ASX Eyes Weak Start Despite Strong Weekly Gains Driven by Rate Cut Optimism and Global Sentiment Shift

Highlights

• ASX 200 closed last week up 1.82%, led by Consumer Staples and Energy sectors.
• Easing expectations for RBA interest rates in May buoyed local sentiment.
• Brent crude marked its second consecutive weekly gain on tightening supply outlook.

The Australian Securities Exchange is set to open lower at the beginning of the new trading week, despite the benchmark S&P/ASX 200 Index ending the previous week on a strong note. ASX 200 futures suggest a 0.5% decline, pointing to potential early losses, even after the index advanced 145 points or 1.82% to close at 7,931 on Friday. The uplift in the local bourse was underpinned by expectations of a near-term rate cut from the Reserve Bank of Australia (RBA) and the absence of new tariff escalations globally.

Investor sentiment was buoyed by February’s labour force data, which bolstered the outlook for monetary easing. Market participants have now priced in 18 basis points of potential rate cuts for May and a total of 65 basis points for the entire 2025 calendar year, up from 59 basis points previously. The likelihood of easing policy has been further supported by a softer inflationary backdrop, with January’s monthly CPI indicator rising 2.5% year-on-year, unchanged from December but below consensus estimates.

Sector-wise, Consumer Staples outperformed, rising 3.90%, while Energy followed with a 3.25% gain. Industrials climbed 2.40%, and Utilities posted a 2.23% increase. Other sectors lagged in relative terms, with Information Technology up 0.76%, Materials 1.04%, Consumer Discretionary 1.19%, and Telecommunications 1.31%.

Among ASX-listed companies, Bannerman Energy Ltd (ASX:BMN) surged 23.56%, supported by firming uranium market conditions. Nanosonics Ltd (ASX:NAN) advanced 17.56%, while Seven West Media Ltd (ASX:SWM) gained 13.79%. Deep Yellow Ltd (ASX:DYL) also delivered a double-digit return of 12.38%. On the downside, Appen Ltd (ASX:APX) declined 10.40%, BetMakers Technology Group Ltd (ASX:BET) dropped 7.62%, James Hardie Industries plc (ASX:JHX) fell 6.70%, and A2 Milk Company Ltd (ASX:A2M) lost 6.01%.

Internationally, Wall Street closed mostly flat, with Friday’s session contributing to a fourth consecutive weekly gain for major U.S. indices. The Dow Jones Industrial Average advanced by 1.20%, gaining 497 points, while the S&P 500 and Nasdaq 100 added 0.51% and 0.25%, respectively. Optimism emerged from remarks by the U.S. President suggesting possible tariff leniency, alongside dovish commentary from the Federal Reserve.

Chicago Federal Reserve President Austan Goolsbee advocated for a cautious and patient policy path, indicating that progress on inflation could warrant rate reductions over the next 12 to 18 months. The U.S. interest rate market reflected these sentiments, beginning the week with 22 basis points of implied rate cuts for June and a cumulative 67 basis points for the year.

Key economic data anticipated this week includes the flash PMIs for the S&P 500, the Conference Board’s Consumer Confidence Index, and the Personal Consumption Expenditures (PCE) Price Index – the Fed's preferred inflation gauge. Forecasts suggest a rise in the headline PCE index to 2.7% year-on-year and a jump in the core figure to 2.8%, potentially influencing future rate expectations.

In the corporate arena, Tesla Inc rose 5.27% to close at US$248.71, recovering from earlier losses. Nike Inc fell 5.46% to US$67.94, impacted by declining consumer demand and tariff headwinds. FedEx Corp dropped 6.45% to US$230.33 after issuing weaker-than-expected earnings guidance.

Across European markets, equities retreated on Friday, particularly in travel and basic resources sectors. Disruptions at London’s Heathrow Airport weighed heavily on travel stocks, with International Consolidated Airlines, Deutsche Lufthansa AG, and Ryanair Holdings plc among the key decliners. Basic resources stocks slid 2.6% as metal prices faltered, dragging down the broader FTSEurofirst 300 Index, which fell 0.6% on the day but managed a 0.6% weekly gain. The FTSE 100 Index also declined 0.6% on Friday but finished the week slightly higher by 0.2%.

In currency markets, fluctuations were relatively modest. The Euro weakened from US$1.0858 to US$1.0802, settling around US$1.0815 by the U.S. close. The Australian dollar softened from US62.99 cents to US62.58 cents, ending the session near US62.70 cents. The Japanese yen strengthened from 149.63 to 148.63 per U.S. dollar before retreating slightly to 149.30.

On the commodities front, crude oil prices posted their second consecutive weekly gain. Brent crude increased by 16 cents to close at US$72.16 per barrel, while West Texas Intermediate (WTI) added 21 cents to settle at US$68.28 per barrel. For the week, Brent rose 2.1% and WTI 1.6%, bolstered by new U.S. sanctions on Iran and updated supply outlooks from OPEC+, which reinforced expectations of tighter market conditions.

Base metals presented a mixed picture. Copper prices were largely unchanged, while aluminium fell 1.7%, pressured by a stronger U.S. dollar. Weekly performance saw copper climb 4.5%, while aluminium fell 2.7%. Gold retreated on Friday by US$22.40 or 0.7% to settle at US$3,021.40 per ounce, though it gained 0.7% for the week after reaching a new record high of US$3,057.21 per ounce on Thursday. Spot gold hovered near US$3,023 at the close.

Iron ore prices declined modestly, falling by US15 cents or 0.1% to US$102.00 per tonne. The commodity lost 0.8% for the week amid concerns over Chinese demand and global trade pressures. The outlook for steel demand and ongoing trade-related developments in China remain key factors for pricing in the short term.

Looking ahead, with just six trading sessions left in March, the S&P/ASX 200 Index would require nearly a 3% rally from its current level to avoid posting consecutive monthly and quarterly declines. Month-end and quarter-end flows in equities and currency markets are expected to play a significant role in shaping investor activity throughout the week. In foreign exchange, buying of the U.S. dollar at the expense of stronger-performing currencies such as the euro and pound sterling is anticipated, while rebalancing may lead to increased demand for underperforming indices like the S&P 500 and Nasdaq.