Encouraging economic data from the world’s largest economy and anticipation of its first rate cut in four years led to a Wall Street rally, with the ASX also posting strong gains.
U.S. stocks jumped Friday on expectations of monetary easing, with the S&P 500 climbing to 5,626 at market close.
Fueled by positive momentum, the Australian stock market surged to 8,144.7 before midday on Monday, closing in on its intraday high of 8,148.7 reached on August 1.
Seven of 11 sectors posted gains, with financial and technology stocks leading the way. However, the rally appeared to plateau and the ASX closed at 8,121.60 on September 16.
“The Australian stock market has performed similarly to the US, even outperforming in recent weeks, and it reached a high level after the last reporting season and after this drop in volatility. [in August]”, Mousina said.
“I think this is partly due to expectations of lower interest rates. The market is pricing in a reduction from the Reserve Bank later this year, even though the Reserve Bank isn’t even talking about cutting interest rates – it has pushed back on market pricing on interest rate cuts. rate, especially by the end. of this year.
“Earnings season is probably better than feared, given the interest rate cuts and what’s happening in the United States.”
The US Fed is expected to cut rates by 50 basis points at its September 17-18 meeting. It will be the first meeting of the US central bank since the Jackson Hole symposium in August, during which its chairman, Jerome Powell, signaled that “the time is right” to ease monetary policy.
While markets are pricing in a 50 basis point cut, Mousina believes a 25 point cut is more likely, given the broader macroeconomic picture. In fact, Mousina estimates that cutting interest rates by 50 basis points could risk reigniting inflation by boosting consumer spending and demand, which could lead to higher prices.
At home, however, it remains unclear when the RBA will begin an easing cycle, although markets predict it will be this year.
Given Australia’s still complex economic situation, particularly following the recent troubling GDP release, Mousina urged maintaining perspective on where the market is expected to go.
“The Australian stock market is up around 7 per cent since the start of the year, while the US stock market is much stronger than that. This is an increase of 18 percent since the beginning of the year, so we are talking about more than double the performance,” she said.
“So yes, it could be a record high for Australia, but you also have to keep things in context in terms of performance and performance of the underlying economy.”
