A weakening labour market combined with rising inflation in the United States has all but cemented expectations for the Federal Reserve to make its first interest rate cut since President Donald Trump resumed office.
Futures suggest the S&P/ASX 200 Index will open 20 points, or 0.2 per cent, lower to pare gains made from Friday’s rally. But investors remain confident that, despite stretched valuations and ongoing tariff risks, the medium-term outlook for Australian shares is positive amid a rate reduction cycle.
The S&P 500 reset record highs on its final trading session on Friday (Saturday AEST), spurred by growing expectations that the US Federal Reserve would cut rates after data showed consumer prices in America rose 0.4 per cent in August, the sharpest increase in seven months.
This followed weakening employment data, which showed weekly jobless claims in the US hit their highest level since 2021.
Stephen Miller, an investment strategy adviser to fund manager GSFM, said the US Federal Reserve’s decision, which will be known at 4am AEST on Thursday, would headline a big week in global monetary policy setting, with the Bank of England, Bank of Japan, and Bank of Canada all delivering rate verdicts.
“It is central bank week,” Miller said. “I would be stunned if the Fed doesn’t cut, and so the real question is whether it’s a 25 or 50 basis point cut.”
“I think 50 would be too far, but given the weakening in the labour market, I’m sure that would be a topic of active discussion. Otherwise, most interest will centre on the Fed’s new set of projections – could there be an accelerated rate cut path?”