ASX 200 futures higher as June quarter inflation data set to decide RBA rates outlook

Local shares are set to build on the biggest one-day gain in two weeks before all eyes turn to a make-or-break moment for the RBA and interest rates on Wednesday.

The local sharemarket is expected on Monday to mirror a strong bounce on Wall Street after economists bet the US Federal Reserve is on track to lower interest rates by September.

Crucial inflation data for the June quarter is due to be released on Wednesday, which could force the Reserve Bank to lift interest rates when it meets next week — despite many investors and economists still hoping for rate relief later in 2024.

Futures markets were pricing in broad gains on Monday, after the biggest one-day rally in two weeks on Friday, with the S&P/ASX 200 index expected to leap 0.8 per cent at market open.

A gain on Monday would position the bourse to rebound from a 0.6 per cent fall last week — its first weekly loss in four weeks.

Major indices on Wall Street ended higher on Friday after the personal consumption expenditures (PCE) price index edged up just 0.1 per cent last month, putting the year-over-year increase at 2.5 per cent, after a rise of 2.6 per cent in May.

The economic news renewed confidence the Fed, which has a 2 per cent inflation target, will be able to cut the cash rate from September.

Gains on Wall Street follow losses earlier in the week on the back of softer-than-hoped Big Tech earnings, concerns about growth and political uncertainty in the US.

The Australian Bureau of Statistics’ June quarter inflation data will be the most important event for investors and market watchers this week, with it set to guide the upcoming monetary decision by the RBA.

Key inflation data will go a long way to deciding whether the RBA — led by governor Michele Bullock — will again raise interest rates. Picture: Nikki Short

AMP chief economist Shane Oliver said any surprises in the data could leave the RBA with no choice but to lift the cash rate for the first time since November.

He expects inflation of 1.1 per cent in the quarter, taking inflation to 3.9 per cent for the year to June, up from 3.6 per cent.

“We continue to see the RBA holding rates where they are if inflation comes in at or below our forecasts, as monetary policy is already restrictive, the risk of recession is high and falling inflation is likely to resume,” he said.

“Providing inflation is no worse than expected, we expect the RBA to hold, with the first cut in February.

“But, if trimmed inflation comes in above forecasts of 1.1 per cent for the quarter, the RBA would likely see it as too high for comfort and so would likely hike again.”

Money markets have priced in a 21 per cent probability of another hike and the first cut in May 2025.

Brent crude, the international oil standard, fell 1.1 per cent to settle at $US81.13 per barrel, due to concerns about China’s economic growth, highlighted by Beijing’s rate cuts to stimulate the ­economy.

Gold edged higher to $US2386.50 per ounce as markets continued to parse the latest economic data for hints about the Fed’s policy outlook.

The dollar was lifted slightly to US65.5c after declining 2.2 per cent in the past five sessions, following the release of soft Chinese growth and housing data.