Investors focused on key inflation data this week

The monthly inflation data and its possible impact on rate cut expectations will take centre stage for investors this week.

The monthly inflation data will take centre stage for local investors this week. Picture: Gaye Gerard/NCA Newswire

The local sharemarket will take look to local and offshore inflation data this week as it weighs the potential for new records.

Futures markets were pointing to a steady start at the start of trade on Monday, with the S&P/ASX 200 index priced to open up 0.1 per cent.

Locally, AMP chief economist Shane Oliver expects CPI inflation, due on Wednesday, to pick up slightly to 3.7 per cent in February, partly driven by fuel prices. That is slightly higher than the consensus expectation of 3.6 per cent.

“It could add to concerns that rate cuts could be delayed”, particularly after the stronger than expected jobs data last week, Dr Oliver said.

“Currently the market is expecting a rate cut in September. If we get to 3.7 per cent, the expectation for rate cuts might get pushed out a little bit depending on how those CPI numbers come in.

“If that were to occur, it could be a bit of a negative for the sharemarket. The payment of dividends should provide a bit of support and at the open tomorrow we should see a modest rise according to the 7 point rise in the futures contract,” he said. That was despite the falls seen in Wall Street on Friday.

The local S&P/ASX 200 index closed on Friday at 7,770.6 points, within eyesight of the record 7846.98 points hit on March 8.

Meanwhile, locally listed companies will pay $18.8bn in dividends to investors in the next week, according to Commonwealth Bank’s CommSec.

Dr Oliver said central banks were betting on a continuation of “Goldilocks” globally and in Australia, referring to “reasonable economic growth and low inflation, allowing interest rates to fall and profits to rise.”

“That’s what pushed sharemarkets higher (last week) and the central banks didn’t really threaten that. For the most part, they are still heading towards a normalisation of interest rates, meaning interest rate cuts.”

Being an outlier that is lagging the cycle, the Bank of Japan went in the opposite direction. “But the general picture from the Fed, the Bank of England, and the RBA … is that we are heading towards interest rate cuts albeit at different speeds. And that is the underlying factor supporting markets.”

On Friday night, Wall Street’s Nasdaq edged to a fresh record while the Dow Jones pulled, taking a breather after two buoyant sessions following mixed corporate earnings.

The Dow Jones Industrial Average dropped 0.8 per cent to 39,475.90, retreating from a serious drive at the 40,000-point level.

The broadbased S&P 500 slipped 0.1 per cent to 5,234.18, while the tech-rich Nasdaq Composite Index climbed 0.2 per cent to 16,428.82, a third straight record close.

“Even though, during the month of March, certainly we’ve seen more broadening in market leadership, today we were back to growth-style investments leading the way,” Edward Jones senior investment strategist Angelo Kourkafas said.

Additional reporting: AFP