Shares charge to peak
Stock markets surge on optimism of rate cuts in 2024
Australian shares are charging towards their best December in more than two decades, surging nearly 6 per cent and outperforming global markets amid rate-cut optimism.
The S&P/ASX 200 index ended its fourth consecutive week of gains 0.8 per cent higher before the Christmas break on Friday and a key US inflation gauge showed prices are stabilising.
US data on Friday showed prices fell in November for the first time in more than three years, and the Federal Reserve’s preferred gauge of core inflation – excluding energy and food prices – cooled to an annual rate of 3.2 per cent.
“It is a nice end of the year because it was yet another inflation number that came in on the low side,” AMP chief economist Shane Oliver said.
“Looking at the core number for the last six months, the annualised rate was 1.9 per cent. That’s actually running at a rate below the Fed’s target, which is a pretty positive sign that inflation is coming under control.”
The numbers gave wings to the notion that central banks are nearing success in manufacturing an economic “soft landing” by bringing down inflation with aggressive rate hikes and avoiding tipping the economy into a recession.
The optimism is fuelling bets the Fed and other central banks, including the RBA, will start cutting rates next near. Money markets are pricing in 6½ cuts from the US Federal Reserve in 2024, while in Australia, investors are tipping 2½ cuts by next December.
Economists at the Commonwealth Bank are forecasting the RBA will cut the cash rate by 75 basis points, likely starting from September – which would see base rates fall from 4.35 per cent currently to 3.6 per cent. At AMP, Mr Oliver agrees on the magnitude of cuts but says they could start in June.
The end-of-year period is usually strong, but the recent dovish pivot from the Federal Reserve is “lifting all boats”, including asset prices in Australia.
Kyle Rodda, senior financial market analyst at Capital.com, said: “For as long as rate cuts keep getting priced in, and maybe even a steeper rate-cutting cycle, that’s going to keep supporting equities pushing higher, both in Australia and overseas.
“It seems that in the short term there is a lot of momentum behind this.”
ASX futures last traded three points lower at 7486 on Friday night after the benchmark closed the week 0.8 per cent higher at 7501.6 points.
So far this month it has gained 5.8 per cent, outperforming the S&P 500 and MSCI World indices, which are up 4.1 per cent and 4.3 per cent respectively.
The Aussie sharemarket is also on track for its biggest monthly gain since January and the sharpest December rally since 1997, as investors expect deep interest rate cuts to fuel returns.