ASX Retreats from Record High as Rate Cut Expectations Shift

Highlights

• The ASX200 fell 0.10%, retreating from recent record highs amid changing rate cut expectations.
• Iron ore prices (FMG),(BHP) rose, lifting major mining stocks like Fortescue Metals and BHP.
• Real estate, industrials, and healthcare sectors experienced declines, while materials and IT sectors gained.

The Australian sharemarket saw a slight pullback from its recent record highs on Thursday, as market sentiment shifted regarding the timing of a potential interest rate cut. The S&P/ASX 200 (ASX:XJO) closed down by 8.1 points, or 0.10%, settling at 8,436 points. Similarly, the broader All Ordinaries index (ASX:XAO) fell by just 0.01% to finish at 8,699.10 points.

This minor retreat occurred on a light trading day, with volumes subdued due to the Thanksgiving holiday in the U.S. While the Aussie dollar finished slightly higher, buying 65.07 US cents, the overall market was impacted by shifts in economic expectations. Specifically, the outlook for a rate cut in early 2025, which had been a key driver of optimism, was revised downward.

Changing Rate Cut Expectations Impact Market Sentiment

Market analysts, including AMP Chief Economist Shane Oliver, noted that the Reserve Bank of Australia (RBA) has indicated that a rate cut is unlikely to occur until mid-2025. With inflationary pressures still present and demand exceeding supply, financial markets have adjusted their forecasts accordingly. As a result, there was a notable decline in the prices of bank stocks, with three of the big four banks trading lower.

Among the biggest movers, NAB (ASX:NAB) dropped 1.09%, while ANZ (ASX:ANZ) fell by 1.05%. Westpac (ASX:WBC) declined 0.12%, and Commonwealth Bank (ASX:CBA) remained flat at $158.58 after overcoming early losses. These moves were attributed to concerns about continued mortgage pressures, especially if rate cuts are delayed further.

Iron Ore Price Rise Boosts Mining Stocks

While the broader market experienced mixed results, the iron ore sector showed resilience. Iron ore prices increased by 1.6%, reaching three-week highs around $104.70 per tonne. This rally in iron ore prices provided a boost to Australia's major miners, with Fortescue Metals (ASX:FMG) climbing 1.55% to $18.99, BHP (ASX:BHP) rising 1.25%, and Rio Tinto (ASX:RIO) up by 0.94%.

The recent price movement in iron ore has been closely tied to Chinese economic policies. Dr. Oliver noted that the market is reacting to speculations surrounding potential new stimulus measures from the Chinese government. While these measures appear to be less impactful than initially hoped, they have still provided some support for the iron ore market, with prices holding steady in the $90 to $110 range.

Mixed Sector Performance Across the ASX

In terms of sector performance, materials and information technology (IT) sectors posted gains, while real estate, industrials, and healthcare sectors faced declines. The healthcare sector (ASX:XHJ) experienced the most significant drop, following a trend of weaker performance in recent trading sessions.

The Australian market's retreat came amidst a broader backdrop of shifting expectations regarding monetary policy, with many sectors experiencing a tug-of-war between inflation concerns and the prospect of future rate cuts. The outlook for key commodities like iron ore remains a focal point, with the mining sector poised to benefit from any further price increases driven by global demand factors.

While the ASX200 (ASX:XJO) posted a slight retreat, key sectors like materials and IT demonstrated resilience, and the mining sector saw a boost from rising iron ore prices. The shifting expectations regarding interest rates, along with ongoing market adjustments, have led to mixed performance across sectors. Moving forward, the path of iron ore prices and any developments in China's economic stimulus will likely remain central to market sentiment in the near term.