ASX set to fall; US markets drift ahead of Fed meeting

The lowdown

The Reserve Bank released the minutes from its September meeting, which RBC Capital Markets strategist Robert Thompson described as dovish but “only marginally so and not by enough to prompt a meaningful market reaction”.


“Discussion around the faster transmission of hikes to mortgage rates in Australia versus other countries was new and leant dovish, in our view. Commentary on inflation acknowledged further slowing evident in the monthly July report, though somewhat balanced by remaining risks to inflation expectations,” Thompson wrote.

He also noted that China was mentioned 15 times in the meeting minutes, compared to just four times in August, with the increased references predominantly focused on financial risks to the property sector.

“We remain of the view that the RBA may need to hike once more this cycle, but today’s minutes gave us nothing to suggest that a hike is imminent,” Thompson wrote.

Overnight, US stocks drifted in quiet trading as Wall Street made few big moves overall in advance of the Federal Reserve’s next meeting on interest rates. The S&P 500 edged up 0.1 per cent, coming off its second straight losing week. The Dow Jones rose less than 0.1 per cent and the Nasdaq composite added less than 0.1 per cent.

US stocks have been seesawing since early August on uncertainty about whether the Fed is finally done with its drastic hikes to interest rates. Higher rates have helped cool inflation from its peak last summer, but they also hurt prices for stocks and other investments while slowing the economy.

Traders almost universally expect the US Fed to keep rates steady at its meeting this week. More attention will be on the forecasts Fed officials will publish about where they expect interest rates, the economy and the job market to head in upcoming years.

One of the first the market will fixate on is how high officials at the Fed see its main interest rate rising this year. Traders are betting on a roughly 40 per cent chance the Fed will raise rates again in either November or December, according to data from CME Group.

But just as much attention will be on what Fed officials say about next year, when investors expect the Fed to begin cutting interest rates. Investors crave such cuts, which typically loosen up financial conditions and give boosts to financial markets. The big question is by how much the Fed could cut.

Economists at Goldman Sachs expect Fed officials to indicate a full percentage point of cuts next year, after raising rates one more time this year to a range of 5.50 per cent to 5.75 per cent.

Fears are strong that rates may have to stay higher for longer to get inflation fully down to the Fed’s 2 per cent target. While underlying trends on inflation continue to improve mostly, a recent up swell in oil prices has complicated things.

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While much of the focus of the recent surge in oil prices has been on the rising price of petrol, the price of the other big fuel that drives the global economy has been rising ever more steeply.

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Diesel is the workhorse fuel within the global economy, not just powering trucks and cars but essential in agricultural industries, construction, manufacturing, non-electrified rail transport and shipping – so here’s why current high prices, if sustained, would become a problem for all of us.

With AP

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ASX set to fall; US markets drift ahead of Fed meeting Source link ASX set to fall; US markets drift ahead of Fed meeting

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