The Australia 200 8 points (-0.09%) lower at 8688 as of 2.35pm AEST.

Sharp sell-off as market reacts to US-EU trade deal

The Australia 200 (ASX 200) experienced a sharp 54-point (-0.62%) sell-off in early trading, taking the index to a seven-day low of 8643.5 before dip buyers emerged to steady the market.

The initial excitement generated by the United States-European Union (US-EU) trade deal over the weekend evaporated. Concerns grew over how effectively the White House has used its economic and diplomatic leverage to secure significant investments and concessions for the US, potentially at the expense of other nations.      

RBA rate decision hinges on inflation data

Also contributing to today’s cautious session are nerves ahead of tomorrow’s Australian second-quarter (Q2) consumer price index (CPI) report. This report will be the final determining factor as to whether the Reserve Bank of Australia (RBA) cuts interest rates in August – bringing potential relief to Australia’s mortgage holders – or elects to keep rates on hold, opting for short-term pain for long-term gain in the fight against inflation, which many think has already been won.

For the record, the core measure of inflation, the trimmed mean, is expected to increase by 0.7% quarter-on-quarter (QoQ), which would see the annual rate ease to 2.7%, down from 2.9% in Q1. This would be in line with the RBA’s forecasts and, along with June’s disappointing jobs report, could give the green light for the RBA to cut rates at its August meeting.

However, a trimmed mean print of 2.9% year-on-year (YoY) or higher would increase the chances of the RBA keeping rates on hold in August, which in turn would likely lead to a sharp sell-off in the Australia 200 tomorrow.