Australian shares are set to edge higher at the open. US equities rebounded from session lows to end modestly lower after solid economic data dented the probability of further rate cuts this year.

An upward revision to US economic growth in the second quarter and a decline in claims for jobless benefits led to the probability of a quarter point rate cut at the Federal Reserve’s late October policy meeting falling to 85.5 per cent, from 91.9 per cent the previous day.

“Despite all the talk of recession in the air, the economy’s path forward looks to be on firm ground with layoffs at normal churn levels, and key business capital equipment expenditures moving to new highs this year despite the tariffs or whether orders are trying to beat the tariffs, it is hard to tell,” FWDBonds’ Chris Rupkey said in a note.

“For all the talk of consumer spending being on the soft side at 0.6 per cent in the first quarter and 2.5 per cent in the second quarter, the third quarter could rival consumer expenditures under Biden with spending of 4.0 per cent in Q3 2024 and 3.9 per cent in Q4,” Rupkey also said.

“If it ain’t broke, don’t fix it is all we can say as it is clear that the current level of Federal Reserve interest rates is not slowing the economy down and is not hurting the labor market either. If jobs growth is slowing down, it is not the economy that is the problem, it is the Trump 2.0 policies on immigration.”

Investors already are starting to anticipate the September quarter reporting season.

“The rebound in the stock market since this year’s low on April 8 (when it bottomed at 4982.77) has been extraordinary,” Yardeni Research said in a note. “That’s mainly because the Q1 and Q2 earnings seasons (during April and July) were much better than expected. We are expecting similar ‘earnings hooks’ (i.e., upturns in the data series as actual results are incorporated) for Q3 and Q4.”

Market highlights

ASX 200 futures are pointing up 10 points or 0.1 per cent to 8812.
All US prices near 4.10pm New York time.

AUD -0.7% to US65.36¢Bitcoin -3.8% to $US109,307On Wall St: Dow -0.4% S&P -0.5% Nasdaq -0.5%VIX +0.62 to 16.80Gold +0.3% to $US3748.06 an ounceBrent oil +0.5% to $US69.64 a barrelIron ore -0.2% to $US105.95 a tonne10-year yield: US 4.17% Australia 4.34%Today’s agenda

ANZ will release its latest data on NZ consumer confidence, Tokyo will release a September CPI print and late Friday the US will release August personal income, spending and Core PCE reports.

Vanguard senior economist Josh Hirt: “Core PCE is expected to rise 0.20 per cent month-over-month (2.9 per cent year-over-year) and headline PCE by 0.24% m/m (2.7% y/y), in line with consensus estimates. Core goods should be slightly deflationary due to CPI-PCE weighting differences, while Supercore will remain firm, led by transportation and financials.

“Although core goods will be weak this month, this does not mean that tariff pressures are easing – and we do not expect the Fed to conclude they’re easing either. Tariff passthrough remains gradual, with firms managing costs through inventory, margins, and sourcing shifts.”

eToro’s Josh Gilbert: “The Fed appears to be tilting its priority away from purely tackling inflation risks towards paying more attention to the cooling labour market. Even with core inflation still elevated, signs of softer wage growth and easing demand are giving policymakers more room to lower rates.

“A stronger-than-expected PCE print could delay the timing of rate cuts, but if inflation lands broadly in line with expectations, the Fed will likely feel comfortable with the two rate cuts that have been put on the table this year. That path matters for investors, with rate-sensitive sectors such as tech and real estate poised to benefit most if the Fed proceeds with easing, while a delay could weigh on those areas and support the dollar instead.”

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