ASX to Follow Wall Street Lower Despite US Fed's 50bp Rate Cut

ASX futures indicate a 0.5% dip in early trading, reflecting the downturn in US and European markets. 

US Federal Reserve Decision and Market Impact 

The US Federal Reserve's recent decision to cut interest rates by 50 basis points (bps), lowering the range to 4.75% - 5.00% for the first time in four years, has created ripples across global markets. Analysts and policymakers anticipate an additional 50 bps cut before the end of the year, with a cumulative 1% reduction expected in 2025 and another 50 bps cut in 2026, bringing the target range to 2.75% - 3.00%. 

Kathleen Brooks, XTB research director, highlighted the market's correct prediction of rate cuts, contrasting with economists' forecasts. The Federal Reserve's significant rate cut, combined with a dovish outlook for future rate adjustments, led to a decline in the US dollar, a record high for gold prices, and a brief spike in US stocks, especially within the mid-cap sector. However, major tech stocks like Microsoft experienced declines, suggesting that large tech firms might not spearhead the next stock market rally. 

Despite a substantial rate cut, the Fed's initial statement emphasized that the US economy continues to expand solidly, indicating a precautionary measure to guard against potential future economic downturns. The Federal Open Market Committee (FOMC) voted 11-1 in favor of the 50 bps cut, with one member advocating a more moderate 25 bps reduction, reflecting the influence of more dovish members within the Fed. 

US and European Market Performance 

Regional banks saw gains as interest rate pressures eased, with the KWB regional bank index rising by 0.5%. However, overall market performance was subdued, with the Utilities sector declining by 0.8%. The S&P 500 fell by 0.3% despite an initial rise of 1% during the session. Similarly, the Dow Jones Industrial Average, which had gained 376 points, ended down 0.3% or 103 points. Both indexes reached new record highs before retreating, potentially due to profit-taking in response to rate-driven market fluctuations. The Nasdaq also fell, losing 55 points or 0.3%. 

In Europe, markets struggled with declines led by the Food and Beverages sector, which dropped by 1.1%. UK inflation data showed stability at 2.2%, but services inflation rose to 5.6%, exceeding forecasts. This persistent inflation has reduced expectations of a rate cut by the Bank of England at its upcoming meeting. The FTSE 300 fell by 0.5%, and the FTSE 100 declined by 0.7%. 

Currency and Commodity Movements 

The US dollar weakened following the Fed’s rate cut but remained strong against major currencies. The Euro fell from USD 1.1187 to approximately USD 1.1120. The Australian Dollar dipped from USD 0.6820 to around USD 0.6765, and the Japanese Yen eased from JPY 140.50 per US dollar to about JPY 142.25. 

Oil prices experienced a decline despite a small drop in US crude oil inventories. Brent crude fell by 5 cents (0.1%) to USD 73.65 per barrel, while US Nymex crude dropped by 28 cents (0.4%) to USD 70.91 per barrel, influenced by Hurricane Francine's impact on fuel demand. 

Base metal prices saw gains due to the US interest rate cuts, with copper futures rising by 0.6% and aluminum futures increasing by 0.3%. Gold reached a new all-time high, climbing by USD 6.20 (0.2%) to USD 2,598.60 per ounce, with spot gold trading near USD 2,558 per ounce at the US close. 

Iron ore prices slipped by 41 cents (0.4%) to USD 91.57 per tonne, impacted by global supply increases and weak Chinese demand. 

Bottomline 

The ASX is set to open lower, reflecting the trends seen in global markets following the US Federal Reserve's substantial rate cut. The market's reaction to this significant policy shift highlights the ongoing adjustments and uncertainties in both domestic and international financial landscapes.