The Overnight Report: Fed Rate Cut Trumps

This story features DOMAIN HOLDINGS AUSTRALIA LIMITED, and other companies. For more info SHARE ANALYSIS: DHG

Australian shares are positioned for a positive start on Wednesday morning, tracking a strong rally on Wall Street led by the US tech giants.

World Overnight
SPI Overnight	8200.00	+ 53.00	0.65%
S&P ASX 200	8131.80	– 32.80	– 0.40%
S&P500	5782.76	+ 70.07	1.23%
Nasdaq Comp	18439.17	+ 259.19	1.43%
DJIA	42221.88	+ 427.28	1.02%
S&P500 VIX	20.49	– 1.49	– 6.78%
US 10-year yield	4.29	– 0.02	– 0.46%
USD Index	103.36	– 0.45	– 0.43%
FTSE100	8172.39	– 11.85	– 0.14%
DAX30	19256.27	+ 108.42	0.57%

By Nigel Green, CEO of deVere Group

Investor optimism is overshadowing concerns over the uncertain US election outcome as the Federal Reserve prepares for an anticipated interest rate cut this week.

Americans go to the polls today and we are two days out from the Fed’s November meeting at which it’s expected to cut rates again.

While the presidential election between Kamala Harris and Donald Trump is poised to have significant consequences, particularly if political gridlock ensues, markets are currently focusing on the more immediate boost expected from the Fed’s actions to support economic growth.

The Fed is widely expected to lower its benchmark interest rate by a quarter percentage point at the conclusion of its two-day meeting this Thursday.

This decision could provide the momentum needed to keep the economy on track, despite the looming election risks.

While the US election is undeniably a critical event, the potential for economic stimulus through lower borrowing costs is winning the attention of investors.

A divided government or a contested election could lead to delayed policy decisions or even political stalemates, but for now, the focus remains on the Fed’s likely intervention to shield the economy from further weakening.

The rate cut would lower borrowing costs across the board, including for mortgages, business loans, and consumer credit, giving both individuals and companies the incentive to spend and invest.

With inflation contained and labor market data pointing to the need for additional stimulus, the Fed’s gradual approach to easing is expected to prevent a recession while keeping inflation under control.

Investors are betting that the Fed’s actions will have a more direct and swift impact on the economy compared to the potential long-term effects of the election, where legislative changes could take months to unfold.

The interest rate cut is expected to have a ripple effect on global financial conditions, as lower borrowing costs in the world’s largest economy could stimulate broader growth.

This is particularly important for international markets, many of which are closely tied to US economic performance.

For investors, the Fed’s immediate actions are seen as the greater market-moving force, for now.

Economists at ANZ Bank:

The RBA Board left the cash rate unchanged at 4.35% yesterday.

However, the forecasts in the accompanying Statement on Monetary Policy (SMP) have lowered the trimmed mean inflation, GDP growth and Wage Price Index forecasts and increased the unemployment rate estimates.

While most of these are small changes, the forecasts do appear to have evolved in a more neutral direction than the rhetoric.

The Fed is expected to cut by -25bp this week.

Price action in equities and bonds reflects expectations that either of the presidential candidates will maintain a pro-growth fiscal stance, adding to current solid momentum in gauges of economic activity.

The ISM estimates that the October PMI services index is pointing to Q3 growth of 2.3% saar.

The Fed’s job, therefore, is complicated by mixed signals on the economy. Activity remains strong but various benchmark labour market surveys from the BLS (JOLTS and nonfarm payrolls) are pointing to weakening labour demand.

Owing to the substantial improvement in inflation and slowing hiring and job vacancies, we expect the FOMC to cut rates -25bp when it meets later this week.

However, the absence of any evidence of recession on current data stresses the need for a measured and gradual approach to setting appropriate rates in the future. Irrespective of who wins the White House, the need for cautious consideration in recalibrating policy is unlikely to change.

On the calendar today:

-New Zealand 3Q Unemployment rate

-Japan Oct PMI

-Eurozone Sept PMI & PPI

-US Oct PMI

-Domain Holdings Australia ((DHG)) AGM

-Domino’s Pizza ((DMP)) AGM

-Fortescue ((FMG)) AGM

-Goodman Group ((GMG)) 1Q25 trading update

-IGO Ltd ((IGO)) AGM

-ResMed ((RMD)) ex-div 5.58c

-Suncorp Group ((SUN)) investor briefing

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

Corporate news in Australia:

-Suncorp Group ((SUN)) has reaffirmed its underlying insurance trading ratio guidance for FY25 towards the top of the 10-12% range

-The AFR reports Australian firms, including Macquarie Group ((MQG)), are exploring investment opportunities in Japan as the country opens up to foreign capital, despite challenges in market entry

-CDC Data Centres is seeking capital partners with bids due by Christmas

Spot Metals,Minerals & Energy Futures
Gold (oz)	2752.00	+ 5.40	0.20%
Silver (oz)	32.76	+ 0.13	0.40%
Copper (lb)	4.46	+ 0.03	0.75%
Aluminium (lb)	1.20	+ 0.02	1.42%
Nickel (lb)	7.27	+ 0.07	0.92%
Zinc (lb)	1.40	+ 0.03	2.41%
West Texas Crude	72.13	+ 0.42	0.59%
Brent Crude	75.58	+ 0.25	0.33%
Iron Ore (t)	103.91	0.00	0.00%

The Australian share market over the past thirty days

Index	05 Nov 2024	Week To Date	Month To Date (Nov)	Quarter To Date (Oct-Dec)	Year To Date (2024)
S&P ASX 200 (ex-div)	8131.80	0.16%	-0.35%	-1.67%	7.13%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AD8	Audinate Group	Downgrade to Neutral from Outperform	Macquarie
AGL	AGL Energy	Downgrade to Accumulate from Buy	Ord Minnett
AMC	Amcor	Downgrade to Neutral from Outperform	Macquarie
COH	Cochlear	Upgrade to Neutral from Underperform	Macquarie
COL	Coles Group	Upgrade to Accumulate from Hold	Ord Minnett
CTD	Corporate Travel Management	Downgrade to Hold from Add	Morgans
JBH	JB Hi-Fi	Downgrade to Lighten from Hold	Ord Minnett
LYC	Lynas Rare Earths	Downgrade to Neutral from Outperform	Macquarie
MIN	Mineral Resources	Downgrade to Sell from Neutral	Citi
NEM	Newmont Corp	Downgrade to Neutral from Buy	UBS
UNI	Universal Store	Downgrade to Accumulate from Buy	Ord Minnett
WES	Wesfarmers	Upgrade to Lighten from Sell	Ord Minnett
WGX	Westgold Resources	Upgrade to Buy from Accumulate	Ord Minnett

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author’s and not by association FNArena’s – see disclaimer on the website)

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