Sharemarket focus turns to RBA interest rates decision

The local sharemarket is on track for a slightly softer start to the week after a mixed performance on Wall Street and concerns about Australia’s economic outlook.

The local sharemarket is set to start the week softly amid concerns for Australia’s economic outlook. Picture: NewsWire / Gaye Gerard

The local sharemarket is on track for a slightly softer start to the week after a mixed performance on Wall Street and concerns about Australia’s economic outlook.

Futures are pointing to a fall on the S&P/ASX 200 index of around 0.3 per cent at the start of trade on Monday, after slipping 0.18 per cent over the past week to close at 8420.9 points on Friday.

The benchmark index had closed at a record high of 8495.2 on Tuesday, before retreating in the latter part of the week.

In the week ahead all eyes will be on the Reserve Bank’s final meeting for the year, where interest rates are expected to remain unchanged for a ninth consecutive meeting.

Financial markets are pricing in just a 9 per cent chance of a 25 basis point rate cut to 4.1 per cent on Tuesday, according to the ASX’s RBA Rate Indicator.

Commonwealth Bank is holding on to its prediction of a rate cut in February following last week’s official GDP figures which showed the Australian economy was barely growing. All four big banks are expecting the central bank to hold the cash rate at 4.35 per cent at this week’s meeting, with NAB, ANZ and Westpac all tipping the next rate cut in May.

AMP has also pushed out its prediction for a rate cut to May, but chief economist Shane Oliver said last week’s GDP figures were a concern and could prompt a cut in February.

“For the RBA ongoing weakness in productivity is not good news and may reinforce their lack of urgency to cut rates,” he said.

“But weaker-than-expected GDP growth shows the economy is not picking up as quickly as they expect and so the RBA is likely to downgrade their growth expectations again, which should lessen concerns about excess demand in the economy.

“Taken together with output price pressures in various business surveys this indicates the RBA should be considering a rate cut sooner rather than later.

“An RBA rate cut in the week ahead is unlikely and while we moved our base case for the first cut out to May on the grounds that the RBA appears to be in no hurry to cut rates, a good December inflation reading could push it over the line to cut in February given the softness we have seen in GDP and particularly so if upcoming jobs data is a bit softer.”

The ABS is due to release its latest unemployment figures on Thursday.

In the US, markets are pricing in an 85 per cent probability that the Federal Reserve will cut rates by 25 basis points this month. US shares mostly rose on Friday after a report showed a healthier-than-expected jobs market.

The world’s biggest economy added 227,000 jobs in November, more than analysts expected and up from a revised 36,000 in October, the US Department of Labor said. The broadbased S&P 500 and tech-focused Nasdaq both hit fresh records on Friday, although the Dow retreated slightly.

Attention now turns to US inflation figures due out on Thursday morning, Australian time.

Investors are mostly betting that November’s jobs numbers, while comforting, are probably not strong enough to deter the Fed from cutting interest rates again this month after two rate cuts since September.

“Investors needed a reassuring jobs report and that’s exactly what they got,” said eToro analyst Bret Kenwell. “The market still favours a rate cut from the Fed later this month and this report may not change that expectation.”

The Fed’s final meeting of the year is on December 17-18.

Originally published as Sharemarket focus turns to RBA interest rates decision