclosure statement and/or Target Market Determination before making any decision to purchase that financial product. The material in this post is correct and complete as of the date it was posted. Infinity is not responsible for, and expressly disclaims all liability for, damages of any kind arising out of use, reference to, or reliance on any information contained within this post.
